Value Chain Architectonics

How well do your value chain activities fit with each other? How well do they align with your firm’s unique value proposition? To what extent do they enable and support your firm’s strategic position in the marketplace? Key questions that should be answered before value chain improvement activities commence.

Value chain configurations are critical. The value chain defines the activities which a firm has chosen to carry out for fulfilling its unique value proposition to customers. The choice of activities, and how they work together, is key for creating a relative cost or price difference from rivals. Choosing activities that reinforce each other creates a synergistic effect where costs can be minimized or benefit maximized.

Two basic, generic, strategic positions are possible for a firm: cost advantage, where a firm offers similar value to rivals, but is the cost leader in its industry; and benefit advantage, where a firm offers superior value from rivals which commands a price premium from customers. These positions can only be successfully attained when a firm’s value chain is optimally configured to support the chosen strategic position. Value chain configuration represents a firm’s choice of which activities to perform for creating value and serving customers.

Value chain configuration is different from value chain improvement. Value chain improvement can improve the efficiency of an existing value chain by reducing non-value adding activity. However, creating new value which is distinct from rivals can only be accomplished through value chain configuration. It is important to know and appreciate this subtle difference!

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