Over the years, I have become convinced that a value chain map is a more powerful and more easily accepted starting point, both in consulting and teaching, for operating model work (compared, for example, to a capability map). This blog explains what a value chain map is.
A Value Chain Map is a high-level process map or value stream map: the term value chain coming from the strategy literature – Michael Porter. I prefer the term value chain because it reminds me that we are trying to link operations to strategy. But any other term is acceptable so long as the tool does the same thing.
To create a Value Chain Map, you first need to identify the different “value propositions” (the products or services) that the organization provides. Ashridge Business School provides tailored courses for executives, open courses, qualifications courses, research papers and books and even weddings using our beautiful building. An HR function might provide talent development, recruitment, remuneration and organisation development services. A factory might produce standard products and specials.
Figuring out the best way of defining the value propositions is not a trivial task (see separate blog). Should I think of Ashridge as offering courses, research papers and weddings, or should I think of Ashridge as offering open courses, tailored courses, qualifications courses, etc, or should I think of Ashridge as offering finance courses, marketing courses, leadership courses, etc, or should I think of Ashridge as offering 1 day courses, 2 day courses, 3 day courses, etc? The answer should come from the strategy: how does the strategy chunk up Ashridge’s different services into groups/segments/offers and how does this link to the way Ashridge thinks about its customers ? If the strategy is silent on this issue, it is probably better to work on strategy than on operating models.
Armed with a way of defining the value propositions, lay out the high-level process steps needed to create each value proposition. So for “tailored courses” the steps (the value chain) would be
- Market to companies
- Design courses for prospective clients
- Agree terms and contract with the client
- Deliver course
- Invoice and collect money
- Follow up with the client
It is helpful to keep the number of different value propositions and the number of steps in each high-level process to less than seven (aggregate if needed). The reason is that you need to be able to hold the whole Value Chain Map in your head at one time; and a matrix of 36 (6 value propositions with 6 process steps each) is about the maximum you can cope with. It is always possible to go into more detail later, as needed.
When you have done high-level process steps for each value proposition, you can then create a Value Chain Map. Draw the process steps as chains of chevrons along the horizontal, placing different chains above or below each other. Then arrange individual process steps into columns of like capability. So that, in the Ashridge example, the “design” activity in each chain sits in one column and the “deliver” activity sits in another column, etc (see exhibit 1).
Exhibit 1
Once created, additional information can be added to the value chain map (see exhibit 2).
- Identify which chevrons in each chain are critical success factors as opposed to commodity factors for delivering the chain’s value proposition.
- Identify in which chevrons the organization currently has difficulties or is under performing. For these problem chevrons, it is often helpful to go to the next level of detail: breaking the chevron down into five or so more detailed chevrons and considering where the problem is at the next level of detail.
- Identify how the organization’s costs or headcount divides amongst the chevrons.
Exhibit 2
However, the main benefit of the Value Chain Map is that it provides a visual background for considering organization structure. The people doing the work in each chevron of the map could report in two ways: along the value chain to someone responsible for ensuring that the total value chain delivers the value proposition; or within a vertical column to someone responsible for a single capability across all the value chains. So, the people doing course design for open courses at Ashridge, could report to the head of open courses or to the head of course design for all types of courses.
Fortunately, there is a rule of thumb to help you decide which way the people should report. The rule says that the default reporting line should be along the value chain (the design people for open courses should report to the head of open courses), unless significant improvements can be made to the value proposition by reporting in a different way. In other words, report along the value chain unless reporting by capability significantly lowers cost or significantly improves the value delivered.
The reason for this rule of thumb is that it is easier to create the value proposition and adjust it to match changing customer preferences, if all of the people doing the work for this value proposition report to one person and are focused only on delivering this value proposition to this customer type. The rule of thumb means that the onus is on those who want to organize by capability to create a convincing business case. If in doubt, report along the value chain.
The wonder of the Value Chain Map is that it gives a visual representation on one page, of the core work that needs to be done to deliver the products or services; and it provides the platform for thinking about organization structure. With a picture of the core work of the organization and how this work should be structured, you are already half way to an operating model.
Ashridge on Operating Models 
My concern with this is that the term “value propositions” is used synonymously with the more often used term “product” and so I find it distracting. Each of the chevrons in the intersections, I think, is best modelled as a capability so actually, I’d call this a product/capability grid.
What would be useful is a diagram that shows how value is delivered by each chevron where value is defined as something that the customer will pay for. A customer experience wheel-type thingy, maybe.
However, whatever we call it, I think that the approach above is the first step in building an operating model. I’d be interested in understanding that characteristics of an operating model based on a horizontal slice vs. a vertical slice and how to change from one to the other in a world of “Agile at scale”
Trying again – seemed to lose my first reply. Yes product/capability grid is an alternative label. But … it suggests that both axes are given equal weight. Whereas, I give primacy to the product dimension (or more accurately the value proposition or value chain dimension) – hence the label value chain map. See my reply to Peter below for how this plays out.
One of the challenges that arises in exploring different approaches is that the focus is often on the output(s) rather than the process to create and refine the outputs. This is commonly encountered when exploring the discipline of “architecture”. People often focus on the diagrams that are produced rather than appreciating the “thinking” and “design” activities involved in creating the representations of the entity being architected.
In that regard, I find Andrew’s discussion particularly interesting, because:
a) his description encompasses three different processes – business model development (which addresses products / services / customer segments / value propositions), operating model development (which addresses means of producing and delivering nominated products and services) and capability model development and assessment (which identifies areas requiring attention and improvement)
b) he has quite successfully described (in broad terms) the processes that I apply in an approach the Interface Consultants describes as the “enterprise transformation lifecycle”, it is just that he uses slightly different language and slightly different symbology
c) he has indicated that his preferred approach entails the use of the capability concept (despite his previously stated concerns about the concept)
d) he has demonstrated a common problem that arises in many enterprises – his approach makes sense to him but not to others, and their approach makes sense to them, but not to him.
I am grateful for Andrew’s outline and inclusion of examples because discussion of these topics and abstract concepts can be quite treacherous without examples to ground understanding of intended meanings and associated cognitive processes.
Peter, I like your attempt to connect our thinking, and based on a comment you made in your reply to my note on the problems with capability maps, I think we may have common ground. Clearly we are both interested in identifying where an organisation is under performing or under exploiting potential. We are also both interested in improving things (raising the organisation’s capability). Calling these areas of opportunity “capability gaps” or using the term capability to discuss them is something both of us would readily sign up for.
On the other hand you argue that focusing on the diagrams – “capability map” or “value chain map” – distracts from focusing on the underlying thinking. Here we may part company. The tools we use affects the way we think (or vice versa). So the two are closely linked. I shared our dialogue in the post on capability maps because it seemed to met to illustrate well this link between tool and way of thinking. Your preference for the use of capability thinking caused you to follow a line of thought which seemed to me to distract you from the business challenge I was sharing rather than throw light on it. To be fair this may be because you do not understand much about marketing, but, ideally our tools should be most helpful to us in this situation, when we are partially knowledgeable.
Of course I may be wrong. Your view of the marketing challenges at Ashridge may be far superior to mine, but, it is clear that the capability lens versus the value chain lens causes us to think differently about them. You argue that the capability lens “identifies areas requiring attention and improvement”. But it does so with a bias – you start from the concept “marketing management” and work down from there. I argue that the value chain lens “identifies areas requiring attention and improvement”. It also does so with a bias – I start with the value proposition and presume that marketing for value proposition A (open courses) is likely to be a completely different skill from marketing for value proposition B (qualifications courses), etc. The same would be true for admin for open courses versus admin for qualifications courses and for teaching or room set up or … So my starting position is different, and I only seek to link these different types of marketing (or admin or teaching or room set up) if I can convince myself that costs will be lower or the value delivered to the beneficiary will be higher. A capability lens presumes that marketing (or admin or teaching) is a similar capability across these different value propositions. In fact the capability approach is seeking to identify these similar capabilities wherever they appear in the organisation. The presumption is that “marketing management” is the same wherever it occurs, unless it can be proved to be dissimilar (not an easy thing to prove).
Ahem. Any takers for:
I’d be interested in understanding that characteristics of an operating model based on a horizontal slice vs. a vertical slice and how to change from one to the other in a world of “Agile at scale”
I am not sure that I can respond to this without an example. Agile is about the horizontal: people do their daily work in horizontal teams while having a vertical (capability) home, where they are hired, developed and evaluated
Andrew, let’s unpack the creation of a value chain map. Is it simply the creation of a set of chevrons with labels inside? Or is there more to it than that? If you agree that there is more to the creation of a value chain map than being able to draw labeled chevrons, then you and I have no debate over the importance of thinking versus representation.
Why do I make that point? Because there are some people who think that the test of a quality capability map is whether each box has noun based expressions versus verb based expressions. And there are some people who think that the sole job of a building architect is to produce drawings (plans, elevations, etc).
So I wanted to step beyond that into the question of the “design” activity that accompanies the “representation” activity.
Now let’s explore the ABS marketing function and associated design questions. If you consider the options that I presented to you in the LinkedIn discussion, you will see that one option entailed consideration of the business model and operating model for the marketing capabilities required by ABS. That path could explore the relative merits of different design options – a centralised marketing function, versus an embedded marketing function in each Line-of-Business. Nothing that I said excludes that as a possible line of enquiry. That path necessarily utilises value chain thinking (as I indicated previously, I use this at the operating model design stage, which precedes the capability assessment stage). I use both value chain mapping and capability mapping, and am not advocating using one over the other. So, there is nothing in the discussion to date (from me) that is pitching capability mapping as being better than value chain mapping. I use them at different stages for different purposes – horses for courses.
A further caution that I would offer is the assumption you are making about “where I start” and “what I prefer”. You posed a question within a topic on the use of the concept of capability, so any initial response was always going to be couched in “capability” terms.
Please note as well that the path I explored in terms of understanding marketing sub-functions was only one of about four options that I had indicated as possibilities and invited you to choose your preference for exploration. I took the sub-function path whilst waiting for a response as to your preference.
If you wish to use ABS marketing as a test scenario, you will need to provide more contextual information in order to be able to suggest an appropriate line of investigation ie. define the problem space more clearly, rather than simply listing two solution options and then arguing the merits of two different methods of evaluation.
Andrew, you said towards the end of your response:
“A capability lens presumes that marketing (or admin or teaching) is a similar capability across these different value propositions.”
No, it doesn’t. You are right that some users of capability mapping operate on the assumption that any similarly named capability is a duplication and that it can be consolidated into one capability. The more experienced and mature professionals in the field of capability development and capability engineering know this is a risky stance to take and have a range of techniques for assessing and determining whether there is value in merging two seemingly similar capabilities.
In addition, it is wise to keep in mind that there are multiple scenarios at play here, depending on whether we are talking about five existing functions and the question is where can the organisation achieve significant cost efficiencies, or whether this is early days in the enterprise with an emerging recognition of need to enhance the marketing capability, and where best to position these capabilities.
I have taken the primary value chain and presented the comparable results chain and capability map – see https://www.dropbox.com/s/tdx61ybdyriarcl/Model-comparisons.jpg?dl=0
I will be interested to hear what you see as the relative pros and cons of each modeling option.
Peter, I think we have taken this discussion far enough. If you are suggesting that a capability map is only used once the “business model” and “operating model” choices have been made; and, when it is used, it is to assess the “maturity” of capabilities that are needed to deliver the operating model. Then we are in complete agreement. If you are also saying that a value chain map is a tool that is particularly helpful in developing the operating model, we are in even more agreement.
My understanding is/was that this is not what most business architects or enterprise architects do. My observation is that a capability map is a central tool used to help them think about the operating model – to help them think about the business or enterprise architecture. Please forgive me if I have this wrong or if this is something that only inexperience BAs and EAs do.
I included our dialogue in the blog “One of the problems with capability maps” because I felt that your way of addressing the marketing issue illustrated, from my perspective, one of the disadvantages of taking a capability map approach. I was pointing out that capability maps typically do not distinguish between ‘marketing management for open courses’ and ‘marketing management for tailored courses’ and ‘marketing management for qualifications courses’ because more normally they would treat all three of these as “marketing management”. While I think you are agreeing with me, I am not sure that you see this as a disadvantage, maybe because you do not use capability maps to help you think about the operating model.
Thank you for engaging so fully. When I have time, I will go through this dialogue in detail and, I am sure, learn more from it.
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Uh-oh. You’ve defined value from the vendor’s perspective, instead of the customers’ perspective, so you’re off in the weeds.
Good comment David. The point here is that we are doing “operating model design”: we are trying to design the vendor. We take the value proposition as a given: as defined by the strategy or the marketing people. It is reasonable to assume that they have taken a “customer perspective”. But if they have not, that is not an issue for the designer of the operating model. We need to convert this value proposition into work and people and IT systems and supplier relationships, etc. To do this we must think through what the vendor must do to deliver this value proposition: a vendor perspective.
A value chain is a set of Capabilites interacting over time, it’s not necessarily linear. Both the Capabilty Map and VC are as important as one another. A value chain is the dynamic view, a capability map is a structural view. That said, the use of a capability map has far more reach in terms of utility. It can be used to assess competitive advantage, fit, staffing and tool assessment, gap analysis, portfolio planning, investment decisions, strategic planning, sourcing, SWOT, and much more.
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