A "value chain" is a common framework for looking at all the functions required to make an organization run. From sales to service to infrastructure, understanding your company's value chain enables you to know where you're not performing as well as you should. That allows you to take action and keep your organization humming along.
- When you go to conduct measurement activities, rather than looking at a bunch of individual metrics with no structure, it's helpful to have an overarching framework. A value chain is a common framework for looking at the functions required to make an organization run. From sales to service to infrastructure, understanding your company's value chain enables you to know where you're not performing well. That allows you to take action and keep your organization humming along. The concept of a value chain was first described by Dr. Michael Porter in his book Competitive Advantage.
It's a process-based view of an organization, where products move through activities in a sequence and there's value added during each step of the process. A value chain consists of primary activities that actually touch the product or service you're delivering, and support activities that focus on running the organization and providing infrastructure for the primary activities. Let's look at a value chain and how they're typically constructed. As you can see, there are the primary activities of inbound logistics, operations, outbound logistics, marketing and sales, and service.
All of those functions actually touch the product. Then there are the secondary activities like firm infrastructure, human resource management, technology, and procurement. Those help function for the primary activities. What's left over when the product or service moves through all those functions is your profit margin. In this course, I'll cover metrics for each section of the value chain. I'll follow the flow of product from idea to delivery, then cover key support activities.
You should map out the value chain for your organization. Every company's different, depending on what you make or sell. Understanding how your value chain is structured will help you measure the right activities and assess the metrics that matter the most for your performance.
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- List the main purposes of measurement.
- Define value chain.
- Compare and contrast qualitative and quantitative measurements.
- Identify common measurement reporting tools.
- Describe how to measure R&D innovation and product development performance.
- List good measurements of strategic planning, financial planning, and legal performance.
- Explain measurement processes and best practices.