A Process For Designing A Value Chain For A New Product

by Barry Pearson

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2. THE PROCESS

2.1 Reading this section

Section 2 describes the “algorithm” of the Process, and Section 3 describes a set of checklists used to steer progress through the Process, evaluate options, and compare alternatives.

2.2 Psychology

There are some tendencies that this Process attempts to avoid:

1. middle-of-the-road positions may not be challenging enough to bring out the creative energies in the decision makers, and they may not see the need to fight for their views
2. such intermediate positions may be so blurred that there is only the appearance, not the reality, of consensus

The Process is designed to avoid fence-sitting, and deliberately polarises decision-making like an agent provocateur.

However, the Process is a tool to aid consensus and decision making, not magic - whatever it says, professional people must exercise their own judgement and not use the Nuremberg defence “I was only obeying orders”. If the resultant decision remains disliked, then they should follow their judgement, and the Process has served its purpose by challenging a position which has probably turned out to be robust.

2.3 Summary of the Process

The Process starts with preparation, then makes a decision about the product or component being considered:

Figure 2.1 The model of the Process

Take the example of “Bradford Management Centre’s Executive MBA Programme”:

Is it strategically important for Bradford Management Centre to have such a Programme, or is it a me-too? If it is just a me-too, don’t act as though it is more important than it is - keep costs down to permit investment in more strategic courses. That is the end of the Process - the decision has been made.

However, if it is strategic, once again don’t fudge the issue - achieve a consensus that the Programme is important, and harness the energies of the organisation to make it world class. To do this, all the components of the Programme needs to be identified and examined in more detail so that its various aspects can be optimised. Examples of components of such a Programme include: the curriculum, human resources, marketing, accommodation, accreditation, delivered materials. (See, for example, various models in Ford and others (1996), especially chapters 5, 8 and 9).

Some of these in turn will probably be considered to be strategically important, such as the lecturers. Then attention must be paid to maximising the returns of these. However, other components may not be strategically important for this Programme alone, such as accommodation. While important for the College, this Programme may not justify owning its own world-class accommodation, and it will probably want to minimise the cost to this Programme by re-using existing resources or collaborating with a specialist supplier of accommodation.

Iteration

The first pass through the Process is likely to yield anomalies and discomfort. For example, the first judgement of whether the Programme is strategically important may be “no”, yet everyone believes it is important. Typically this is because the decision requires some choices to be made, and half-hearted choices are likely to lead to uncomfortable decisions. For example, if there is not the commitment to invest over the life-cycle of the course, it will be treated as not strategically important, and the decision will be to treat it as a tactical product.

Therefore, if the decisions the first time are not liked, the Process should be run again, this time paying attention to why uncomfortable conclusions have been reached, and correcting them. Next time the group may decide that it really must invest over the life-cycle. Twice through the Process should be enough.

2.3.1 “Prepare”

Figure 2.2 The "Prepare" phase of the Process

If the Process is to be run intermittently, there is little need for formal preparation. As knowledge becomes needed, it can be acquired. If the Process is to be run in workshop-mode, preparation is needed to avoid wasting time. The full extent of preparation will become apparent later, but key topics include:

1. Understand the life cycle relevant to the product or system concerned. (See section 3.2).
2. Understand the core competences and other key resources needed by the product over this life-cycle. (See section 3.5).
3. Understand the decision making criteria which will be used. (See section 2.3.2).

2.3.2 “Strategically important?”

Figure 2.3 The "Decision" phase of the Process

Different enterprises have different decision criteria. An enterprise may be risk-enthusiastic or risk-averse. Most high-street Retailers will be aggressive, while a Co-operative Store will be socially-conscious. What is strategically important for an enterprise is based on its vision and value-system - its culture.

A starter-kit which can be used to provoke management into developing their own criteria follows:

Table 2.1 Starter-kit for decision-making criteria:

These decision-making criteria are presented as though they drive the Process forward - use them to weigh the product, and decide what to do with it as a result. In fact, management will often use them backward - decide in advance what the result should be, and adjust the characteristics of the products to cause the Process to deliver the “right” result.

For example, if a product appears to be strategically unimportant, yet management are convinced that it is important, then they may adjust its characteristics from column three to column two, and perhaps choose to invest more, or develop its channel, or ensure that it is a source of re-usable assets.

2.3.3 “Minimise life cycle cost”

Figure 2.4 The "Minimise cost" phase of the Process

The decision has been made that this product or component is not strategically important (even if it is a component of a product which is important). Here are suggestions about how to position it in the value chain. Here, “minimise cost” is treated as complex. It is made up of the normal cost component, but also includes “risk” and “timescale”, since these have to be handled somewhere. The asset-value of the product or its components should be included on this checklist - the enterprise may decide that extra expenditure is permitted even for a tactical product if useful assets accrue. See section 3.3.

Reduce cost

• re-use (or buy) an existing component, or
• collaborate tactically to re-use others’ competence (sections 3.5 and 3.6).

Reduce risk

• buy or re-use an existing component to reduce uncertainty, or
• collaborate tactically to share risk (sections 3.5 and 3.6).

Reduce timescale

• buy or re-use an existing component

Maximise return from assets, including competence

• milk or sell specialised assets
• plan your exit

2.3.4 “Maximise life cycle benefit”

Figure 2.5 The "Maximise benefit" phase of the Process

The product or component has been determined to be strategically important - now decide how to treat it.

There are two prime needs:

1. Maximise profit (or other enterprise driver - for example a charity may maximise benefit, a government department may maximise service in conformance with the Citizens’ Charter).
2. Evolve the enterprise in line with its strategic intent.

Here is a set of activities and intentions which can be built upon:

1. See section 3.4 - strive to be a force in:
   • Functionality and/or
   • Product behaviour:
     • Availability
     • Usability
     • Performance
     • Security
     • Potential for change and/or
   • “Reachability” and/or
   • Cost, Risk, Timescale
2. Invest to acquire features over life cycle
3. Evolve re-usable assets
4. Develop external & internal channels
5. See section 3.6 - consider strategic collaboration - look at:
   • Competence needed over the life cycle
   • Available depth of competence within the enterprise
   • Available capacity of competence within the enterprise

2.3.5 “Identify components & repeat”

Figure 2.6 The "Recursion" phase of the Process

Decomposition

A decision at any level is not necessarily applicable at component and sub-component levels. A “motor car manufacturer” may not consider making screws to be strategically important. (Indeed, it may not consider making motor cars to be strategically important - the importance may be in integration and channel management, for example). Therefore, the product is decomposed.

Components are significant assets of something which have a cost. They include:

• Pieces of hardware & software
• Services, including support & training
• Collateral such as documentation
• Others, such as channels, promotions, etc

Use architecture methods to identify the components (an example of the use of architecture, for higher-education, is seen in Ford and others (1996)).

Comparison with “disaggregation”

Collis and Montgomery (1995) identify the need to go further than merely identifying the resources of an enterprise at too high a level. They describe the concept of “disaggregating” the resources - breaking them into sub-categories about which very specific comparisons can be made. (Instead of Bradford Management Centre identifying “course marketing” as a competence, perhaps it would identify categories such as “marketing long-running executive course to commercial enterprises).

I believe that their “resources” are similar to some of the concepts I am using here, in particular “assets” and “competences”. Therefore their work reinforces this step of the Process, and their methods probably apply.

Collis and Montgomery are talking about enterprise resources, whereas this Process is concerned with the resources associated with a product. But the concepts are very similar, and the same resources are likely to appear in both subjects - the marketing sub-category in the earlier paragraph is equally applicable as a resource of the Bradford Management Centre or a resource of an Executive MBA course.

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