What would a value chain approach mean in the world of project management? In this blog, I’ll outline the basics of value chain analysis. And, I’ll offer some questions that executives, project sponsors, and leaders should consider as they decide how to undertake a project.
Michael Porter first described a value chain in 1985. Since then, businesses have used value chain analysis to understand how a group or chain of activities provides value. Businesses that are more integrated vertically don’t outsource large aspects of the production of materials. Thus, vertically integrated companies have more control over the production process. The downside is that they may sacrifice profits by not outsourcing aspects of production to lower cost providers.
The value chain includes everything from the raw materials, buildings, and land, to the people and management that are needed to produce value. For example, consider all the materials that go into producing a phone. The value of the phone increases as more resources are incorporated into the actual phone. But should a specific part become unavailable and no substitute is quickly located, the unfinished phone has little value to the company – though it’s almost finished.
Clearly, costs and profits are easily impacted by outsourcing decisions. Now let’s apply that to project work.
How might value chain analysis improve your project management?
Value chain analysis, at its simplest level, as applied to project management, involves looking at each aspect of the project, from selection to execution, and asking how you can derive more value. Sample questions that you might ask include:
- Which project will add the highest value in the shortest time frame?
- Which remaining project activities will add the highest value in the short term?
- Which person(s) can add the most value if they take on a particular activity?
- As you try to identify the project scope, what other players need to be considered in the value chain? Identify them in your stakeholder analysis.
Can the overall project deliverable be subdivided into useful interim deliverables that offer real value?
My husband and I recently drove north on Interstate 95 and our six-hour trip turned into an eight-hour trip, primarily because of road construction delays. Rain didn’t help, but why were miles and miles of interstate highway restricted to slower speeds when nothing was going on? Has the overall road construction contractor properly assessed the right amount of highway to work on at one time?
One can understand, using value chain analysis, that moving all the necessary equipment and materials in place to add another lane to an interstate highway is costly. And yet, the needs of the people who rely on that road must be considered in the analysis. The reliability of any necessary sub-contractors to perform their parts of the work must be factored into the analysis. What is the appropriate length of highway to take on at one time? Is it 5 miles or 50 miles?
Suppose you have a technology project. It’s easy to understand why, in a simple technology project, keeping work in progress to a minimum and delivering something of value to the company as frequently as possible, is the preferred approach. And yet, when a completely developed system or product is needed, interim value deliveries are not as useful and valuable as the entire system or product. What is the minimum viable product that has value? You can always add features, but developing something small and growing it is better than aiming for something huge and failing miserably.Can the overall project deliverable be subdivided into useful interim deliverables that offer real value? #valuechain #projectmanagement #smartprojex Click To Tweet
What other project work is going on in the same geographic location that might impact your project?
Returning to the construction project, what other road construction needs on the same highway are needed or moving forward at the same time? It’s hard to examine what is really going on when you are driving the highway (particularly if you are just trying to get home safely). But as I reflected on this trip, I wondered if some of the construction work in that 50-mile stretch was unrelated to other parts. Was the general road contractor simply trying to seize a moment to accomplish a small maintenance item?
Using value chain analysis, we can ask who the customer is for whom we’re trying to assess value. The drivers are the ultimate customer here, but is the GC thinking about us? Is the GC considering the overall global value chain? At one point, the road construction business in Virginia (at least) was a tight knit community. Was any part of that work driven by some back scratching among road contractors? I won’t be able to answer the question. I’ll simply let you decide if value chain analysis helps you generate more value on your project.
Returning to the technology project, you could ask the same question about what other work that might impact the value on your project. The word location may take on a broader definition. If you work in a larger organizations, have you considered whether rearranging the work on another project might add value to your project? You need to ensure that you aren’t sacrificing value in other places, but this might work. A program management office would likely explore that kind of question.
When does it make more sense for an activity package to be outsourced and what considerations are important?
When a project leader is making decisions about how to, and who will, execute an activity package, the question often becomes whether to outsource the work. Cost is obviously critical, but assessing the cost may require consideration of other factors, some of which I’ll discuss here.
When does it make more sense for an activity package to be outsourced and what considerations are important? #valuechain #projectmanagement #smartprojex Click To Tweet
Does the work fall under any of the core competencies of the business? Every company needs to understand what its core competencies are. What do you do well and what do you want to be spending your days doing? If the work does not fall within your core competency and it’s not something that you would be wise to develop competency around, consider outsourcing it.
Do you have the capacity to do this work in a timely fashion? If not, you have to outsource the work.
Once you decide to outsource the work, you need to understand how to procure the help and then, what the role of the project leader is in that process. This depends on your organization. And yet, part of the job of a project manager is to manage any procurement contracts. Untrained project managers often know little to nothing about this. Understand the role of people that you are hiring to get your project done. Are they going to be part of the project team? Or are you hiring a subcontractor to simply deliver a result? Do you have any input into how they will do their work or not?
My regular readers know that I believe in focusing on rapid and regular value delivery. How can using a value chain approach help you do that? I believe it’s just a different way of assessing the situation. As project leaders, we are always looking for continual improvement and building more competencies. With that in mind, I recommend my book – Herding Smart Cats: Project Management Reimagined.