Aligning Business Value Through a Value Chain

Aligning Business Value Through a Value Chain

business analysisA common problem in many organizations is an inability to bridge the gap between IT and other business units. Through business alignment, organizations can use IT to achieve business objectives and improve the business value of their IT investments.

A Value Chain is a vital technique used in the business alignment process that can identify the chain of activities performed by the organization to deliver value to stakeholders. By analyzing a Value Chain, organizations can identify which activities are best performed by the business and which would be best outsourced. This technique can help business managers and leaders determine which projects to focus on when defining a problem statement, and help them develop support for a project when creating a business case.

Features of a Value Chain

A Value Chain is a description of the key activities performed across a company or an entire industry. Usually depicted as a linear flow of activities, a Value Chain should show where value is being created. To do this, the Value Chain data should be quantitative, not qualitative, and should indicate the costs and revenues of activities at each stage of a product’s or process’s development cycle.

By visually showcasing this information, the Value Chain technique is instrumental in clarifying key stages of activity in a company or industry, where value is created, and any shifts along the Value Chain. The technique is also useful for:

  • Determining whether there is any backward or forward integration in an industry
  • Learning whether and why competitors may be targeting specific areas of a product or process
  • Revealing a customer’s or stakeholder’s experience with an organization
  • Mapping key players at each stage of a development process and evaluating their roles and areas for improvement
  • Analyzing any changes in the value that activities are delivering

However, despite this usefulness, many organizations do not fully apply the technique, focusing only on key activities and not determining where value is actually created.

Getting the Most Value from a Value Chain

There are three steps in developing an effective Value Chain:

  1. Identify individual activities. Distinguish between primary and support activities, and sort all activities into categories based on their cost, return, and the reasons they are performed.
  2. Assign values to the categories that best represent their contribution to your organization’s competitive advantage.
  3. Order the categories broadly, determining links among different activities and their values.

This data can be ascertained by investigating previous projects, interviewing clients and industry experts, examining internal cost information such as client management accounts, and piecing together secondary data sources including annual reports, broker reports, industry reports, and database searches.

Once the categories of activities are detailed in the Value Chain, you can then map costs, returns, and key players across the Value Chain where applicable. This is key to determining value, the aspect many organizations overlook. It’s imperative to understand, at all stages of the Value Chain, what value may be changing and why. This can provide critical information in assessing your organization’s competitive position.

More information on creating Value Chains for your organization can be found in the RequirementCoach™ Portfolio Community in Enfocus Requirements Suite™. There, users can find advanced resources, training, and dialogue for better business analysis throughout the enterprise.

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