How to Map Your Industry Value Chain for a Defensible Product Advantage
Analyse core competencies and adjacent markets for a more defensible product
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Value chain mapping can often be thought as a boring old task for strategy consultants to summarise how your industry operates in an effort to sound like an expert. Heck, I know I’ve done this in my previous life as a strategy consultant advising both smaller start-ups through to large enterprise.
However, I argue that the Value Chain is extremely important analysis for Product Mangers looking to demonstrate wider impact, regardless of whether you are an individual contributor (ICs) or a product leader who already manages multiple domains or products. Analysing market forces shows stakeholders how well you can navigate opportunities, threats and changes in your industry.
Regardless of your seniority, value chain analysis helps you in the following situations:
Market Changes: such as technological advancements, regulatory shifts, or emerging trends that might impact your product;
Pre-Product Launch: to refine product positioning and go-to-market approach;
Quarterly / Bi-Annual Reviews: to align with stakeholders on evolving industry landscape, assess the performance of your product in comparison to competitors, and any shifts in consumer behaviour, to identify opportunities for improvement;
Portfolio optimisation: to review the profitability and value derived across your whole portfolio of products, to see whether you should invest or discontinue investing into chosen competencies; and
Geo-expansion or New Market Entry: to identify and mitigate market entry risks, such as: cost of operations in the new market, cultural or competitive landscape impacting pricing strategy, among many others.
In this post, I will be giving you the tools and techniques to craft your value chain from scratch, aligning your stakeholders along the way.
The Industry Value Chain Defined
An industry value chain is a concept developed by Michael Porter that describes the full range of activities that firms go through to bring a product or service from its conception to delivery to the end consumer.
It outlines the various stages and processes involved in the production and distribution of a product within a particular industry. The value chain concept is crucial for understanding how value is created at each step and how businesses can gain a competitive advantage.
There have been many examples when a business fails to adapt to adjacent market inertia or internal organisational entropy, as outlined by Richard Rummelt, writer of ‘Good Strategy / Bad Strategy’:
‘Inertia’: an organization's unwillingness or inability to adapt to changing circumstances, and
‘Entropy’: a tendency of poorly managed organizations to move toward disorganization and a lack of focus.
Both effects can be seen in these business examples:
Kodak: A company that was in the business of selling camera film, only to be disrupted completely by a burgeoning alternative: flash cards for digital cameras, and hard drives for digital images.
Blockbuster: A company that was in the business for renting out DVDs and videos to consumers, only to be completely disrupted by a combination of cable television, the internet, and eventually digital streaming service, Netflix.
Blackberry: A smartphone manufacturer that had a physical mini-QWERTY keyboard as its primary differentiator, only to be completely disrupted by Apple, Samsung and other smartphones that replicated keyboards onto screen-based devices.
To ensure continued business viability, I always vouch for recurring strategy reviews. In this post, I break down the steps for any product manager to conduct a Value Chain Mapping for their industry and their product. These steps are:
Step 1: Define the core customer problem you are solving and identify alternatives in adjacent markets.
Step 2: Map out core business activities to each value chain component.
Step 3: Draft and socialise your Value Chain with Stakeholders, seeking input on strengths and weaknesses
Step 4: Choose your core competencies. Outsource or partner for the rest.
As a wise man once side:
… So chickity-check yo' self before you wreck yo' self…! — Ice Cube (1994)
Let’s begin!
Step 1: Define the core customer problem you are solving and identify alternatives in adjacent markets
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