The Future is More Predictable than You Think – A Workbook for Value Chain Mapping
Throughout history, maps have been essential to just about every form of strategy. They help us understand why we take action, how we can outmanoeuvre rivals and where our escape routes are if things go wrong. While today’s maps are highly accurate, even a rough picture (such as those of the New World) can be very useful if it is better than what others have available.
Most maps are, of course, rooted in geography. But business competition can also be viewed as a landscape, and thus the value chain of customers, suppliers, activities and processes can be broadly mapped. We think that business mapping is especially useful today. Information technology is radically changing the competitive landscape, and those firms that see the playing field clearly will be more likely to anticipate the future and deploy effective strategies.
Throughout his career and in his three years with the LEF, Simon Wardley has been developing a set of models and frameworks that can help companies understand and communicate how their particular business/IT value chains are evolving. In this executive summary, we will provide a brief introduction to Simon’s mapping research, and show how clients can start to apply these ideas to their own situations. Value chain mapping is now an important area of LEF advisory support, and we strongly encourage clients to take advantage of both our on-site workshops and the full mapping workbook.
A lifecycle approach to value chain mapping
Figure 1 - States of evolution
The figure above provides the starting point of our thinking. Just about every product and service can be viewed in terms of its lifecycle – from its uncertain beginnings (genesis) to eventual standardization (commoditization), typically following an s-curve pattern. As markets evolve through these stages, their associated business practices, activities and sourcing often change radically, but in predictable ways. For example, in the genesis phase, agile development practices are often required, whereas Six Sigma and similar techniques are much more appropriate in commodity markets.
Value chain mapping provides a way of viewing particular business challenges through this lifecycle lens. As we shall see, once an overall picture has been agreed upon, it becomes much easier to determine how each business activity is likely to evolve, and how it should best be managed. In our experience, this type of visualization helps clients make better strategic and tactical decisions, while greatly enhancing shared understanding. It also provides a powerful alternative to the traditional view of the firm based on hierarchical (and static) organization charts. The key steps in our value chain mapping process are introduced below.
Mapping your value chain
Figure 2 - Beginning the mapping process
Once you have chosen a particular business area to examine, you will need to break it down into its key value chain activities along the dimensions shown in the figure above. First, characterize each activity in terms of its current lifecycle stage (on the x-axis). Then place it at the proper height along the y-axis, with market-facing activities at the top, and lower-level components and services at the bottom. We put particular emphasis on distinguishing between those parts of the value chain that are either visible or invisible to the customer.
Even a rough map will help your firm see the relative lifecycle stages of particular company activities. Typically, this perspective will make it clear that one size won’t fit all, and that different strategies and management practices are needed for different business functions. By adding connecting lines and various forms of coding, you can depict additional relationships and commonalities as shown in the following figure, which was developed by the UK government for a complex engineering initiative.
Figure 3 - Value chain mapping case example
In this example, breaking down a large project into its components not only enabled appropriate methods to be applied but also encouraged the acceptance of general principles such as the FIST (fast, inexpensive, simple and tiny). Mapping also enabled a different type of conversation between IT and other departments. For example, the HR department was considering a custom solution but after seeing the map above, the choice was made – in conjunction with IT – that HR systems were more of a commodity, and thus a cloud-based solution was more appropriate.
Mapping co-creation and implementation
We can’t stress enough that value chain mapping is a co-creation process that requires high client engagement. While the LEF is usually closely involved in the early stages of a mapping initiative, we believe we are building a tool kit that firms can learn to use for themselves. To use our own lifecycle language, value-chain mapping is now in its custom-built phase, and we hope to move to more of a product (as-a-service) model over time. Several clients are already running mapping exercises independently. The results have been encouraging.
However, seeing the competitive landscape accurately is only the starting point. Once a mapping framework is in place, companies must use it effectively. Strong leadership and cultural support are required if the mapping process is to be more than an intellectual exercise.
But, once established, the map of your business can be used to support a variety of specific strategic plays such as reducing/increasing barriers to entry, exploiting ecosystems, using open technologies, anticipating rivals, and many other goals and tactics. These competitive manoeuvres will be described and expanded upon in the workbook and future LEF research.
The bottom line is that information technology is significantly altering the value chains of just about every industry sector. Forward-thinking CIOs and other business leaders can use our mapping process to anticipate likely developments and provide a fresh perspective on their firm’s opportunities and challenges. We encourage clients to test-drive our mapping models, and we look forward to working with you in the months and years ahead. Given the right tools, the future is more predictable than you think.