value system

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A value system is the network of organizations and the value producing activities involved in the production and delivery of an offering. The major business processes are the value producing activities. Porter (1985) popularized this view of a business and the network of organizations involved with an offering to an end customer. Terminology in this area bears some clarification.

Value system or value chain --
Specifically, Porter called the value producing activities of one organization a value chain and the network organizations involved in the production and delivery of an offering to the end customer a value system.

Value stream and supply chain --
Value stream is defined as the processes of creating, producing, and delivering an offering and may be controlled by a single business or a network of businesses. The term value stream brings focus onto the value creating activities regardless of the business organizations that own them. Supply chain is often just the value stream or system up to the point of conversion, the production of the offering, but not its marketing, sales, distribution and service.

Porter's (1985) value activities --

  • Primary activities -- Activities involved in the physical creation of the product and its sale or transfer to the buyer as well as after sales assistance
    • In bound logistics - receiving, warehousing, inventory control of input materials, etc.
    • Operations -- value-creating activities that transform the inputs into the final products
    • Out bound logistics -- activities required to get the finished product to the customer, including warehousing and order fulfillment
    • Marketing and sales - selling, channel selection, advertising, pricing, etc.
    • Service - customer support, repair services, etc.
  • Support activities -- Activities that support the primary activities and each other. These activities can be associated with primary activities as well as the full value chain.
    • Human resource management - recruiting, development, and compensation of employees
    • Technology development - research and development, process automation, other technology development used to support the value chain activities
    • Procurement - purchasing the raw materials and other inputs used in the value creating activities
  • Firm infrastructure -- Activities not associated with particular primary activities that support the full value chain. This includes finance, legal, quality management, etc.

Value system and competitive advantage --
Value activities are the discrete building blocks of competitive advantage. How each activity is performed with its economics will determine if a firm is high or low cost relative to its competitors. The firm's competitive advantage comes from the way activities fit and reinforce one another. By seeing the company's value chain and its value system as a whole, the firm can tailor its competencies to fit together to provide a superior value proposition to the customer.

Value system, strategy, and business design --
Value chain formulation focuses on how these activities create value and what determines their cost, giving the firm considerable latitude in determining how activities are configured.

Value system architecture --
The complete view of the value system reveals the value system architecture. As in all 'architecture,' a style or method of design and construction should become evident, as well as opportunities to better design the system. There should be a thematic and complementary arrangement of the activities first followed by forming the activities into a structure. A value system design with gaps, without a defined flow, or unidentified and unaligned value propositions of the players raises a red flag for the possibility of an incomplete or ineffective strategy.

Value system and strategy formation --
The value system design occurs early on in the strategy creation processes. This activity produces strategic insights. For example, the incorporation of substitute offerings and competitors into a value system view is a means for developing insights into strategic opportunities. As specific strategic alternatives are developed and assessed, defining each alternative's value system serves to reveal any weak links in the system.

Value system and strategy deployment --
As for defining the business model in preparation for deployment, the value system becomes a clear representation of what you want the process ""battlefield"" to look like at the end of deployment. As such, it serves as a guide to those involved with the ongoing dynamics of strategy deployment where twists and turns are an everyday occurrence as the processes, functions, and business relationships are further refined. Referring to the value system design during the heat of battle can insure that the achievement of the overall value proposition as defined in the strategy and that the hypothesis of the strategy is in fact being tested.