5 Step Value-Chain Analysis for Customers’ Strategic Needs

Value- range synopsis is utilise for some(prenominal) purposes, entirely the extremity of examining clients appreciate filaments is comparatively untested. In our five-step process, Step 1 explains how subjective and out-of-door evaluate ambits put forward be habituated separately and in related slipway. Step 2 shows how to construct a clients look upon set up. Step 3 shows how to identify the guests telephone line system by examining this abide by chain and using new(prenominal) kinds of information. Step 4 explains how to use additional information and intelligence to leverage that misgiving into strategic needs and priorities.Finally, Step 5 explains how a stanchs marketing function move best use this order of grade-chain compend as a wise strategic capability. Step 1 An overview of value-chain analysis Value chains may be defined in two ways (1) inwardly a compevery they describe the various value-added phases from buying materials to distri hardlyi ng, selling, and servicing the final product (Porters 1985 concept),3 and (2) they also delineate the value-added stages from raw material to end-user as a product is manufactured and distri anded, with each stage representing an industry. 4 For convenience, we testament refer to these two definitions as native and orthogonal value chains, respectively. The interior(a) value chain is a pick up fruit concept in the field of strategic perplexity that has been thoroughly explored. In contrast, the out-of-door value chain has non been studied as extensively. The outer value chain consists of the important upstream/ add and d give birthstream/distri hardlyion processes. However, even though these processes evanesce outside the corporation, the strategic opportunities they reveal and argonas of risk they high spot warrant c beful study. ConsiderOutsourcing involves transferring certain basal or support functions in the internal value chain to the outside value chain. B s traight integration involves taking control of one or more additional stages of the outside value chain and making them internal. B Horizontal expansion involves new product lines or expanded channels of distribution, including geographical expansion. B Strategic alliances with suppliers involves more closely managing external suppliers as if they were part of the comp eithers internal value chain, but without actually owning them (for modeling, Toyotas Kaizen ystem, wherein key suppliers ar located very near a factory and receive all kinds of help and cooking from Toyota to ensure smooth and efficient production). One of the or so complex value chains today female genitalia be found in the oil industry. This chain has nearly 30 evidential elements, starting with the search for oil (at the upstream end) and including field production, transportation (pipelines and supertankers), down and processing and, lastly, consumer gas stations (at the downstream end).Internally, the oil-industry value chain processes a broad range of products, including much(prenominal) major categories as oil/lubri placets, gasoline, petrochemicals (plastics), fertilizers/pesticides, natural gas, mogul generation/electricity, and convenience stores. The firms that are insureed major integrate oil companies participate in a evidentiary number sometimes all of these external (upstream and downstream) and internal value-chain elements.In a 2006 issue of scheme & Leadership, authors Wayne McPhee and David bicyclist suggested that strategists should use Porters concept to consider value-chain operations beyond the boundaries of the firm. Since its introduction, value-chain analysis has proven immensely valuable in three principal ways cost analysis and reduction, differentiation, and product development but the standard practice was for firms to analyze only their own value chain. Step 2 How to construct a customers value chain First, even off out that you need to construct both internal and external value chains for a particular customer.The internal value chain follows Porters fender concept, which includes value-added steps from purchasing to distribution as substantially as support functions such as R&D and human resources. Its tempting to let this generic plot respond as the customers value chain, but it must be tailored to the particular customer. To produce a utilitarian value-chain analysis, members of your design or sales team should necessitate the customer how its pipeline processes add value and whether any brace unique best-practice features.To perform the external value-chain analysis, team members should ask the customer a set of getting-to-know-you questions. What does your egress chain (the upstream value chain) look the likes of? What role does your company play in it? How do your products reach their customers (the downstream value chain)? Your final diagram models only this single customers value chain and it re presents virtually everything the customer does to add significant value. If your relationship with the customer permits a candid veer of information, render the customer validate the value chain you have created.As an example of how the diagnostic process manoeuvres, consider how a supplier to Wal-Mart might occupy to enhance its value. 6 The objective of creating both internal and external value chains is to chthonicstand Wal-Mart intimately adequacy to be able to discern its implicit and denotative strategic concerns. Exhibits 3 and 4 depict prelim pictures of Wal-Marts internal and external value chains. get to this initial stage is relatively easy adding more detail, nuance, and understanding takes more time, involves interviewingWal-Mart executives, and more closely law-abiding how the firm operates.Step 3 Inferring the customers business strategy Even long-time suppliers have fuss distinguishing critical customer activities from sometimes urgent but ultimately non strategic ones. Understanding your customers business strategy is therefore crucial. Value-chain analysis helps a supplier distinguish between the activities of the customers firm that directly support its competitive strategies for its products and for enhancing key capabilities and modal(a) operations. For example, routine operations like billing customers or servicing the fleet of company vehicles must be done, and done well.But there is little if any competitive advantage to be gained from the superior deed of such activities. Nor are they likely to provide an prospect for gaining new sources of revenue and profit. It is the customers strategic activities and projects that offer the authorisation for future profits and command the attention of your customers senior management. So by supporting strategic activities, B2B dish providers stand to gain the high-margin work they hunger after, the work that produces the highest returns, and the work that should be their constan t priority.The fluorite moorage Fluor Corporation is a global engineering and formula company providing major capital facilities for a vast range of industrial clients in some vertical markets. With as legion(predicate) as 2,000 projects under construction employing 40,000 workers in more than 50 countries at any time, Fluor operates in all geographic regions of the globe and in all parts of its customers interpret chains, delivering engineering and construction management services in sum, a full range of B2B services.The questions of where Fluor should compact its resources to meet its customers most urgent needs can become enormously complex. To rationalize this process, Fluor must determine which customer projects the ones that address its customers crackingest strategic needs and, hence, have potentially the greatest margins have the highest value. For galore(postnominal) years, Fluor has known the critical impressiveness of understanding every one of its B2B custom ers businesses. But that was not enough. The questions for Fluors marketing team became, How can we learn each customers business strategy and strategic needs? Some of the many different sources of information about a customers strategy are B market communications including printed materials (brochures and advertisements), media communications (press releases) and marketing websites reveal new product directions and customer targeting these provide insights into market spot and marketing strategy. B Financial-community reports (annual reports, SEC filings, as well as meetings with financial analysts) shed light on internal strategic initiatives in addition to market-positioning moves.yearly reports form the basis of this Fluor case study, but 10Ks and analysts reports could prove equally useful. B The academic literary works is replete with surgical dissections of strategically successful companies and industries. avocation-school cases break open featuring companies like Ap ple and industries like automobiles. Wal-Mart, for one, has been the focus of many Harvard Business School cases. 8 B Many companies make their published strategic plans available to interested parties. For example, British Petroleum has published its strategy on its collective website since 2000.B Consultants that specialize in competitive intelligence. B Face-to-face conversations with your customers. Step 4 Discovering the customers strategic needs Strategic activities are the activities a firm must implement in prepare to realize its strategy or strategies. Every strategy has such a set of activities. Insofar as a company finds doing any of these activities difficult, potential suppliers have been trained to see these as needs. But, suppliers need to mark between operations that are difficult and ones that are strategic.For example, an innovation strategy requires a system for generating ideas and pickax the best ones, cost estimating, engineering, R&D, prototype constructi on and testing, and market-acceptance testing. The pharmaceutical industry relies on a great many B2B service providers to support its new-drug-development programs in the drug-formulation (R&D) stage and also B2B service providers that develop new systems to urge on regulatory approval. Value-chain analysis identifies both as key strategic functions.Step 5 Making value-chain analysis a strategic capability of the marketing department Engineering/construction companies have developed at least two approaches to break the forces of commoditization in their industry 1. Project screening and selectivity. Not all projects are created equal or represent equal opportunity. dish up providers should select projects on the basis of projected margin, not projected revenue. They must pursue projects that build on their strengths and core competences, projects where they can apply their best talents to serve their customers.This is done by first serving customers commodity work to position t hem to then pursue customers strategic opportunities. This is the approach used in the Fluor example. 2. blend in selected customers strategic business partner. Such practice puts the business-services provider right in the customers lap, a decidedly positive position to be in when strategic opportunities are brewing. It also leads to many sole-source or noncompetitive-bid opportunities and, potentially, to higher margins. 1. The method described in the article is based on actual experience of one author when he worked for Fluor Corp. . A recent example is tup Charan, What the CustomerWants You to Know How Everybody Needs to Think Differently about Sales, Portfolio (Penguin Group), 2007. The application of value-chain analysis to B2B clients of engineering and construction management services was originally suggested by Don F. Coleman of Fluor Corporation in May, 2000. 3. Michael E. Porter, Competitive Advantage Creating and Sustaining spiffing Performance, Free Press, 1985. 4. Stanley C. Abraham, Strategic Planning A pragmatical Guide for Competitive Success, Thomson South-Western, 2006, 214. . Wayne McPhee and David Wheeler, Making the case for the added-value chain, Strategy & Leadership, Vol. 34 No. 4, 2006, Exhibit 1, p. 41 let on used with permission. 6. The supplier could have many other customers, and could replicate this process with those other customers. Typically, doing such an analysis would be reserved for the suppliers vellicate 3-5 customers. 7. The authors found little in the literature about B2B marketing practices based on knowledge of the customers value chain and business strategy. 8.See, for, example Harvard Business School Case 9-794-024, Wal-Mart Stores, Inc. , August 6, 1996, which provides a thorough review of Wal-Marts business practices up to its international (horizontal) expansion. 9. Michael E. Porter, What is strategy? Harvard Business Review, November-December 1996. 10. HBS Case 9-794-024, op. cit. 11. Harvard Business School Case 9-302-102, Robert Mondavi and the Wine Industry, May 3, 2002. Mondavis flagship brand Woodbridge is a rare example of a brand name pointing, not to product benefits, but up the value chain to process benefits.