VALUE CHAIN MANAGEMENT

Value chain integration: the journey towards greater business sustainability

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For companies to thrive, they must manage their value chain such that it succeeds at both operational and strategic level. The pre-requisites for a successful value chain are often at odds with the institutional practices of companies where performance measurement and its subsequent behaviour generally occur in silos. With this approach generally neglecting consideration of wider company or market environments, Hennie Visser, senior lecturer of strategy and marketing at the UNISA School of Business Leadership (SBL), maintains that organisations must move beyond silos and refocus their strategic intent in order to unlock full value chain potential.

For modern businesses to maintain a competitive edge, certain fundamentals must be in place to succeed. Because an effective value chain management system is critical for any successful strategic planning initiative, decision-makers need to see this as the point of departure when reviewing how their operation can contain costs and succeed in the current ultra-competitive business environment.

“In today’s complex operating environment, appropriate integration of the value chain can impact a business in various ways – potentially boosting the sustainability of its competitive advantage,” says Visser. “As such, value chain management should see managers viewing all actions within the company as increments of value that can be added to finished goods or services.”

Unfortunately, this seldom happens. “This is usually for one of two reasons. Firstly, most businesses function in a complex environment where a combination of fast-changing external factors can impact on the performance of the organisation. Secondly, businesses are often grappling with their own complexities relating to size, the markets in which they operate, scarcity of specialist knowledge and experience, and constant pressure from stakeholders to continuously increase their performance. As a result, many managers try to contain – or box – what they feel they can manage. Managing costs in a department is an easy way to defend one’s performance meaning that one doesn’t then extend one’s management beyond this into the value chain. Regrettably, this approach is also often still encouraged and accepted through performance measurement systems that measure performance in silo’s thus maintaining the status quo.”

Moving away from “silo mentality” requires a well-defined vision, certain skills, various incentives, adequate resources and an action plan. In order to move from vision to action plan, the organisation must additionally be equipped with a competent management team that understands, agrees upon and drives staff behaviour. “Most importantly, opportunity for collaboration must be built into the value chain management system.”

Visser notes that this should take the form of functional teams that work together on projects. “Managers must understand that their role in the organisation is part of a larger system that depends on other systems. As such, they need to be conceptual thinkers who can come to grips with the bigger picture, as well as having strong analytical and critical-thinking abilities.”  This often relates to how they spend their time: fighting fires or assessing the system in which they operate to reach the core problem that needs to be addressed.

This, of course, requires systems that recognise the manager’s strategic contribution, giving managers the opportunity to not only decide on strategy but, more importantly, execute strategy. This task should not be reserved for top management alone. It must be integrated and supported by the entire company. This can only happen if all the members of the management team agree beforehand on critical issues including enhancing and growing internal competencies, capabilities and resources to execute strategy successfully. “These issues are a lot harder to implement than to list, requiring effort and commitment. However, if management teams can agree on these, they can look forward to a relatively silo-free environment.”

To meet market needs, businesses must remain relevant and forward-thinking. In today’s growth-constrained economy, this has become non-negotiable. With the IMF’s recent growth rate downgrade to 0.1% and the SA Reserve Bank governor’s adjustment to a 0% growth rate for South Africa in 2016, companies need to look within their organisations to unlock existing potential and harness this to succeed – making internal value chains an excellent place to start.

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