The Art of Value Chain Mapping
There’s a reason The Art of War, Sun Tzu’s classic treatise on effective battlefield strategies, remains an essential read for many corporate executives: Competing for supremacy (much less survival) in the business world is nothing less than war — fought with products, services, money and other economic assets.
One of the most crucial elements to a successful warfare strategy, Tzu emphasizes, is a situational and visual awareness of the competitive terrain. Knowing your opponent and yourself, after all, is meaningless out of any context. In the world of warring armies, that context is often geographical: Where is the enemy located? Where is he likely to move? Are there resources (high ground, rivers, etc.) we can exploit to our advantage?
The answers to those questions invariably can be found in maps, which provide the critical framework for devising winning battle strategies. Indeed, without maps it would be impossible to form any combat strategy grounded in reality, just as it would be impossible to travel anywhere without a physical or mental map of the route. It’s hard to get to Point B if you don’t know where it is or where you are.
Similarly, competitive maps are invaluable strategic tools in the business world. Rather than geographic maps, however, enterprises can create maps of their competitive landscape that encompass product and market life cycles as well as assets including customers, suppliers, employees, processes and activities.
Such competitive maps, if constructed and understood properly, can give enterprises tremendous advantages over rivals that operate out of context and in the dark. But many companies either don’t bother trying to map out their competitive landscape at all, or they use static models such as “box-and-wire” diagrams, which don’t reflect the dynamic nature of a market or enterprise.
Getting to ‘why’
“A typical box-and-wire diagram will show one system connected to another system connected to another, with no concept of any evolution within it,” says Simon Wardley, a researcher for CSC’s Leading Edge Forum (LEF) who has spent much of his career as an executive and consultant developing models to help enterprises visualize market situations, trends and opportunities on a continual basis. He has been working with maps for nearly a decade.
In The Future Is More Predictable Than You Think — A Workbook for Value Chain Mapping (published by LEF in November 2013), Wardley explains value chain mapping and offers examples of how enterprises can use this process to gain genuine insights into their organizations, competitors and markets.
In particular, he writes, value chain mapping goes beyond explaining the “what, when and how” of enterprises’ decisions and actions to pinpoint the “why” that is lacking or even missing from many corporate strategy documents.
“This weakness of the strategic 'why' often stems from our inability to map the environment and understand the context of a business or ecosystem, as well as our tendency to adopt ‘one size fits all’ management approaches,” Wardley writes. “This typically results in inappropriate strategy, governance and decision-making processes.” In an interview, Wardley elaborates:
“If you take any box-and-wire diagram, and I ask you a simple question such as, ‘What should you outsource?’ or ‘Should you use agile or should you use Six Sigma?’ it gives you no information about that,” he says. “This can lead to situations where we try a ‘one size fits all’ approach. So you might outsource entire things to discover that you actually incur incredible change-control costs.”
Value chain mapping avoids those simple, binary conclusions by placing information about products, services and entire markets on a life-cycle graph. This enables decision makers to visualize the entire life cycle and grasp that different approaches are needed for different stages.
“When you map something out, because you’re taking into consideration not only the value chain but also the state of evolution of something, then decisions become much simpler,” Wardley says. “Processes that are more commodity-like are suited for more structured methods such as Six Sigma or outsourcing, while things that are novel and new and relatively uncertain are suitable for a more in-house effort and agile technique.”
Needs of the customer first
In his workbook, Wardley says a “useful map of a business” involves two main elements. The first is an organization’s “value chain” — that is, its current business activities as represented by various tools and systems (data center, payment processes, user applications and so forth). Wardley emphasizes that a business’s value chain must be based on the current and future needs of both external and internal customers. So, a value chain for an online retailer would start with the customer on top and work its way down through a website, banking systems, CRM, platform, data center and power supply. (See example.)
What a Value Chain Map Might Look Like
The second element of the value chain map is about plotting evolution and change using a life-cycle graph that follows a typical S-curve. By combining the value chain components (the Y-axis) with the life-cycle stages (the X-axis), enterprises can create a landscape map that clearly lays out the needs of the customer and how things evolve. (See example.)
The Life-Cycle Graph
Organizations that implement value chain mapping hold a huge advantage over competitors that don’t, much as a chess player who can see the whole board has an edge over a player who sees only one move at a time. Value chain mapping, Wardley says, “is conducive to strategic gameplay, to understanding how things change and how you can manipulate a market to your environment.”
If value chain mapping sounds like an intensive process, it is — especially at first. In his workbook, Wardley recommends assembling “a group of people experienced with the business” to work out an enterprise’s value chain. In other words, it’s not a job for consultants.
“Mapping can be done only by people within an organization,” he says. “You can’t outsource your mapping to someone else. It has to be done internally.”
It also has to be done on an ongoing basis, because products, services, markets, business processes and economic conditions are always shifting.
The value chain describes an organization at a point in time, and evolution describes the process of change, Wardley says. That process of change is driven by competition — both supply and demand competition — so unless there is no competition whatsoever in a company’s field, its map is going to change over time. “So, it’s not a case of do it once and it’s done. Your map will continuously adapt and change,” Wardley says. “Fortunately, you only get better with experience.”