The Organizational Value Chain

All organizations exist for some purpose and must carry out three general functions in order to achieve that purpose. Most importantly, an organization must serve customers—clients, constituents, stakeholders, etc. A value chain is a set of processes by which an organization creates customer value. Everything within the value chain represents a strength, and lack of activities & assets necessary to create customer value is a weakness. Everything outside the value chain is potentially an opportunity or a threat.

Organizational Value Chain
The value chain includes all of the activities necessary to create customer value. It shows how capital flows through the organization as revenue and expenses.

The value chain comes from thinking of organizations as systems:

  1. An organization takes in stuff—equipment, materials, skills, etc.—and that stuff has to found, paid for, and secured; buying and hiring from the market.
  2. An organization processes that stuff into different stuff, and puts the new stuff out; making goods and services, and handling logistics.
  3. The output stuff has to have more value (benefit minus cost to the customer) than the input stuff; selling to customers and understanding their desires, interests, and needs
  4. The organization has to do all of this at a rate, in an order, and with a form (or forms) determined by others outside the organization; allocating tracking resource for and supporting other functions.

In order to meet customers’ needs or wants, organizations must make something, either producing a tangible good or providing a service. Actually, most every organization does both and can grow by providing a service that adds value to a good it produces, or vice-versa. Part of the making process is logistics for inbound materials and outbound goods and services.

An organization must market, which has two sides to it, buying and selling. Marketing involves interacting with and understanding customers. Marketing also involves acquiring equipment and materials, and hiring people and services, needed for the organization to function. The buying-hiring and marketing-selling functions interact with making functions also have to help with inbound and outbound logistics.

Lastly, an organization must manage its people and processes. Managing involves allocating resources to the various parts or units of the organization, and then tracking the use and value of those resources in the organization. Managing also involves providing infrastructure for and supporting other functions, enabling them to function as effectively and efficiently as possible, individually and together as a whole.

Think about these questions:

  1. Where in your value chain are there activities that could be automated? How would this impact your personnel and their work functions?
  2. What practices and processes in your value chain differentiate your organization from its competitors? How does digital technology help?
  3. What innovative, new products or services might you offer with digital technology that would generate real value for your customers?
  4. How would those products or services fit your purpose, processes, and practices? What would it take to launch and support new products & services?