“The value of a company is the sum of all its customers, because at the end of the day they establish value by creating revenue, creating profit. Their involvement creates a reversed value chain”
It was Michal E. Porter – now a Harvard professor on strategy and competition – who introduced the idea of the value chain into business thinking.
The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The organization is split into 'primary activities' and 'support activities.'
Primary Activities
· Inbound Logistics
· Operations
· Outbound Logistics,
· Marketing and Sales
· Service
Support Activities
· Procurement
· Technology
· Human Resource Management (HRM)
· Firm Infrastructure.
The traditional production and value chain becomes a two way street, allowing customers to influence the addition of value and with that influence the process!!
The basic value chain theorem states that ‘margin’ is the created added value. This implies that a company’s main objective is profit. What is meant here is the difference between the total of sales income and the total of cost related. When customers start to add value by creating content or creating trusted relationships with other customers this may in the end result in increasing profit (or less cost of sales).
The traditional value chain can be seen as a fixed sequence of activities repeating itself in a predefined rhythm. The process can be planned in such a way that value output can be predicted based on productivity – effort = operating profit. This requires a strong regime because every hiccup in the production process leads to loss off value. This paradigm applies to production processes. Service processes are treated in the same fashion in many publications. Value chain thinking is very dominant.
In the digital world there are reasons to discuss the value chain approach. When customers can affect business processes they become less predictable resulting unpredictable forecasts. The processes are no longer standardized nor can the sequence or rhythm be influenced by the company itself, other than creating artificial thresholds. IVR (interactive Voice Response) Systems are companies’ favourites to manage down the unpredictability of input and effort instead of facilitating customers who take the effort of contacting them with a service that helps both customer and company.
It is necessary to scale the means behind processes to the maximum effort needed. Like the mobile network that must process all calls and SMS messages during the first hours of the New Year. Or what would happen to a banks payment system when all customers decided to submit their payments at exactly 8.00 pm? These processes actually behave like a network. Replicating relations and processes time and time again.
Business processes that serve external digital relationships need to be managed differently. Processes are offered to customers in the context of business- or consumer portals. The whole complex of technology, media and content, business process etc must be managed integrally.
The days of the ICT dominated projects are over. Portal creation is a multi disciplinary activity, requiring different management styles and methods. Discussions of ownership and other issues related to change in processes needs to be the responsibility of the highest officer in rank. When processes are behaving like networks, the way they are managed will probably be by a network type of organization.
Responsibility and hierarchy become less important than contribution. Authority within a project team will be based on contributed value. Projects become more complex and more political. This endangers the possible project output.
Strong strategy frame works must be defined to keep all energy within the project targeted at the creation of value.
Companies ask frequently for PRINCE II certified management. The people responsible have to realize that these methods come from an ICT dominated age. In these multi discipline environments I’d rather only use the strategy and decision making frameworks provided.
Many new initiatives in the digital world use a technology called web2.0. Not really a technology, but a set of web functions allowing individuals to create their own environment. They can manage their own information in the internet’s information overflow and share their profile, information and favourites with other individuals, thus creating a so-called “social network”.
The profiles created are used to target information that fits these profiles. Imagine what this does for marketers. Examples are for instance Google Adsense. The semantic (contextual) approach of information delivers a new range off communication possibilities mainly based on the content provided by the users.
These companies appear invisible to the outside world. They use digital strategies like e-mail cascades or blog buzzing, becoming popular in the internet community. They only become known when they succeed and then it’s too late to compete. These types of community initiatives cover almost every topic. Dating, gaming, finance, networking, sharing, info, news, etc.
Look at social or business networks like Hyves, XING or LinkedIn. You’ll see that just one single facility bring people together in a favourite environment. People are loyal.
Traditional companies have not yet discovered the impact of web2.0 type of solutions in their customer relationships. They are still using CRM and flat internet solutions. Although all of the Fortune 1000 use portal technology to service their customers only few succeed in creating a value added environment for their customers. Most end up with a costly internet site.
Companies should build customer portals that create value for all stakeholders instead of scaring IVR solutions that hold the mechanism of creating income by delivering pour quality and or service.
This shows that there is more than an outbound value chain. The inbound value chain will become more important as use of digital relationship platforms grows.
Some companies are already valued by the number of their customers. Mobile phone operators for instance. They have a business model that links customers and profit 1-on-1.
The reversed value chain consists of a different type of process. The first is facilitating the consumer / customer. Make life easy or entertaining in the digital environment. Second is content generation. Customers should be able to add content concerning the company or its products and services. They should be able to share experience and, in that capacity, act as either the vigilant consumer when service fails, or the companies ambassador when they are enthusiastic about it. Don’t forget to privilege or compensate them.
Customers should be able to contact other customers building a strong network. Customer’s interests can be dealt with in this manner. Proactive companies will deal with these challenges. The trusted relationship will win in the end.
Companies should facilitate the federation of its customers. They should not be afraid of customer power, but find ways to use it to their advantage. In the digital world knowledge is readily available and so is competition.
Summary
Means : A reversed value chain dealing with interactive customer contacts requires flexible process support and connectivity to primary processes and data structures. New multi disciplinary organisations and governance structures are required. Companies that are able to tune their organisation and infrastructure to the needs of tomorrow will profit from these new possibilities.
Message : Companies will aim at customer involvement, strengthening their marketing message. The trusted third party recommendation is invaluable and trusted digital media will become the prime instrument to achieve trusted digital relationships.
Media : Companies will start using web2.0 portal technology to facilitate customer participation for both PC and mobile devices, maybe even digital TV.
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