Some people claim that Value Creation is a Lame Duck and is an obsolete approach to our nowadays digital world. Well, I am not so sure.
I may be a dinosaur but I do believe that value creation tools are still as valid as they have always been.
What gives me confidence?
I am confident because I have used the Activity Chain Analysis Business Tool to do precisely that: identify and fine tune the value creation process.
So what – give us a specific example?
One of the best examples I know: IKEA – the Scandinavian furniture designer that sells products that are simple, practical and at low cost to the consumer. I would estimate that 90% of German households have a least one item from IKEA.
What makes IKEA unique?
IKEA develops consistently outstanding products with unique design that fit nicely into the IKEA logistics (flat cartons). The innovative idea that the customer collects the package after purchase and assembles it at home. Although it can be a frustrating experience too!
How do they do it?
Constant review of their Activity Chain. The whole economic basis of IKEA’s is focussed on targeted cost. The relentless pursuit of optimising all processes in the company.
“Wasting resources is a mortal sin at Ikea” Ikea founder Ingvar Kamprad
Activity Chain Analysis in action
If IKEA encounter a problem in their Activity Chain Analysis, they attack it and turn into an opportunity.
“Solve big problems in small steps” Ingvar Kamprad
A strong focus on cost-optimised manufacturing. Yet they still sell attractive furniture for the mass market. A fine balancing act indeed. IKEA also optimise processes with their suppliers and communicate closely with their customers.
Can I also use Activity Chain Analysis?
Want to know more about the Activity Chain Analysis Business Tool?
Yes, you can. The principles apply to small and big. Manufacturing or service industry. Online or ‘bricks and mortar’. All organisations can benefit from this powerful analytical tool.
Part 3 of the series on Activity/Value Chain Analysis – a business tool that works and delivers!
Missed Part 1 – click here
Missed Part 2 – click here
Evaluation of Activity Chain Analysis
Activity chain analysis reveals the strengths and weaknesses of a particular activity. It provides insight where to focus the company’s resources and more importantly it uncovers new opportunities for differentiation and possible cost advantages over the competition.
Is this tool only for big organisations?
No, certainly not. Any size and any type of organisation can engage this tool and receive valuable insights into their current and future activities.
Is this type of Analysis time consuming?
To be honest: it is. Getting the right people together and creating a meaningful analysis does take time. This type of analysis is not a quick fix – however, it is like any other process, if one spends quality time and energy on this, the outcomes are very useful in terms of rectifying current issues and targeting future opportunities that may have not been sighted without this type of analysis.
How difficult is it to allocate the true costs to an Activity?
The cost allocation to activities is usually the hardest part in reaching a meaningful activity or value chain map. There are a number of issues at play: the access to hard cost data may be difficult (this varies between organisation) and there may be considerable debate how to and where to allocate cost.
This is indeed one of the great benefits of the activity chain analysis: it challenges current thinking, generates different viewpoints and delivers surprising results.
How often does one have to carry out this Activity Analysis?
The good thing is, once the hard work is complete it typically only requires regular reviews and some tweaking. However, I would suggest to embed the findings of the analysis into the company’s Dashboard or similar KPI monthly reporting.
This concludes the brief 3-part series on activity/value chain analysis.
I read enough give me access to the tool!