Evolving from value chain to value grid

Holweg, Matthias and Pil, Frits K. (2006) Evolving from value chain to value grid. MIT Sloan Management Review, 47 (4). pp. 72-80.

Abstract

Mention the term value chain, and most managers will have visions of a neat sequence of value-enhancing activities. In the simplest form of a value chain, raw materials are formed into components that are assembled into final products, distributed, sold and serviced. Frequently, these activities span multiple organizations. This orderly progression allows managers to formulate profitable strategies and coordinate operations. But it can also put a stranglehold on innovation at a time when the greatest opportunities for value creation (and the most significant threats to long-term survival) often originate outside the traditional, linear view.

Traditional value chains may have worked well for landline telecommunications and automobile production during the last century, but innovation today comes in many shapes and sizes — and often unexpectedly. (See “About the Research.”) This argues for seeing value creation as multidirectional rather than linear.1 Given the constant tension between opportunity and threat, companies need to explore opportunities for managing risks, gaining additional influence over customer demand and generating new ways to create customer value. Mobile phone giant Nokia Corp., for example, is legendary for having had the foresight to lock in critical components that were in short supply, allowing it to achieve significant market share growth. However, Nokia suffered a setback a few years ago when competitors used that very same strategy to take advantage of shifts in the demand for LCD displays.

Protection against such fickle reversals calls for a more complex view of value — one that is based on a grid as opposed to the traditional chain. The grid approach allows companies to move beyond traditional linear thinking and industry lines and map out novel opportunities and threats. This permits managers to identify where other companies — perhaps even those engaged in entirely different value chains — obtain value, line up critical resources or influence customer demand.

Item Type: Article
Keywords: value chains
Subject(s): Operations management
Date Deposited: 05 Feb 2016 12:20
Last Modified: 05 Feb 2016 12:20
Funders: n/a
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5885

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