This post looks at building digital business value chains, and how they are a natural extension of traditional, low-tech value chains. It explores the impact to strategy, and links to several relevant strategy models and frameworks for analyzing digital opportunities and approaches. Finally, it looks at what it takes to implement digital value chains on projects in organizations, and again references key models and approaches.
What Is a Digital Value Chain Model?
The above picture is totally generic. In fact, it actually comes from my value chain post, which discusses Michael Porter‘s work on creating value chain advantage.
Porter’s original theories were pre-digital. However, it’s really the same idea in the digital age.
The idea is that there is a chain of value offered to customers. It evolves from a series of activities, as the picture shows. Each of these activities – such as offering a product through a billboard ad, providing telephone ordering, the logistics of getting the product to you, and finally supporting the product after you receive it.
Of course the example I just provided is pretty low tech. Using digital technology, you can put together value chains in a similar fashion that also support providing value to customers. Activities might include seeing an ad online, clicking on the ad to learn more about the product, ordering the product, automatically kicking off a digitally-driven process of sourcing and delivering the product, and finally supporting the product through digital channels.
It’s really the same value chain concept – hence the generic diagram above. However, one of the differences is that there can be many more digitally-driven touch points in the process that can add value.
In practice, the value chain includes the use of both digital and low-tech means to deliver value. In fact, it provides a wider variety of means for people to interact with the company and the product, both digital and non-digital, depending on the customer’s preference.
The Stages of a Digital Value Chain Model
Delivering value digitally can start from two places:
- Adding value digitally to existing products and services – This is the Internet of Things (IoT), where digital might provide feedback to enable manufactures to improve the product, product users might have a direct connect t support, users might have enhanced value of product due to digital features, etc.
- New entirely digital products and services – This is where the value chain really expands. There are an almost infinite number of potentially value-added steps to the process that can offer customers improved service, added value, differentiation, or enhanced customer experience.
Here is a generalized process for generating ideas for an enhanced digital value chain:
- Generate Ideas – What ideas does the team have for enhancing the value chain using digital technology? One test for these ideas is to ensure that they align with the organization’s strategy.
- Develop Products – These will be digital (ie software) products, or product with a digital component (Internet of Things), as outlined above.
- Sales & Marketing – Identify new and unique, traditional, or combined ways of reaching and serving the market. These will probably be more digital but can also include non-digital.
- Supply Chain Ecosystem – This is a whole area of process opportunity, not only for efficiency and cost savings, but for value added in terms of speed, delivery locations, product and service enhancements, operational advantages, etc.
- Customer Service – This provides an opportunity to build a deeper and more continuous relationship with customers, potentially building a hard-to-penetrate competitive advantage moat.
While each of these shown as a stage, it is more like a focus activity, as it becomes a process of advancing and returning to prior steps as products, service, and processes are developed.
Implications for Strategy
Digital technology, including most recently Artificial Intelligence (AI), opens a whole new set of opportunities and differentiator in the marketplace.
The technology underpinnings may have changed – but the ideas and general approach have not changed. It’s easy to apply a generic approach to the value chain, whether enhancements are digital or not.
Digital technology adds touch points and movements in processes. This provides opportunities to identify and experiment with many new and evolving combinations of enhancements to touch points and movements that can add value.
The following are some frameworks and approaches that can help with enhancing the value chain with digital technologies:
- McKinsey 7S Framework Model – Helps take a holistic look at the organization’s readiness to implement a strategy.
- Digital Transformation Strategy Framework – Provides a wide variety of ‘angles’ at which to look at the possibility of digital transformation.
- 80:20 Strategic Work Breakdown Structure – Using the familiar (to PM’s) WBS, breaks down strategic considerations into the most important few.
- Resource Based View – Takes a view of strategic capabilities based on resources availlbe
- Business Model Innovation – Looks at the business model of an organization – and considers how innovation may be applied to actually changing the business model itself
- Finding Economies of Scope – Goes beyond the idea of scaling to identifying opportunities and benefits f expanding the scope of activities to gain economies for competitive advantage
- Network Effect – Delves into the more recent strategic advantage of building networks – very applicable to digital innovations – for competitive advantage
One or more of these may apply to your particular situation now or as things unfold.
This 135 slide briefing on Digital Transformation Strategy (paid link) covers fitting the strategy to your organization, lays out key phases and functional layers, and explores digital maturity in areas including Customer Experience, Operations, and Information/Technology.
Implications for Project Management
Continuing opportunities for digital transformation are all over. In large part, it’s a matter of being well organized to take advantage of them.
First it takes having an agile mindset – personally, across the team, and across the organization. That means being curious, experimenting, being flexible, tolerating mistakes, and being will to change.
Project that enhance the digital value chain of the organization need a prominent place in the portfolio. Building capabilities to manage these types of projects, and coordinating them with other projects across the entire portfolio, is a continuing balancing act.
Another application of digital technologies is enhancing the process of managing the projects themselves. Strong project management is a strategic capability, and enhancing it is part of adding value chain advantage for your organization.
Indeed, we can leverage digital capabilities, such as Artificial Intelligence (AI), to manage project better. See “How AI Will Transform Project Management” by Antonio Nieto-Rodriguez and Ricardo Viana Vargas in the Harvard Buysiness Review. Note that not only can digital technologies improve project management, but it also transforms the function of the project manager.
Once major challenge that PM’s have with digital technologies is implementing them at scale. This is true of any size organization. Here are some frameworks that can help:
- Scaled Agile Framework (SAFe) – Implements agile practices at enterprise scale.
- Large-Scale Scrum (LeSS) – Scales scrum practices while limiting “bigness”.
- Disciplined Agile (DA) – Emphasizes finding your Way of Working (WoW).
- Spotify Approach – People-driven, autonomous approach that emphasizes culture and network.
Each framework is appropriate for a particular type of organization. Be sure to spend the time to understand culture of the organization and identify the changes that are needed in order to transform it for faster and better implementation of digital technologies.
Conclusion
This post looked at how traditional value chain strategy extends naturally to building digital value chains. It explored the impacts to strategy, and relevant strategy models and frameworks for analyzing strategic digital opportunities and approaches. Finally, it looked at the project management impacts and what it takes to implement digital value chains in organizations.
The following video by Eric Kimberling of Third Stage Consulting discusses challenges – mostly organizational and cultural – to implementing digital technologies: