Steven Gedeon: Value Chain Management
Summary
TLDRIn this insightful lecture, Professor Steve Gideon delves into the strategic importance of value chain management for businesses. He explains the concept as a tool for identifying core competencies and sustainable competitive advantages, distinguishing essential customer-focused activities from those that may be outsourced. Gideon uses real-world examples like Nike and FedEx to illustrate how marketing can either add value or be merely a necessary business function, depending on the industry. He encourages strategic thinking to tailor or even reinvent the value chain to align with a company's unique strengths and customer perceptions.
Takeaways
- 📚 The value chain is a strategic development tool used to design and understand a business's operations and competitive advantages.
- 🚀 It's essential to differentiate between activities that are part of the value chain and those that are not, focusing on what the customer values.
- 💡 The value chain helps identify what a company should excel at and what can be outsourced to others with better expertise.
- 🔍 Examples are given to illustrate how different companies, like Nike and FedEx, have different value chain components based on what adds value to the customer.
- 👕 Nike's marketing adds value because it enhances the perception of the product, whereas FedEx's marketing is more about brand awareness and does not directly add value to the customer's experience.
- 🛍️ For fashion brands like Tommy Hilfiger, certain elements like inbound logistics might not be part of the value chain since customers are less concerned with how products arrive in stores.
- 🛠️ The value chain can vary significantly between industries; for instance, automotive manufacturers may need to consider the entire production process to ensure quality perception.
- 💼 Professional service firms like consulting companies have a different value chain focused on problem-solving and customer service rather than physical product delivery.
- 🌐 Value networks, such as social media platforms, require a different approach, emphasizing network promotion and size to increase value.
- ✂️ Companies can redesign their value chain by eliminating, modifying, or creating new components to gain a strategic advantage.
- 🤝 When implementing the value chain, especially for new companies working with larger partners, managing the relationship is crucial due to the potential imbalance in importance.
Q & A
Who is Steve Gideon and what is his professional background?
-Steve Gideon is a professor of entrepreneurship at the Ted Rogers School of Management in Ryerson University, Toronto, Canada. He is also a docent at the Australia Hawk and has affiliations with institutions in Germany. He has experience in coaching and has started several companies.
What is the main topic Steve Gideon will discuss in his lecture?
-Steve Gideon will discuss value chain management, focusing on how to design and implement a value chain effectively.
What is the purpose of a value chain in strategic development?
-A value chain is a strategic development tool used to help design a business, determine what a company does and should not be doing, and identify its sustainable competitive advantage.
How does the value chain relate to a company's customer delivery?
-The value chain includes everything a company delivers to the customer, from raw materials to the final packaged product, and helps a company focus on what aspects of the delivery are truly valued by the customer.
What is an example of a task that a company must do but does not add value to the customer?
-An example is ensuring that the lights turn on in a company's building when an employee flips the switch; customers do not care about the internal operations that ensure the lights work.
Why is marketing considered part of Nike's value chain but not necessarily FedEx's?
-Marketing is part of Nike's value chain because it adds perceived value to the customer's product experience, enhancing the brand's image. For FedEx, marketing is necessary for brand awareness but does not directly add value to the customer's product experience.
What is the significance of understanding what customers care about in the context of the value chain?
-Understanding customer preferences helps a company identify which parts of the value chain are essential and which can be outsourced, focusing resources on areas that contribute to competitive advantage.
How can a company determine what parts of the value chain to outsource or keep in-house?
-A company can evaluate which activities are core to its competitive advantage and customer value, and outsource those that are not, leveraging the expertise of others while focusing on what it does best.
What are some issues a new company might face when trying to work with larger partners in the value chain?
-New companies may be seen as an annoyance due to their smaller size and the effort required to accommodate their needs. Managing this relationship involves developing close ties, having backup vendors, and incentivizing the partner.
What is the importance of strategic thinking in value chain management?
-Strategic thinking helps a company to innovate and differentiate its value chain from competitors, potentially leading to a more efficient and effective operation that better meets customer needs.
Can you provide an example of how a value chain might differ between industries?
-Yes, the value chain for a fashion clothing company like Tommy Hilfiger might not include inbound logistics, while for an automotive manufacturer, the sourcing and processing of raw materials like iron ore are crucial parts of the value chain.
Outlines
📚 Introduction to Value Chain Management
Steve Gideon, professor of entrepreneurship, introduces himself and outlines the topic of value chain management. He explains the concept of a value chain as a strategic development tool that helps businesses determine their core competencies and what tasks to outsource. By focusing on what the company excels at, they can maintain a sustainable competitive advantage. He emphasizes the importance of understanding all aspects of the value chain, from raw materials to product packaging, and differentiates between tasks that add value to customers and those that do not.
🛠️ Strategic Use of the Value Chain
Gideon elaborates on the strategic use of the value chain by comparing Nike and FedEx. He explains why marketing adds value to Nike's products but not to FedEx's services. For Nike, marketing enhances the perceived value of their products through association with famous athletes, making it a critical part of their value chain. In contrast, FedEx's marketing is necessary for brand awareness but does not directly add value to their service. This distinction highlights the need for companies to identify which activities in their value chain truly enhance customer value and manage them accordingly.
👗 Tailoring the Value Chain for Different Industries
Gideon discusses the customization of value chains for different industries, using examples like fashion (Tommy Hilfiger) and automotive manufacturing. He argues that traditional value chain components, such as inbound logistics, may not be relevant for fashion companies, which should focus more on marketing and branding. In automotive manufacturing, every stage from raw material extraction to final assembly impacts the perceived quality of the product. This section underscores the need for businesses to tailor their value chain strategies to their specific industry and product requirements.
🌐 Implementing and Managing the Value Chain
Gideon covers the implementation and management of the value chain, including working with partners and handling operational issues. He shares an example from his own experience with aluminum extrusion for high-tech products, illustrating the challenges small companies face when dealing with larger partners. He suggests strategies like developing close relationships, having multiple vendors, and incentivizing partners. Gideon also touches on topics such as global supply chain management, cultural issues, contracts, and risk management, emphasizing the importance of creating and implementing a value chain that drives value for the company.
Mindmap
Keywords
💡Value Chain
💡Inbound Logistics
💡Operations
💡Marketing and Sales
💡Sustainable Competitive Advantage
💡Porter's Five Forces
💡Outsourcing
💡Service
💡Strategic Development Tool
💡Customer Value
Highlights
Steve Gideon introduces himself as a professor of entrepreneurship with experience in various universities.
The lecture focuses on value chain management, a strategic development tool for business design.
Value chain helps identify what a company should and should not be doing to maintain a competitive advantage.
The importance of focusing on activities that deliver value to the customer is emphasized.
Examples given to illustrate activities that are necessary but do not add value to the customer, such as electricity and employee contracts.
Differentiation between activities that can be outsourced and those that create sustainable competitive advantage.
The value chain includes everything from raw material extraction to customer service.
Discussion on the limitations of textbook value chain models and the need for strategic adaptation.
Nike's marketing strategy is highlighted as a value-adding activity, unlike FedEx's marketing.
The role of marketing in the value chain differs significantly between industries.
Strategic importance of managing marketing in-house for companies like Nike.
The value chain for fashion brands like Tommy Hilfiger may not include logistics or operations.
Strategic thinking is required to determine what should be included in a company's value chain.
Different value chains for different industries, such as automotive manufacturers and consulting firms, are discussed.
The value of a network, as seen in social media platforms, is tied to the size and engagement of its user base.
Designing a value chain involves understanding competitors' models and finding unique strategic advantages.
Implementation of a value chain requires managing relationships with larger partners and overcoming challenges as a smaller entity.
Strategies for managing partnerships with larger companies include developing close relationships and having backup plans.
Further topics for discussion include global supply chain management, cultural issues, contracts, and operational strategies.
Transcripts
hi I'm Steve Gideon professor of
entrepreneurship at the Ted Rogers
School of Management in Ryerson
University which is in Toronto Canada
I'm also a docent at the Australia Hawk
Sheila Fernando Bantam is in shopton in
Braunschweig and Wolff and butyl in
central Germany and working with a
variety of other entrepreneurship
universities today I'm going to be
talking about value chain management and
later on in this course I'm going to be
talking about module five point six
which is something to do with failure
and reprogramming failure and resiliency
and I'll give you more details about my
background and coaching experience and
how many companies I've started how long
I've been an entrepreneurship professor
and all that other kind of good stuff
but this is a dense topic so let me jump
right in so first of all before I can
talk about how to manage your value
chain you have to know what a value
chain is so before we can management we
need to talk about the use of the value
chain is a strategic development tool so
this is this is a tool like any other
tool it's a tool that you would use like
Porter's five forces or the Porter's
five generic strategies or the Boston
Consulting Group matrix or the space
matrix GE matrix all those kinds of
things it's a strategy tool that helps
you think about how to design your
business it helps you to figure out what
your company does and what what it
should not be doing and this is
important because you can't do
everything and the more you can give to
other people that have better expertise
in things the more that you can focus on
your sustainable competitive advantage
so obviously what you deliver to the
customer includes everything from maybe
the stuff that gets dug out of the
ground to the packaging of your product
that they see when they open it up so
there's this big huge range of things
that your company has to deliver and
that's your entire value
Chane but you need to figure out what
things in here you're really amazing at
and which things you give to other
people that are amazing at so it's a way
of thinking about what your company does
and what what it doesn't do and it's
also a way of thinking through what's
really what's really important to
customers now you probably have to do
certain things that your customers don't
care about an example might be the
electricity has to go on in your company
when you flip the switch when all your
employees come into the work first thing
in the morning and they turn the light
switch on the lights have to go on your
company has to do that but your
customers don't care that the lights go
on in your building so there's a lot of
things that a company has to do that
don't actually deliver value to the
customer and that's one of the reasons
why this is such a powerful tool is it
forces you to think through here's all
the stuff that we do but here's a lot of
stuff that the customer doesn't care
about we need to have employee
agreements but does the customer really
care about the contract relationship
between your company and its employees
maybe the answer is yes
maybe the employees are so important as
a strategic tool your your your
employees are such an important part of
the value to customers that the contract
with them is also important but in many
cases nobody cares about the contract
that use the CEO of the business have to
have between you the corporate entity
and your employees so it helps you to
figure out what can be outsourced to
other people and really what trade what
creates sustainable competitive
advantage and it works alongside other
tools like again Porter's five forces or
the business model tool so here's a
standard generic textbook value chain
stuff comes in we call it inbound
logistics stuff arrives at your factory
you have some kind of operations maybe
you take these things you reassemble
them put them on a truck you do
marketing and sales you sell them to
your customers and you have some kind of
a service so this is all the stuff that
your company has to do stuff comes in
the door you do something stuff goes out
you also have to do some other things
too that aren't really on your value
chain here like you have to have a
procurement policy you need a computer
system so you can send emails you have
to hire and fire people you need HR and
operations management you need legal
corporate government and stuff like that
you do that stuff but it's not really
part of the value chain now this is what
a textbook value chain looks like but
there's a lot of problems here and very
often
textbooks that we use really do a bad
job of describing what a value chain is
because what they what they fail to
understand is for example some things
that the company does that maybe you
think are part of your value chain
aren't really part of your value chain
and this is where it comes in as a
strategic weapon so let's say for
example my company is Nike Nike they
make shoes they make golf clubs they
make shirts they make hats they make a
lot of stuff so Nike has to get stuff
cloth comes in inbound logistics
operations you turn it into a shirt you
you you so the little swoosh on to it it
gets shipped out you have sales and
marketing to your distribution channels
and maybe service if people don't like
the shirt that they bought but let me
ask you a question this is a profound
way to think about what a value chain is
why is it that for Nike Marketing is
part of the value chain but why is it
that for a company like FedEx Federal
Express marketing is not part of the
value chain so think about that for a
second both companies have to do
marketing they have to do it people have
to know who you are
and you've seen FedEx advertisements
you've seen Nike advertisements on
television but why is it that when Nike
advertises at me that adds value to the
customer but when FedEx markets at me I
do not drive any value from that
I'll think about that for a second when
I see an advertisement from Nike and I
don't know Tiger Woods is wearing my
little swoosh I the consumer who own a
Nike product with a little swoosh on it
I feel better about myself
I think Hey look at me I got the swoosh
I'm like Tiger Woods I'm like Michael
Jordan I'm like I don't know another
famous athlete that you've heard of I'm
like the guy who just won Wimbledon I'm
like the lady who just won the Open and
so every time that Nike markets at me
the value of every product that I
already own from Nike goes up because
I'm just that little bit sexier look at
me I got my swoosh I'm cool I might be
over 50 I might be balding I might be
overweight but hey Michael Jordan
where's the swoosh I got the smoosh the
value of my shirt has increased that's
part of their value chain but when I
watch a FedEx commercial does that make
me feel better about using FedEx not
really I don't go down the street going
hey look at me
I use FedEx I'm cool it doesn't happen
yes
FedEx has to tell me that they exist
they have to have brand awareness but
that's not the same thing as adding
value to the customer so why does
marketing add value to the customer for
Nike because marketing is part of the
value of the product marketing does not
add value for FedEx because it's just
something that they have to do so what
this means in certain in terms of
managing their value chain Nike has to
really own their marketing they need a
high-level senior vice president at
headquarters that says I'm in charge of
marketing I'm in charge of making sure
that if Tiger Woods has an affair we cut
them off if some other guy just wins
Wimbledon you know
first mail to win Wimbledon in 77 years
guess what within a week that guy
suddenly shows up on my TV screen so you
need that's a strategic weapon for Nike
to manage your marketing but for FedEx
yeah we have to be good at getting stuff
on time we have to be good at managing
airplanes we have to be good at getting
stuff from A to B we have to be good at
IT systems we have to be good at making
sure that all those things happen we can
outsource marketing to an advertising
agency there so now let's look at this
again we're back to this value chain
again now I'm going to suggest that this
is a bad value chain for fashion
clothing company now imagine you're a
famous designer and you have some
fashion clothing brand I don't know
Tommy Hilfiger is this a good value
chain for Tommy Hilfiger what can be cut
out of there this Tommy Hilfiger to
really have to worry about inbound
logistics you think when I go into a
retail store that I care how that
product got there on the shelf is
inbound logistics a part of the value
chain for Tommy Hilfiger probably not
his operations part of it probably not
outbound logistics probably not I mean
the stuff has to be there on the shelf
and you know when I go into a store and
I must size large and I want to find you
know the right color with the right size
stuff has to be there so I guess that's
maybe adding value so maybe we'll leave
it on the chain just to make sure
marketing and sales woo Tommy Hilfiger
probably sort of kind of like Nike maybe
marketing deserves to be on their
service I don't know I don't think I've
ever taken one of my Tommy Hilfiger
shirts back and demanded oh I'm missing
a stitch or anything like that but
what's missing which should be on there
and this is where strategic thinking
comes in
so one thing you can do is take somebody
else's value chain and cut it up and
move things around the other thing maybe
you could do is start from a clean sheet
of paper and say I don't like anything
to do with this value chain I'm going to
change the rules of the game and this is
again where some of the power of the
value chain comes in so let me give you
a few different value changes this is
the only one you'll probably never seen
a textbook here it's pretty boring I
don't think it's a particularly good
value chain maybe it's good for certain
companies but for most companies this is
actually not a very good value chain so
I don't agree with most textbooks on
this point let's look at another one I'm
gonna look at stage of operations maybe
this is an automotive manufacturer you
have to extract iron ore out of the
ground you have to turn that into steel
the steel has to be rolled into a big
coil the coil has to be shipped to the
automotive manufacturer or the
manufacturer has to stamp this into the
hood of a car the car hood has to be
combined with the chassis it all has to
be stuck together
you then have to get this car somehow to
the distribution channel and then the
retail location where I go into the Ford
dealership or the Hyundai dealership
with their Mercedes Benz or BMW
dealership and buy a car but let's think
about this for a set for a minute do I
really care about the iron ore that was
extracted out of the ground and what
effect that has on the car well maybe it
does actually in a surprisingly in a
surprising way because one thing we know
about perception of quality by consumers
is you know when you close the door it
has to go thunk and sound just right but
how do you specify that that door closes
in a certain way and how do you call it
how do you control your manufacturing
operation so that the door closes it
makes just the right sound or when I
look at the hood of the car there's no
way Venus that you want that beautiful
unblemished look so actually making a
car hood with the type of paint and the
type of steel and the type of way Venus
and the type of perfection of
manufacturing operation
actually automotive manufacturers kind
of have to go all the way back to the
way that the steel is processed to the
flatness of the type of sheet metal to
the way that the sheet metal is unrolled
from the big coil to whether they cut
the end in the tail off of the coil and
so all that manufacturing stuff actually
plays a role and when I go to the retail
channel and I look at the car that the
hood looks just right or the door sounds
just right or the smell is just right so
for some cars maybe all this belongs on
the value chain for some cars maybe
design is more important or maybe
marketing is more important I don't know
what the right answer is but what I can
tell you is that some car manufacturers
need all this stuff other car
manufacturers do not need any of this
stuff and all they really need is
marketing so what let me give you
another one alteration of the value
chain this could be a consulting firm
for example PwC Ernst & Young Deloitte
people like that they obviously don't
have inbound logistics operations and
outbound logistics but what they do have
is a completely different value chain
associated with finding out what the
problems are solving the problem
figuring out what the customer which
choice to make over difficult things how
to execute how to control and all those
kinds of things so there's a lot of
different types of value chains here's
another one for example for a value
network such as LinkedIn or Facebook or
a dating website you have to promote the
network for example if I've got a dating
website and there's no women guess what
your dating network sucks you need women
you have to promote the network you got
to get a lot of people on nobody's gonna
join Facebook if you don't have all of
your friends on Facebook and the value
of the network increases the larger the
size of the network LinkedIn is only
valuable if everybody else is on
LinkedIn so there's different you know
providing the services infrastructure
operations different value chains are
there for different reasons so how to
design your value chain
I start by designing what my competitors
value chains look like trying to figure
out how your value chain is different
maybe removing part of the chain what
would happen if you eliminate several
things maybe create five or six
different versions of the value chain
seeing if there's stuff that everybody
else has in common in which case if
they're all doing it I don't want to do
it
I should outsource to them hey maybe
instead of them being my competitor they
can be my partner I'm doing a part of
the value chain that nobody else is
doing and so this is a way to develop
keen strategic insights into what your
company should be doing what it
shouldn't be competing on I certainly
wouldn't want to compete with FedEx for
example on overnight delivery I'd much
rather just outsource that to FedEx I
don't want to run planes and all that
kind of stuff it's also sometimes
instructive to ask other people who know
nothing about your industry and maybe
even talk to your customers what do you
really care about
now that you've designed your value
chain you have to implement your value
chain and we will do a deep dive on this
module if there's demand for it and we
can help you with a variety of other
things about implementing your value
chain but I wanted to say at least one
thing if you're a new company and you're
trying to work with larger partners you
have to realize that is the little new
little baby company dealing with these
big companies you're probably not very
important to them you're probably an
annoyance to them you think you're
important you think I'm gonna I'm gonna
grow and become really big and I want
you to stop what you're doing so that
you can do my little thing but most
people most big partners will only see
you as an annoyance and you have to
manage this issue that's gonna be an
important thing it's to conquer ties
that I want to give you an example from
one of my companies we were doing
aluminum extrusion to make high
technology baseball bats and bicycle
frames and things like that we had a new
kind of aluminum it was really cool it's
gonna grow is gonna revolutionize
everything but we had to go to existing
aluminum companies and say can you take
our material and run it through your
system
and they all smiled and said yes but the
problem was we were such a small piece
of their business and it was so hard
dealing with our prob
that we had to manage that thing and so
different ways to manage this issue is
to develop close relationships be on
sites find multiple vendors a plan B and
incentivize the partner to have an
interest in your thing so that's just a
little piece about implementing your
value chain eventually if you want to
talk about this in more detail there's a
lots of other things we can talk about
I'm just going to throw some topics out
to you we could talk about global supply
chain management and all the cultural
issues of working with vendors in
different countries contracts letters of
credit insurance risk all that kind of
stuff cash flow management developing
trust with your partners negotiating
there's lots of other operational issues
that we can talk about but before we can
talk about how to manage your value
chain you have to drive value from the
creation of the value chain in the first
place thank you very much I look forward
to seeing you in module five point six
or if we do a deep dive later on in the
value chain management topics we'll be
giving you some more details on these
topics thanks for watching
you
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