EPM Channel | Analytics for integrating the Value Disciplines

For the B2C business of the future, catering broadly to the middle class consumer, there will be nowhere to hide. Such a business will have to compete on all three Value Disciplines simultaneously: Customer intimacy, Low-cost producer, and Innovation. Or, perhaps not so much the single “business”, but the entire supply chain / value chain / business network. This value chain of the future will bring all three of these value disciplines together to the market.

For starters, low cost will be a given, achieved as it is today either through low-wage labor arbitrage, or automation/productivity, or a combination of the two. Your products will move through the product lifecycle into the majority and laggard phases faster than you can say, “What happened to my premium pricing strategy?” Copy cats and secondary entrants to your market will be basing their entire strategy on underpricing you, the market leader. Getting cost out of the product will not be a project for a later date - even for the most innovative of new products, low production cost will be built in from the start.

What this means is that the production aspect will become specialized around low cost. What business are you in? I’m a low-cost producer. A low cost producer of what? Anything and everything! We make stuff to spec (i.e. quality standards) as cheaply as possible. We don’t design, we don’t sell – we manufacturer.

The next value discipline, the innovators, specializing in the R&D that creates and markets new ideas, likely won’t be able to compete effectively in this low-cost production phase, won’t be building any of this cool stuff themselves. Competing with the rest of the Innovator discipline world on feature, function, ergonomics, design, novelty, design for manufacturability, and design for serviceability will take everything they’ve got when it comes to innovation. The innovators may be the most likely value chain segment to eventually play the role of value chain integrator, but that’s not a given.

On the other end of this pipeline are the Customer Intimacy specialists, the retailers and the rest of the distribution channel. They have always been less vertically integrated than the innovators and producers, and therefore have been comfortable as specialists in their customer relationship role for some time now. It is in this customer facing arena that they will have to sharpen their skills and tools even further, because every retailer will have access to the same products, all at the same low cost. Customer service may mean different things to different sub-segments of the consumer market, but within each sub-segment the customer service will have to be optimal as appropriate. There will be no substitute for knowing your customer and then executing on meeting their needs.

The future business environment won’t be one vertically integrated business choosing a single value discipline as its focus, but instead will consist of three separate businesses, even within the same “holding company”, focusing on their respective value disciplines. While the innovator is the most likely actor to form the “holding company” for the follow-on production and distribution activities (if only to protect and control their brand), I think it equally likely that value/network integrator businesses (“The Value is in the Network”) will emerge to coordinate the separate value discipline actors. This would be especially true when it involves secondary innovator market entrants, where protecting a market leading brand image is of less importance.

The conundrum I highlighted in this earlier post (“Hybrid Strategy Management”) is that it just won’t be good enough to build a sustainable business strategy around a primary focus on only one of the three value disciplines. The consumer has become too demanding, on cost, on quality, on service, on functionality. And it will be the rare vertically integrated business that can excel at all three of these disciplines simultaneously – the disciplines differ culturally in significant ways. But they can and will be separately integrated into a successful value network. Such success will not come from simply variations on old themes, but from a more disciplined, analytic and data-driven approach to managing the value chain. What specific components will each actor need to leverage?

The Low Cost Producer will need to:

Manage quality to spec within its four walls
Manage quality to spec leveraging after-market / warranty data
Synchronize supply with demand by becoming demand-driven utilizing downstream distribution channel data to optimize logistics, inventory and production schedules.
Integrate data management for production flexibility and responsiveness to the market
Accurate cost management tools

The Innovator will need to:

Monitor and analyze market trends
Monitor their brand reputation
Monitor and manage on-going and after-market service opportunities

The Retailer/distributor will need to:

Understand their customer segments and individual customer needs
Effectively and efficiently target market each segment and individual
React to customer needs with the ‘next best offer’
Monitor customer satisfaction and the customer relationship

The Integrator will need:

Massive data integration, data management and data governance
A robust BI platform to bring all of the segments together, and to communicate with and coordinate across all the actors
Segment and analyze customer and product profitability
Many of the same tools mentioned above to monitor quality and customer sentiment

The challenge is daunting. While I don’t think this assessment applies at the very low and very high ends of the market, I do think this is the upcoming business reality for the growing, global middle class consumer market. Even if your industry segment has no players operating at this integrated three-discipline level yet, you can certainly already feel the niche specialists nipping at your heels. You’ve got programs and strategic initiatives in place to move forward with your chosen value specialty while also attempting to meet the entire spectrum of balanced business needs, but still you feel as if you will never get out of fire-fighting mode, never get out of being merely reactive to the competitive threats of the other market players. It’s like Whack-A-Mole out there, and that’s not an illusion – it’s because every single aspect and function of your business is competing against a niche specialist.

By Leo Sadovy, EPM Channel Contributor, from: http://blogs.sas.com/content/valuealley/2014/02/04/analytics-for-integrating-the-value-disciplines/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+ValueAlley+%28Value+Alley%29

Leo Sadovy handles marketing for Performance Management at SAS, which includes the areas of budgeting, planning and forecasting, activity-based management, strategy management, and workforce analytics, and advocates for SAS’ best-in-class analytics capability into the office of finance across all industry sectors. Before joining SAS, he spent seven years as Vice-President of Finance for Business Operations for a North American division of Fujitsu, managing a team focused on commercial operations, customer and alliance partnerships, strategic planning, process management, and continuous improvement. During his 13-year tenure at Fujitsu, Leo developed and implemented the ROI model and processes used in all internal investment decisions—and also held senior management positions in finance and marketing.Prior to Fujitsu, Sadovy was with Digital Equipment Corporation for eight years in sales and financial management. He started his management career in laser optics fabrication for Spectra-Physics and later moved into a finance position at the General Dynamics F-16 fighter plant in Fort Worth, Texas.He has an MBA in Finance and a Bachelor’s degree in Marketing. He and his wife Ellen live in North Carolina with their three college-age children, and among his unique life experiences he can count a run for U.S. Congress and two singing performances at Carnegie Hall. See Leo’s articles on EPM Channel here.