Understanding Value Delivery Chains
Guide to the Operating Model Canvas
Kirill Deverenski & David Winders introduce the concept of Value Delivery Chains and share their best practice advice.
Overview
Introduction
An optimal Target Operating Model (TOM) is a representation – and a concrete realisation – of how an organisation is best structured to deliver maximal value to its beneficiaries.
It contains a number of clearly defined and described elements – organisational makeup, supplier relationships, location mapping, information flows, decision grids and management systems – all composed in the best way to optimise value delivery chains to intended recipients.
Value delivery chains are quite simply the steps that need to be done by an organisation to deliver its intended proposition to each beneficiary group.
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Table of Contents
In this guide you will learn about:
Value Delivery Chains Explained
Value delivery chains are often customer group specific, and therefore one company may have more than one value delivery chain each addressing its unique customer group.
For example, a financial institution may have different value delivery chains for its high street and online businesses, and yet another one for serving its private equity clients.
To avoid terminological confusion – for the purposes of the operating model design, value delivery chains cover the meanings first expressed by both Porter (as part of the value system to maximise margins for the organisation) and Womack & Jones (as value streams in lean production that take a product or service from their initial inputs all the way to the customer).
This understanding is important for optimal operating model development, since while it is true that organisations exist to deliver value to their customers, they must also deliver value to their ownership stakeholders to ensure existence.
This value, of course, may not necessarily be financial, as seen in the case of government bodies, but the value must be clearly articulated to ensure continuing investment into the activities that create that value.
Value Delivery Chains and Filiere Concept
As an aside observation, just to prove that ‘there is no new thing under the sun’, the concept of the value delivery chains (as those of Porter and Womack & Jones before him) are not miles away from the idea of filiere – translated as ‘thread’ from French – developed back in the 1960s to describe the flow of physical inputs and services in the production of a final product.
A value delivery chain today describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of associated services), sales, storage and delivery to the final beneficiaries. Depending on the industry, final disposal of the used product may also be included as a step (e.g. collection and disposal of radioactive components in medical devices).
Application of Value Delivery Chains in Organisations
When applied to an organisation, its value delivery chain (or chains, if it has more than one beneficiary) will differ depending on the industry, offer proposition and its desired outcome.
Mapping value delivery chains for any organisation – existing or envisioned, for- or not-for-profit, government or private sector, does not have to be a rocket science project. It is mostly common sense.
However, it does require a great deal of operational experience to understand what is involved and strategic vision to see things from a new angle.
Best Practice Advice
We can offer three best practice hints from our experience of capturing value delivery chains in real world organisations:
Simple
Keep it really simple. Anything between 5 to 10 steps is sufficient in most instances to clearly understand how value is created and delivered. Do not give in to a temptation to add more steps, instead of combining them, the shorter your chain is, the more productive and focused subsequent operating model work is going to be.
Real
Keep it real and consult with people who can add insight, even if you are a CEO and can do anything you want, or you are starting from scratch. It is a classic mistake to come up with an organisational value chain on one’s own and then start building more into it. The value delivery chain is the foundational stone for any organisation so do take care to solicit views of all critical stakeholders. Even if what you thought originally is spot on, by involving others you have successfully started an important change management journey.
Pragmatic
Keep it pragmatic and focus on steps that are important to deliver maximal value to your beneficiaries and your organisation. The value delivery chain is a way of logically organising capabilities (existing and new), so it is best focus on the capabilities that you already have or can realistically acquire that will be critical to creating and/or sustaining your organisation’s competitive advantage.
Map it out
Remember Peter Drucker’s ‘there is nothing worse than doing the wrong thing well’?
Mapping out your organisational value delivery chain (or chains if it has more than one beneficiary) is a major part of doing the right thing very well indeed.
About the author
David Winders BSc (Hons), DTLLS
David is a strategic partner of The Sixsess Consultancy an organisation specialising in Business Architecture and the development of effective business change.
David has worked in business design and business transformation for over three decades with many large organisations including Centrica, Barclays Bank, Dell Financial Services and AXA.
David Winders
Business Architect - Principal Target Operating Model Course Facilitator.
