In both my consulting work and teaching, I am finding that good value chain analysis is the foundation of good operating model work. Moreover, participants on my recent course – Designing Operating Models – voted “value chain mapping” as the best tool on the course.
But there is one tricky part in value chain analysis – segmentation. Good value chain analysis involves doing a value chain for each segment being served. But how to define a segment? The idea is really about doing a value chain for each “offer” because each “offer” is likely to require a slightly different value chain to deliver. So a good segmentation involves thinking hard about the different offers. Let me give an example.
Ashridge Business School (now Ashridge Executive Education) has tailored offers (courses tailored for a particular company). It also has open offers (standard courses anyone can attend). It also has qualifications courses (like an MBA). There is a research offer. There is even a weddings offer in our beautiful house. So clearly we need a value chain for each of these. But is this enough detail.
Within “open courses” there is an operating model offer, a finance for non-financial managers offer, a marketing offer and so on. Hence, at a more detailed level, it makes sense to do a value chain for each of these courses to see if there are significant differences and to assess where economies of scale lie.
But one can go into even more detail. My course Designing Operating Models has different sessions taught by different faculty. Maybe it is necessary to do a value chain for each of these – one for the value chain mapping session, one for the organisation modelling session, one for the whole day case study. Typically, this level of detail is unhelpful. But it is usually worth going down one level of detail below what seems useful to check that more insight is not available.
So my advice is to segment at multiple levels of detail.
The other segmentation issue involves different ways of segmenting the customer or consumer. Ashridge could segment by country of nationality because we have participants from 50 or more countries. For most countries we do not have any tailored offer. But for the Middle East we do. So it would be worth doing a value chain for the Middle East separate from other geographies. If we thought that we wanted to offer something different in Asia, then we could also do an Asia or China value chain.
Another way of segmenting customers might be by industry. But Ashridge does not have any industry specific offers. So doing value chains by industry would not bring in any new insights to help with operating model decisions.
So the guiding thought about segmenting customers or consumers is to segment when there are differences in offer which are likely to require some differences in the value chain needed to deliver the offer.
In conclusion, value chain maps are about exposing the different activities that are required to deliver different offers. Having laid out the differences it is then possible to decide where the differences are so important that the activities need to be kept separate, where there are economies of scale that need to be captured and where there are opportunities for synergy and linkage – centralise, link or separate (my CLS tool).