Value Chain Interpretation and Implications for Business

Cindy S.
Cindy S.
Nov 4 · 4 min read

Value Chain analysis is the most common answer for company’s need in creating value both for its business and its customer, and this works well in e-business too. Many company along with their c-levels and managers aim to create value, but what is value?

Porter (1985) proposed that value chain is a tool to identify and to analyze the origin of competitive advantages. It integrates customer-oriented and cost-based ideas.

This is why we are taking to customer value chain analysis (CVCA) as it integrates customer-oriented side, and along with the way we can also analyze the company’s revenue model based on the cost-based ideas.

Customer Value Chain Analysis (CVCA)

Customer Value Chain Analysis, or often abbreviated as CVCA is a visual mapping design tool used at the start of the product development process that enables design teams to identify pertinent stakeholders and their relationships to the product or process being designed (Ishii, 2001).

The stakeholders (or customers) are all important parties who are involved with the effective delivery of the product to the end user and the support of the product throughout its life cycle (Ulrich & Eppinger, 2004). For example, customers in CVCA may range from individuals who manufacture the product to those who will handle the product recycling at retirement. To make it clearer, we’ll take a look at the figure below:

Figure 1. CVCA example in soft drink vending machine business

The initial business model provided above is that there will be vending machine outside convenience store, where consumers can purchase by inserting coin. Here’s the breakdown of the pertinent stakeholders/customers in this CVCA:

  • Vending machine manufacturer, the one who manufactures vending machines and distribute/sells it to vending operator.
  • Vending operator, the one who maintain, collect money and restock the soft drink bottles in the machine.
  • Convenience store, where the vending machines are usually placed. Convenience store will get rent pay from vending operator.
  • Soft drink consumer, purchases soft drink from the vending machine.
  • Soft drink bottler, the company who produced soft drink. Either sells it directly to end consumer through stores, or to vending operator to be placed in the vending machine.

Now that we have a clearer understanding of what and how CVCA works, we are heading to a more detailed flow in CVCA, where the value propositions of each relationships between each stakeholders are being identified.

Figure 2. Detailed CVCA of soft drink vending machine business

In the business model, the identified value propositions exchanged are money, complaints, soft drinks and vending machine.

  • Money. Paid by soft drink customers to vending operator. Vending operator would then distribute the money to pay rent fee to convenience store, soft drink bottler and vending machine manufacturer.
  • Complaints. Any machine breakdown when purchasing the soft drink will go as complaints to the vending operator. The vending operator would then continue the complaints to the manufacturer for solution.
  • Soft drinks. The product distributed as money generator for the vending operator and purchased by the consumer.
  • Vending machine. Vending operator purchases it from manufacturer and puts in at convenience store for exposure towards the consumers.

After we developed the CVCA, we get a (almost) pilot view of how the business go. This makes the company have a better view and know which parts to be developed.

Opportunities in Digital Servitization

Digitalization is increasingly viewed as an enabler and driver of the business model, value creation and value capture. It is why value analysis is very important to drive the business in a better place. Companies are moving from remote monitoring to optimization, control and ultimately, autonomous systems with advanced functionalities.

The most realized opportunity is that company get to add more value, or combine and adapt a new value model, in which aligned with the revenue model.

Further opportunities of digital servitization in digital ecosystem will be discussed in the next post.

References:

Donaldson K., Kosuke I. , Sheppard S.D. (2006). Customer Value Chain Analysis. Springer-Verlag London Limited, Research in Engineering Design: 174–183.

Ishii K (2001). Customer value chain analysis (CVCA). In: Ishii K (ed) ME317 dfM: product definition coursebook. Stanford Bookstore, Stanford University, pp 1.3.1–1.3.8

Kohtamaki M. et al. (2019). Digital Servization Business Model in Ecosystem: A theory of the firm. Journal of Business Research.

Michael E. Porter (1985). Competitive advantage. The Free Press, New York.

Ulrich KT, Eppinger SD (2004) Product design and development. McGraw-Hill/Irwin, Boston.

Cindy S.

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Cindy S.

Here writing to express; and to share.

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