Steven Gedeon: Value Chain Management

Summary

In 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

00:00

📚 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.

05:01

🛠️ 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.

10:02

👗 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.

15:02

🌐 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.

Keywords

💡Value Chain

A value chain refers to the series of steps that a company takes to deliver a product or service to the market. In the video, it is emphasized as a strategic tool to identify what a company should focus on internally and what it should outsource, helping to enhance sustainable competitive advantage.

💡Inbound Logistics

Inbound logistics involves the receiving, handling, and storing of raw materials and inputs used in the production process. The video mentions inbound logistics as the initial step in the standard value chain, crucial for ensuring that materials are available for production.

💡Operations

Operations are the activities involved in transforming inputs into finished products. The video discusses how companies need to assess their operations to determine what adds value and what can be outsourced to focus on their core competencies.

💡Marketing and Sales

Marketing and sales encompass activities aimed at promoting and selling products to customers. The video highlights that for companies like Nike, marketing adds value by enhancing the brand's appeal, whereas for FedEx, marketing is merely a necessary function without direct value addition.

💡Sustainable Competitive Advantage

Sustainable competitive advantage is the unique edge a company has over its competitors, which is maintained over time. The video explains that companies should focus on their core strengths to build and maintain this advantage, often by outsourcing non-core activities.

💡Porter's Five Forces

Porter's Five Forces is a framework for analyzing the competitive environment of an industry. The video mentions this as one of the strategic tools, like the value chain, that helps businesses design their strategies and identify areas of strength and weakness.

💡Outsourcing

Outsourcing is the practice of hiring external firms to handle certain business activities. The video suggests that companies should outsource tasks that do not contribute directly to their competitive advantage, allowing them to focus on what they do best.

💡Service

Service includes post-sale activities such as customer support and maintenance. The video discusses how service can be a part of the value chain that companies may need to focus on to enhance customer satisfaction and loyalty.

💡Strategic Development Tool

A strategic development tool helps businesses plan and execute their strategies. The video describes the value chain as such a tool, enabling companies to identify their core activities and optimize their operations for better performance.

💡Customer Value

Customer value refers to the benefits that customers perceive from a product or service. The video emphasizes the importance of understanding what customers value most and aligning the company's value chain to deliver those aspects efficiently.

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