Like Rome, the understanding of value creation didn't happen overnight... In fact, for almost 200 years, companies, driven by industry, have been looking for growth and the best ways to optimize their performance. In just 5 minutes, we'll give you the keys to understanding why it's (increasingly) important to master your value chain.
How did we get here?
The 19th century and the first industrial revolution, a period of strong economic growth, sawent large-scale production of increasingly diversified products. Structures became increasingly complex, and it became more and more difficult to understand the complete management of an industrial company..
Dervices were developed to keep the company running smoothly, especially accounting.
From 1880 onwards, the profession banded together to gain recognition its and determine a "cost price" standard.. This notion is indispensable to the entrepreneur for the proper conduct of business, but accounting is still perceived as being of little use and tedious to keep track of.
The 20th century saw the influence of American methods on French practices, as industrial processes became more complex and internal pooling was sought. Indirect costs accounted for a growing share of expenses, and if you wanted to calculate the cost of a product, you had to identify its component costs:
- Design, R&D and industrialization costs
- Raw materials
- Consumption and depreciation of machinery used to process several products
- Salaries for engineers and technicians,
- Salaries for managers who coordinate the organization
- The use of the infrastructure in which it is manufactured,
- ...
To meet these needs, various indirect cost allocation methods were used to better calculate productivity and thus provide initial answers to value chain management:
- Percentage of direct labor costs
- Percentage of direct labor costs associated with a percentage of raw materials
- Machine hourly rate" principles.
While often relevant, these approaches become more complex as companies grow and develop.
"Everything simple is false, everything complicated is unusable" (Paul Valéry)
The purpose of general accounting is to report on the financial situation in the form of standard, comparable statements (balance sheet and income statement). Cost accounting, on the other hand, provides a breakdown of the company's costs and profits.
But value chain modeling enables us to highlight those activities which have a real impact in terms of profitabilityIn other words, they contribute to the company's bottom line, and give it competitive leverage, in particular the ability to invest and innovate.
And in order for the value chain vision to enable this awareness, the key point is to define the right level of management meshwhich immediately brings us back to Paul Valery's quote in the title of this paragraph! So, to a large extent, it's a question of reflection: What do I want to track?
And the answers must take into account the product or service production process, the complexity of the indirect cost structure and the managerial levers to be used in this approach.
For while knowledge of a company's value-creation model enables it to build its competitive advantage2it is also a powerful lever for empowerment. (In a forthcoming article, we'll take a closer look at the contribution of value chain analysis to a company's competitive positioning and business model).
Managing and empowering your value chain
The "value chain" vision provides an understanding of the contribution made to the bottom line by each stage of the process (highlighting price and volume effects, productivity gains and losses). It is an invaluable aid to decision-making whether :
- strategic (offer, target market, distribution channel, etc.)
- tactics ( make-or-buy policy)
- We have developed a set of guidelines for themanagement of industrial and technological assets, based on operational principles (e.g. Lean Management approaches), while retaining the ability to systematically assess the economic and financial impact of decisions. We recommend reading one of our previous publications on this subject: Un référentiel pour la gestion d'actifs industriels et technologiques.
The target of value chain management approaches
Empowering teams in areas that are consistent with their decision-making autonomy, perpetuating best practices in managerial decision-making and company organization.
To achieve this, no magic tool or specific IT development with unknown ROI is required... But a great deal of communication, a management controller and a dashboard regularly reviewed by the steering team enable the right diagnosis to be made and the right, most effective actions to be implemented, with a clear, quantified overview of the expected performance.
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