1. Prime Value Chain Analysis
Understanding your organization’s
critical path to value
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Great businesses tend to share common traits:
They focus on the evolving needs of targeted customers;
they center on their core competencies and relentlessly
pursue perfection in how they execute.
More specifically one could describe the three criteria for success as:
• Having a sound business strategy clearly defining what solution
to develop, sell and who to sell it to
• Developing strong core competencies that lead to differentiation
in the eyes of the customer
• Executing the business effectively and efficiently to deliver value
to the customer quickly, reliably, and profitably.
While many firms may excel at some of these elements, mastering
all three can be difficult, especially as an organization grows in size
and complexity. Over time, the key elements that make a company
successful and give it its lifeblood can become lost amid the functional
silos, clutter and inward focus that often accompany growth.
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Our experience has shown that
organizations can address complex
performance issues by beginning top-
down with a focus on a few vital business
outcomes. This approach serves as a virtual
pull mechanism for alignment and clarity in
execution through processes, systems and
capabilities. One of Accenture’s capabilities
for top-down performance diagnosis,
alignment and improvement is Insight
Driven Value Chain Management; the
capability has proven to drive remarkable
results across numerous industries
and countless performance issues.
A core component of our capability is Prime
Value Chain Analysis (PVC) – a technique
that creates a dynamic view of major sets
of activities that represent and deliver
the company’s core value proposition or
those that impede performance. Focusing
an organization on its PVC helps re-align
management to key priorities, breaks
down functional silos, and prioritizes
improvement efforts to drive performance
and deliver business outcomes.
Large, complex organizations are
often challenged to deliver substantive
performance improvement owing to the
fact that value is created by inputs and
transactions that traverse numerous
functions and flow in and out of countless
processes. Owing to their size and matrices,
typical improvement efforts are often seen
in the context of their functional area and
related processes as shown in figure 1.
In short, they often lose sight of the fact
that, together, they must enable strategic
objectives and outcomes.
How do organizations lose sight of their
strategic objectives? Consider a start-up
company. It begins with a relentless focus
on the few customers it has, constantly
innovating because ideas are at a premium,
while being keenly aware of profitability,
since everyone’s future depends upon it.
Simplicity abounds and everyone is clear on
the critical priorities. As that company ages
and grows it may end up 10 years later with
20,000+ employees in multiple functions
at widespread locations producing diverse
offerings for several customer segments.
It’s no wonder that the simplicity of the
activities that matter most to customers
and business outcomes can get lost:
• Managers and executives are given
responsibilities for narrow slices of a
big pie; they have a limited view, often
seeing only one piece of the market,
strategy, or organizational capability.
• Business policies drive increased
complexity in offerings and processes,
and management has no way to evaluate
how that complexity is dragging down
efficiency, productivity, and profits.
• Innovation and creativity get stymied
by a sense that, “This is always the way
we’ve done it,” which self-limits strategic
and operational options.
• The company loses the ability to be
specific, with strategy statements too
vague to allow consistent interpretation
at lower levels.
• The size and isolated nature of the
organization hinders alignment to what’s
really important, leading to misallocation
of resources.
So what can help? In an effort to improve
execution and create an end-to-end
view of the organization many firms
depend heavily on continuous process
improvement. However, experience has
shown that traditional bottoms-up, reactive
and isolated process improvement efforts
across disparate parts of the business
typically has little impact on delivering
strategic objectives.
Why? Consider outcomes that depend upon
inputs and capabilities from across the
business such as:
• Improving the total customer experience
• Accelerating time to market
• Delivering the perfect order
• Improving Operations productivity
• Reducing cost without risking quality
and agility
These and similar outcomes are dependent
not only on processes but also systems,
capital, human capabilities and policies
to name a few. Even if processes were
the greatest impediment the development
and virtual stitching together of myriad
process maps won’t depict the way work
actually gets done and fails to capture
how customer-valued transaction
types traverse the enterprise.
Traditional continuous process improvement
efforts can indeed provide performance
improvements and deliver meaningful
impact to the P&L especially for issues
that are well bounded. These efforts are
necessary but in terms of driving alignment
to strategy they are not sufficient. What we
have found to help organizations escape
this reactive, disjointed problem solving
trap is the adoption of top-down PVC
analysis as a management solution.
The purpose of PVC analysis is for a
company to realign its core business and
understand how it’s many functions and
capabilities either support or impede
business goals – capturing all inputs
that contribute to business outcomes.
PVC consolidates all activities and inputs
required for a given outcome regardless of
their function or process origin. Beginning
with the outcome in mind, PVC charts the
path that enterprise transactions take in
delivering value – depicting the way work
actually gets done in terms of interrelated
value streams that traverse the business as
shown in figure 2.
Each value stream, or critical path, helps
organizations target where alignment,
ownership and capabilities are needed to
deliver strategic outcomes – efficiently
improving the way it executes.
But identifying and consolidating all
activities and inputs related to outcomes,
regardless of where they originate, has
another benefit – it helps the organization
optimize the way it’s structured. Once
all related activities and outputs are
captured in a single view the organization
can understand the relationship between
execution and the operating model: how
they’re organized, how functions and
processes interact, what capabilities
are required, where they should reside,
how they should be managed, etc.
We’ll share a company example of
how execution and structure can go
hand in hand as shown in figure 3.
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Figure 3. The Interrelationship of Structure and Execution
Figure 2. Prime Value Chain perspective
Figure 1. Traditional view of a business
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Prime Value Chain Analysis in action
A global Fortune 500 consumer products
manufacturer faced pressure to improve
efficiency and effectiveness in its Product
Development organization. The objective
was to support a 25 percent growth
target amid a corporate mandate to lower
total operating costs. The environment
was large, complex and challenging:
numerous functions, dozens of processes,
thousands of global resources. The product
portfolio contained tens of thousands
of items which were developed to serve
common, global markets as well as
unique products for regional demand.
To improve product development
performance the client initially considered
bottoms-up analysis in search of waste
across all processes within Product
Development. This democratic re-
engineering approach would certainly have
found local improvement opportunities
with positive impact to the P&L.
However, this was considered sub-optimal
by senior leadership given the need to
safely reduce costs while significantly
improving product development output –
not to mention the number of processes
in play and complex inter-relationships
between structure, execution, the product
portfolio and customer segments. That
exclusively bottoms up approach was
discarded in favor of Prime Value Chain
analysis which looked across functions and
processes to identify inefficiency at the
enterprise level and determine how the
operating model could be optimized for
increased output at lower cost.
Prime Value Chain helped to diagnose and
ultimately manage product development as
an ecosystem – gathering a comprehensive
inventory of all activities and inputs
associated with the development of a
new product – regardless of where those
activities reside or originate from – in
essence creating a company-specific
world on a page view for that segment of
the business, shown in figure 4.
It’s important to note that a PVC is not
an industry process model. Instead it’s a
structured, current state, consolidation
of all activities and capabilities that are
associated with a given business outcome.
Each of these activities or input cells shown
in figure 4 can have a “one to one” or a
“one to many” relationship with underlying
processes, systems, technologies and
capabilities. PVC helps roll up inputs from
across the business that impact strategic
outcomes. The benefits of Prime Value
Chain Analysis are many and can include:
• Establishing a “true north” for reaching
strategic objectives, independent of
existing organizational boundaries and
bureaucratic constraints.
• Illuminating the “core” activities that can
become obscured over time by functional
structures, singular process ownership
and organizational bureaucracy.
• Helping identify the optimal portfolio of
improvement opportunities—which will
likely be cross-functional organizational
opportunities.
• Aligning stakeholders, breaking through
silos, generating alignment on a path
forward to implementing performance
improvement projects with a strong
strategic impact.
• Serving as a catalyst toward becoming
a performance-oriented organization
– removing ambiguity about how value
is created, delivered and by which
accountable groups and individuals.
• Setting direction for Continuous Process
Improvement: by providing an inter-
related portfolio of projects that directly
serve strategic outcomes.
In the first phase of Prime Value Chain
Analysis management works to redefine
the core business activities, evaluates
strategic objectives vs. current process and
organizational capacity and identifies the
key improvement opportunities that could
contribute most to improving the business
as described in the PVC.
In the second phase management
prioritizes strategic gaps and develops a
transformation roadmap. This strategic
roadmap serves to focus the organization
on the biggest strategic gaps and
determines their priority. Before beginning
this work, it helps to identify an executive
PVC champion or sponsor who will be
responsible for overseeing the planning
and execution of the assessment and
implementation work – senior leadership
engagement is vital.
A first step toward developing a roadmap
of strategic and operational improvement
is to ensure that the organization’s
business has been properly defined. A
company’s business definition should
capture the essential role or roles of
the organization with a focus on where
it adds real value. The company’s core
purpose sets direction for the PVC. Getting
the business definition right is essential
to aligning structure and execution.
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Figure 4. Product Development Prime Value Chain - World on a Page
Companies should answer the question
“Given this business definition, what are the three to five critical
activities required to deliver business value and outcomes?”
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Much of what a company does presently
won’t be on this short list—or it will be
fragmented across functions. But that’s
the point of PVC analysis—to identify
what matters beyond the organizational
noise. And that’s the next critical
step: to assess the level of noise. With
the PVC as the anchor, how does the
organization align? The goal of this step
is to gain a rapid understanding of the
company’s strategic objectives, process
capabilities, culture, organizational roles
and performance, systems, etc., leading
to identification of strategic gaps.
Starting from the Customer’s perspective,
PVC analysis segments all of these
inputs and activities to identify those
which directly create the outcomes and
deliverables. These are deemed Customer
Value-Add activities. Next, the analysis
looks for those activities which primarily
enable outcomes. These are termed
Business Value-Add activities. The last set
of activities are those which neither create
nor significantly enable customer outcomes.
These are simply termed Low Value Add.
While the idea of segmenting activity in
terms of value-add is not new, what’s
unique about PVC is that it does so,
top-down, at the enterprise level – not
exclusively at the local process step level.
Analyzing zones of value at the enterprise
level can lead to powerful insights about
performance and journey development as
we’ll discuss later.
Figure 5 illustrates the consumer products
manufacturer’s PVC but now with all
activities segmented according to those
which directly contribute to customer-
valued outcomes and which do not. It
also illustrates how the development of
products traverses the PVC – what’s called
the critical path of value.
Of the (96) activities currently associated
with product development only (11) directly
resulted in new products moving from
brand strategy to launch and then to
retirement – called the Customer Value
category. Also identified were the enablers
of outcomes – called the Business Value
category, as well as those remaining in the
Low Value category.
Charting the critical path to value helped
objectively identify those enabling inputs
and activities which directly support
product development and those of low
value having minimal contribution to
outcomes. This allowed for separation
of good costs that support outcomes
from bad costs that may destroy value
–hence shaping the direction for deep
dive analysis. Further, this company
develops global products as well as
specialized ones for local markets.
Local products chart a different critical
path in the PVC; identifying the unique
activities supporting local offerings helped
reveal the true cost of complexity.
While some enabling and low impact
activities can be rationalized many in
the PVC’s Business Value or Low Value
activity groups must be preserved
for the organization to safely operate
and comply. However, once it’s clear
which activities and inputs create
desired outcomes and which are on
the critical path of value, leadership
can begin to ask powerful questions:
• Where are company resources deployed
across the Value Chain?
• Where do ownership gaps exist, where
are managers focusing?
• Which activities consume the most
Operating Expense (OpEx)?
• Is capital being deployed along the
critical path or in the fringe?
• Where do redundancies, hand offs and
poor flow exists?
These and countless other questions can
be answered by correlating company data
with the PVC to create lenses of analysis.
These lenses should specifically address the
strategic business outcome in the context
of the PVC. For example, the consumer
products manufacturer segmented their
PVC by a lens called type of work. This and
other lenses, helped shape the direction of
a new operating model shown in figure 6.
By segmenting activities by the type
of work the company found what was
true innovation and what was rote and
repetitive. Comparing the type of work
analysis lens plus headcount allocation
by activity (not shown) along with value
add analysis helped set a course for
transformation enabling them to meet
their business objective of 25 percent
growth amid a corporate mandate
to lower total operating costs.
A targeted set of activities, along with
underlying processes, systems and
resources, could safely be centralized
and standardized at lower cost without
impeding innovation shown in figure 6. Low
value but high cost activities would become
the focus of deep dive analysis – targeted
process reengineering could commence in
support of a more efficient and effective
structure tied to the critical path of value
and outcomes. With changes to the Product
Development structure along with the
launch of an interrelated set of continuous
improvement projects the client is on track
to improve total productivity by 30 percent.
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Figure 6. Summary of insights and opportunities for the organization
Figure 5. Detail of activity segmentation categories for this company
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Summary
The challenges in delivering
strategic imperatives is
exacerbated by functional
silos that exist in most
organizations. They contribute
to an excessive focus on
departmental performance
where vision to enterprise
outcomes is obscured. PVC
helps mitigate this by depicting
a virtual “world on a page”
in terms of outcomes and all
associated inputs and activities
– removing subjectivity
and providing clarity where
accountability and ownership
must be imbedded.
A key output of PVC analysis
is the development of a
transformation roadmap; an
identification of opportunities
and a prioritization of the
initiatives. This roadmap helps
focus resources on the highest
impact initiatives along the
PVC. The approach is to find the
few big areas that need to be
addressed to close performance
gaps. Some of these may
involve traditional but
targeted process improvement
projects while others may
involve structural solutions
such as changes to the
operating model, new systems
or updating performance
management practices.
Often, the resulting initiatives
will cut across the enterprise,
with multiple intersections
between organizations,
processes, technologies and
offerings or services. The
outputs of Prime Value Chain
Analysis become living assets
for management: providing
an understanding of the
relationships between structure
and execution and how best to
harmonize and optimize them in
delivery of strategic outcomes.
