Business Strategy: Value Chains, Strategic Intent, and Organizational Goals
Traditional Manufacturing and Business Model Evolution
While there is a specific sequence to business operations, it is primarily applicable to traditional manufacturing businesses.
Contemporary businesses are increasingly complex, encompassing different models such as services and Software as a Service (SaaS).
Because different businesses operate under different models, their value chains will look different. A value chain represents the sequence of activities a firm performs to create value.
The Primary Activities of the Value Chain
Primary activities are the core functions that directly involve the creation and distribution of a product or service. This sequence is often viewed as a linear flow or a waterfall.
Inbound Logistics:
This involve the receiving, storing, and distributing of inputs.
Core inputs are the raw materials needed for the primary product.
Using the example of a chocolate manufacturer like Willy Wonka, inbound logistics includes the acquisition and warehousing of cocoa and sugar.
Warehousing ensures products are stored safely before they are transformed.
Operations:
Operations is the manufacturing phase where inputs are transformed into productive products or services.
In the context of a service, such as a nail salon, operations involve the actual painting of nails, which still requires physical inbound logistics like nail polish.
In a fantastical manufacturing context like the Wonka factory, this might involve processes like the waterfall or the production of golden eggs.
Outbound Logistics:
This stage involves getting the manufactured product out to all the stores.
Since products are often built in bulk, they are moved to particular warehouses.
Distribution occurs as orders come in.
For wholesalers, an intermediate step exists between manufacturing and the final retail destination (e.g., Walmart or local candy shops).
While similar to inbound logistics due to the logistics element, it is fundamentally different because it occurs on the opposite side of the operations equation.
Marketing and Sales:
These two activities are partnered together to create demand for the product.
Marketing ensures that the public is aware of the product and that demand exists.
Sales focuses on closing the deal, ensuring contracts are signed, and processing purchases.
Service:
Often forgotten or misclassified as a support activity, service is a primary activity.
It refers to post-sales support that maintains or adds value to the purchase.
In the airline industry, service includes the process of a customer changing a ticket after purchase or the recovery of lost luggage after a flight is completed.
The Support Activities of the Value Chain
Support activities are foundational or secondary. They are necessary for the business to function but do not immediately touch the core business product.
Firm Infrastructure:
This includes management, finance, legal, and planning.
These departments protect the assets of the company but do not physically touch the product (e.g., lawyers protecting intellectual property or the brand).
The finance department manages capital, ensuring there is enough money to meet covenants or raise bonds for new factories.
Human Resource Management (HR):
This function involves recruiting, training, and compensation.
Training ensures employees can perform their specific tasks (e.g., training Oompa Loompas to perform their songs and dances).
Compensation includes not just the paycheck, but also retirement savings, healthcare benefits, and other perquisites.
HR is considered secondary because it is one degree of separation away from the primary activity; its job is to ensure primary activity employees are prepared and cared for.
Technology Development:
This includes Research and Development (R&D), process design, and product design.
While generally classified as a support activity, it can be a primary activity for companies whose main service is product design.
Procurement:
Procurement involves purchasing inputs across the entire value chain, not just the core product inputs.
This includes taking care of real estate issues, buying office computers, or reviewing contracts for services.
An example of procurement is an airline negotiating a multi-year contract for Starlink internet access for their flights.
It is distinct from inbound logistics because it cuts across the whole chain rather than focusing on a single stage.
The Role of Information Technology in the Value Chain
Information Technology (IT) does not always fit into a single category; its classification depends on the activity it supports.
Infrastructure: IT involved in administrative systems like accounting and payroll falls under infrastructure.
Strategic Development: IT involved in design, automation, and digital systems falls under technology development.
The Hierarchy of Strategic Intent
Firms exist to organize economic activity more efficiently than the market by reducing transaction costs.
While some argue the purpose of a corporation is purely to create shareholder value, most express their purpose through a hierarchy of mission, vision, and objectives.
These elements are not strategy themselves, but they serve as the "North Star" that directs strategy. If you do not know where you are going, any road will take you there.
Strategic Vision: Defining the Future
Definition: A vision statement describes the future state that the firm aspires to reach.
Characteristics:
Forward-looking and ambitious.
Concise and memorable (ideally a short, 50-word statement).
Aspirational and not vague (vague statements fail to inspire).
Directed at both employees and external stakeholders (e.g., investors, local communities).
Vision vs. Strategy: Vision describes "the where," while strategy describes "the how."
Example (Microsoft): Bill Gates’ original vision was a computer on every desk and in every home.
Mission Statements: Present Purpose and Parameters
Definition: A mission statement describes the firm's purpose today and is grounded in the present.
The Three Pillars of a Mission Statement:
What the firm does (products/services).
Who the firm serves (customers).
How the firm creates value (values/uniqueness).
Function: It establishes the parameters for decisions and identifies the firm's core identity.
Example (Walmart): To help people save money and live better lives through omnichannel, tech-driven retail.
SMART Objectives: Measurable Targets
Objectives translate the company's purpose into measurable targets.
The SMART Acronym:
Specific: Clearly defined goals (e.g., "grow sales in Q3" rather than "do better").
Measurable: Numerical values or percentages (e.g., "grow market cap by 5%").
Achievable: Realistic goals that are aggressive but not impossible.
Relevant: Closely tied to the mission and current business needs.
Time-bound: Defined deadlines for completion.
Case Study Application: Personal Strategy Framework
The framework of vision, mission, and objectives can be applied to individuals, such as the fictional example of Priya:
Vision: To become a published fiction author.
Mission: Build writing habits, craft manuscripts, and learn the publishing industry.
Objectives: Specific, numbered goals to achieve the mission components.
Questions & Discussion
Question: Is a statement like "Together as never before" a mission or a vision?
Response: It is likely neither. It is too generic and doesn't define customers or value creation. It is more likely a "Value Statement," often found on a company's values page rather than the mission page.
Example (Apple): Apple's mission statement often describes bringing the best user experience to customers by defining the specific markets (small business, government) and the broad services offered.
Question Regarding Ford's Mission: Ford's mission states: "We are here for one purpose, help build a better world where every person is free to move and pursue their dreams." Does this sound more like a vision?
Response: Yes, many companies often conflate vision and mission. This statement is highly aspirational and forward-looking, which aligns more closely with the definition of a vision statement than a present-grounded mission statement.
Example (Tesla): Tesla's evolving purpose moves from building cars to full automation and full self-driving, where the company owns the taxi cabs people use. This shift in operations still fulfills the overarching vision of sustainable, driverless transport.