Executive Briefings

Value Chain Concept Is No Longer Relevant, Researchers Conclude

A value chain concept that encompasses the linear movement of raw materials through processing and on to consumption is no longer relevant, according to a new study by Capgemini Consulting in conjunction with the University of Edinburgh Business School. This outdated concept was developed in a different era, before disaggregation through outsourcing and the globalization of supply and manufacturing that is prevalent today, the researchers say. Today, best-in-class manufacturers are replacing this model with actively managed, globally networked value circles. These value circles have the following characteristics:

• Customer relationships that lead innovations to generate a value circle rather than a linear chain;

• Close collaborative relationships for design, supply and customer satisfaction;

• Highly complex network relationships with customers, suppliers and competitors worldwide;

• Value creation reflecting intricate combinations with the value circles of other manufacturing networks worldwide;

• Active management involving advanced use of IT approaches.

As a result of this research, Capgemini has developed a global networked value circle model. It says the best-in-class firms operating in this environment display three essential abilities:

• The ability to identify realistically global competencies (and retain only these competencies in-house);

• The managerial and IT ability to form, manage and exploit relationships (despite these becoming more profuse, more global and more complex);

• The foresight to identify relationships that will become strategic assets (since many are available, but only a few will deliver competitive and strategic advantage).

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A value chain concept that encompasses the linear movement of raw materials through processing and on to consumption is no longer relevant, according to a new study by Capgemini Consulting in conjunction with the University of Edinburgh Business School. This outdated concept was developed in a different era, before disaggregation through outsourcing and the globalization of supply and manufacturing that is prevalent today, the researchers say. Today, best-in-class manufacturers are replacing this model with actively managed, globally networked value circles. These value circles have the following characteristics:

• Customer relationships that lead innovations to generate a value circle rather than a linear chain;

• Close collaborative relationships for design, supply and customer satisfaction;

• Highly complex network relationships with customers, suppliers and competitors worldwide;

• Value creation reflecting intricate combinations with the value circles of other manufacturing networks worldwide;

• Active management involving advanced use of IT approaches.

As a result of this research, Capgemini has developed a global networked value circle model. It says the best-in-class firms operating in this environment display three essential abilities:

• The ability to identify realistically global competencies (and retain only these competencies in-house);

• The managerial and IT ability to form, manage and exploit relationships (despite these becoming more profuse, more global and more complex);

• The foresight to identify relationships that will become strategic assets (since many are available, but only a few will deliver competitive and strategic advantage).

Read Full Article