22 Jun 2020 14:05 IST

Interpreting value chain analysis in a simple yet powerful way

Apply it to your everyday activities in these Covid-19 times — cut cost, add value, stay healthy

We human beings tend to make things complex. One topic in business that is made to look very complex, difficult, and only for a select few, is strategy. However, as we see in almost all fields, the best theories are basically very simple and look obvious in hindsight. As practitioners and students of strategy, we need to always remember that this applies to strategy also.

Most of the concepts in strategy look complex and difficult on the surface but when we go deep down we find these are simple, not simplistic, but powerful and very relevant. Let’s look at one concept from strategy, Value Chain Analysis. It is made to appear a difficult topic and many students find it irrelevant to them at times.

However, this concept is quite simple and can be applied to our daily life. Basically, the concept says, as an organisation, look at all your activities and come up with a value chain where the overall cost is less and value addition is more — i.e. reduce and remove those activities that are big cost but add little value and replace them with those that cost less and add more value.

A great strategising tool

In these Covid-19 times, many people are worried about getting sick and hence trying to increase their immunity. In this situation, value chain analysis is a great tool. We need to come up with a value chain for ourselves — to increase immunity and at a lower cost. For this, first, we need to write down all the activities we do from the moment we get up and till we go to bed. Second, we need to calculate the cost of each activity in terms of money, time, and energy.

Third, now reduce or remove those activities that cost a lot (e.g. watching TV for long hours (time cost), sleeping more than 6-8 hours (time cost), eating a lot of junk food (money cost), negative thinking or quarrelling (energy cost)]. Fourth, increase or add those activities that boost your immunity (for example, breathing exercises, meditation, healthy food, immunity-boosting food, positive thinking, relationship building, laughing out). Fifth, now this is a value chain that is in line with your goal of boosting your immunity in these Covid-19 times. The best comparison is with oneself. So here you are comparing your existing value chain and replacing it with the new value chain to boost your immunity.

Time to make those changes

But wait, we are not done yet. Making a value chain once is just the beginning. Many organisations fail because they make a strategy and then don’t follow it. We can’t afford to make the same mistake. We need to implement it and follow it.

However, just the following is not sufficient. We need to monitor it against the changes in the external and internal environment. As great companies are those that keep innovating with the times, we also need to make changes and innovate in this value chain to build a strong healthy body, mind, and soul. Besides boosting our immunity, we also need to take care of social distancing, hand hygiene, and follow the guidelines issued by health authorities from time to time.

From the above example of value chain analysis, we can see it is simple but powerful and relevant to all of us. The same applies to other tools in strategy.

The key takeaway is to keep strategy and its various tools such as value chain analysis simple, but not simplistic. Try to apply it to your life or some part of your life. By doing so you will learn it in a better way, will relate more with it and, with time, get good at it because strategy is a skill that gets better with more application.

Time to get your hands dirty: Due to Covid-19, many of you are spending a lot of time at home. Look at the value chain of your home. Analyse it thoroughly. Come up with a better value chain for your home.

(The author is Professor of Strategy with Management Development Institute, Gurgaon. He is ranked jointly #1 in average research productivity in India and awarded top strategy professor in India. His expertise is on making strategy, innovation, and happiness simple, humorous, and applicable.)

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