The Porter value chain is enhanced when predictive performance measures are included. A business process management (BPM) system implementation, which uses an enhancement to Porter’s methodology, gains much when it incorporates a structured inclusion of predictive metrics that have a natural balance in its use of a value chain.
Porter Value Chain Benefits
Michael Porter’s value chain is described in his book The Competitive Advantage, which was published in 1985. In Porter’s value chain, he describes an organization’s structure in terms of value-added events that are used to produce its products and/or services.
Porter highlights that organizations gain a competitive advantage when an optimal execution of value chain events occurs. An efficient execution of value-chain activities would lead to value that is excessive of any costs, with the return of delighted customers.
In Porter’s value chain, he has an organizational split of primary activities from support activities. A Wikipedia illustration of this split is:
Using a Porter value chain, an organization would identify for both primary and support activities areas that could be changed or enhanced to increase the value offered to customers. In this value chain model, primary activities are considered to be inbound logistics, operations, outbound logistics, marketing & sales, and service, while support activities address firm infrastructure, human resources management, technology development, and procurement.
Structurally monitoring and improving the execution of Porter’s listed functions is good; however, enhancing the basic approach can provide much additional benefit.
Michael Porter’s Value Chain Management Enhancement
Porter’s value chain describes what an organization does; however, care needs to be exercised to avoid the creation and execution of primary and secondary functions that are in silos where the ″big picture″ is lost or hidden. Also, organizations benefit when there is an inclusion of predictive performance measurements in value chain implementation with the avoidance of using red-yellow-green scorecards, which can result in much firefighting and playing games with the numbers.
Measurement goals are often established throughout organizations with little, if any, mention of the processes that produced these metrics; however, a process’ output is a function of its inputs and the process itself. If the output performance of a process is undesirable, then the process that creates the metric needs to be enhanced. What is needed is a system for integrating specific functional activities for that organization with its performance measures. This objective is achieved through the Integrated Enterprise Excellence (IEE) value chain.
With the IEE value chain, primary and secondary activities are created so that the categories that Porter suggests are included but have a flow and functional listing that is tailored to the specific organization. Also, in the IEE value chain these functional activities are to have performance measurements assigned to them in the area of quality, cost, and time, where these metrics are to be tracked using a predictive dashboard reporting methodology.
Below is illustrated a Michael Porter value chain management enhancement. This IEE value chain was reproduced from the book
The rectangular boxes in this figure describe organizational functions with drill downs. The oblong boxes contain measurements that quantify the performance of functions relative to quality, cost, and time.
IEE Value Chain Management and Implementation
With the IEE business process management system methodology, these metrics are to be tracked using a predictive measurement system. This Michael Porter’s value chain management enhancement approach and structure also has more flexibility in that the IEE value chain can be created so that it has direct alignment to what the enterprise specifically does, with the inclusion of support activities. Organizations benefit when the IEE value chain, through the use of software, is clickable and the performance metrics are automatically updated.
More information about the IEE value chain, its implementation, and benefits is available through the following links:
- Integrating IEE value chain into a business management system.
- Benefits of predictive scorecarding over red-yellow-green scorecards in an IEE value chain.
- Creating improvement opportunities so that the enterprise, as a whole, benefits; i.e., where to focus IEE value chain efforts so that the big picture benefits.
Business application of the IEE value chain at all business levels, as a Michael Porter value chain management enhancement, is described in six books.