A strategic design for how a company intends to profit from its broad array of strategies processes and activities.
The dynamic competitive environment facing contemporary global organizations demands new solutions. Understanding how and why value is determined by the marketplace has led some organizations to experiment with a new business model – that is, strategic design for how a company intends to profit from its broad array of strategies processes and activities. For example, IKEA, the home furnishings manufacturer, transformed itself from small, Swedish mail order furniture operations into the world’s largest retailer of home furnishings by reinventing the value chain in the home furnishings industry. The company offers customers well designed products at substantially lower prices in return for the customers’ willingness to take on certain key tasks traditionally done by manufacture and retailers – such as getting the furniture home and assembling. The company’s adoption of anew business model and willingness to abandon old methods and processes have worked well for IKEA.
So what does successful value chain management require? Exhibit summarizes the six main requirements: coordination and collaboration technology investment organizational processes, leadership employees/human resources, and organizational culture and attitudes. Let’s look at each of these elements more closely.
Value chain strategy
1) Employees 2) Organizational Culture and Attitudes 3) Coordination and Collaboration 5) Technology investment 6) Organizational process 7) Leadership.
Coordination and collaboration
For the value chain to achieve is goal of meeting and exceeding customer’s needs and desires, comprehensive and seamless integration among all members of the chain is absolutely necessary. All partners in the value chain must identify things that they may not value but that customers do. Sharing information and being flexible as far as who in the value chain does what are important steps in building coordination and collaboration. This sharing of information and analysis requires open communication among the various value chain partners. For example, Tata Motors, India’s leading indigenous automobile manufacture worked closely with its dealers and suppliers in order to facilitate timely delivery to customers. This in turn translated into additional business opportunities for all its value chain partners.
Technology investment: Successful value chain management isn’t possible without a significant investment in information technology. The payoff from these investments is that information technology can be used to restructure the value to better serve end users. For example, ICI, a leading paints manufacturer, has invested n developing a Web site for educating customers about its products. Although the company chooses not to sell its products directly over the Web for fear of antagonizing its dealer network, this option remains available to managers if they feel that value could be better delivered to customers in doing so. The Outlook magazine has also invested in making all its content available, online including archived issues. The option of charging Internet users for online access remains open till industry and market conditions favor the move.
What types of technology are important? According to experts the key tools include a supporting enterprise resource planning software (ERP) system that links al of an organization’s activities, sophisticated work planning and scheduling software customer relationship management systems, business intelligence capabilities and e-business connections with trading network partners. For instance Dell Inc manages its supplier relationships almost exclusively online. The company has one Web site for customers and one for suppliers. The supplier Web site is the primary mode of communication between Dell and 33 of its largest suppliers. The company’s investment in this type of information technology allows it to meet customers’ needs in a way that competitors haven’t been able to match.
Ford Motor Company and 12 automotive suppliers invested $250 million in the development of a manufacturing campus in Chicago,. The collaborative effort enables suppliers to work in tandem with Ford’s flexible manufacturing processes. On site supplier production has resulted in reduced inventory and transportation costs saving Ford $50 for each vehicle the plant builds. Shown here are employees of Lear Corporation a supplier that produces headliners for Ford’s vehicles.