INTEGRATING ECONOMICS WITH BRANDING / VALUE CHAIN
BUSINESS MODELS
The industrial revolution ushered in the manufacturing business model. This was characterized by the procurement of raw materials, transformations on the factory floor, outputs in the form of a tangible finished products, followed by storage in inventory or shipment to markets. In this context, Michael Porter developed his Value Chain model. There has been a tectonic shift to intangible deliverables. EVI has brought Value Chains and Brand Promises into the 21st Century with deep reservoir of experience with cloud computing.
BUSINESS PROCESSES
EVI redesigns, re-engineers, streamlines, and optimizes business processes to align with Brand Promises. From a technical perspective, these processes are translated into web services in a cloud computing environment. Often taking the form of microservices, business processes can be broken down into small steps or functions. In turn, the services are exposed via application programming interfaces (APIs). It is vital for an enterprise to consistently deliver on Brand Promises with processes and services that can be scaled and rapidly deployed.
MODERN BRAND PROMISES
It could be argued that digital brands fall into two categories: Platform Brands and Links in Value Chains. Platform Brands require the network effect to maximize their value, and this page will not focus on them. Rather, EVI focuses on Links in Value Chains. Each link is the best of breed, and may have identified a narrow niche that no other competitor serves in the same way. Each link is backed by a clearly defined Brand Promise. It articulates the customer value proposition, and implicitly promises to consistently deliver value.
CUSTOMER EXPERIENCES
Strategies and partnerships are meaningless without simple and seamless experiences when buyers interact with brands. EVI is driven to effectively integrate heterogeneous systems to create great moments that customers will remember. Moments that will add up to brand loyalty and referral to friends and colleagues. The 21st Century Value Chain can do this with the use of web services and application programming interfaces.
APPLICATION PROGRAMMING INTERFACES (APIs)
21st Century brands need to have a clear purpose – creating a differentiated competitive advantage (see the profile of Porter below). Each brand should focus on consistently executing value activities that support the differentiated competitive advantage. Enterprise Value Integration (EVI) refers to this a a Brand Promise. Everything else a brand does (activities that do not create value) can be standardized or even outsourced. APIs play a vital role in outsourcing digital, intangible, or automated activities to third parties. Well known APIs include Commission Junction, Google Maps, Dropbox, Stripe, MailChimp, and Salesforce. There are many more for specific industries, such as logistics with Expeditors Shipment Tracking, energy with Utility Score Tracking, destination optimization in transportation with Route Savvy, and availability of agricultural machinery with Equipment Watch.
APIs also enable one differentiated brand to partner with another to create a unique combination that serves customers in a new way or disrupts the market. Concepts can be quickly spun-up, market-tested, refined based on feedback and behavioral analysis and then formalized if successful. Ideas that are not appropriate for current market conditions can be quickly shelved and losses cut to a minimum.
Felimy Green, regional head of customer franchise at Citi Asia Pacific discusses the value of APIs to the bank and its customers. Green describes the bank’s approach to delivering on customer expectations and how APIs plays into it.
OPEN, PRIVATE AND PARTNER APIs
APIs work by exposing web services in a public (open) or private interface. API Academy explains “an open APIs is an interface that has been designed to be easily accessible by the wider population of Web and mobile developers. This means an open API may be used both by developers inside the organization that published the API or by any developers outside that organization who wish to register for access to the interface.” Some companies have a limit on the number of API calls a single site or server can make in a 24 hour period. This creates a business opportunity, with a “freemium” business model. The education and training site continue, “a private API is an interface that opens parts of an organization’s backend data and application functionality for use by developers working within (or contractors working for) that organization.” The purpose of the private interface is to make it possible for internal developers to leverage existing services very rapidly.
There is also a hybrid model, appropriate for building value chains with third-parties, selected for strategic reasons. Partner APIs combine aspects of open and private interface models. These are often implemented to give internal developers of application a faster means to work with the API publisher.
TOP TEN LINKS / VALUE CHAINS + REA
1. HBS Faculty Research: Michael Porter
2. Michael Porter on Twitter
3. Porter’s Competitive Advantage, Chapter One PDF
4. Porter’s Competitive Advantage, Additional Excerpts
5. Value Chain Analysis by SMI
6. Value Chain Analysis by MindTools
7. Value Chain Analysis by CGMA
8. REA, a Model for eSupply Chain Collaboration
9. Enterprise Modeling: Process and REA Value Chain
10. Resources-Events-Agents by William McCarthy
TOP TEN LINKS / APIs ENABLING VALUE CHAINS
1. History of Application Programming Interfaces (APIs)
2. How do APIs work? (Upwork)
3. Public and Private APIs (Sprout)
4. Partner API Models Enable Innovation
5. Managing Relationships with API Partners (Nordic)
6. Representational State Transfer (REST) APIs
7. Simple Object Access Protocol (SOAP) APIs
8. Javascript Object Notation (JSON) APIs
9. eXtensible Markup Language (XML) APIs
10. The Importance of Standardizing APIs
Michael Porter authored Competitive Advantage: Creating and Sustaining Superior Performance in 1985. The book introduced the idea of Value Chains to the public. Porter is a professor of economics at Harvard Business School. Throughout his career at Harvard, he has brought economic theory and strategy concepts to bear on many of the most challenging problems facing corporations, economies, and societies, including market competition and company strategy, economic development, the environment, and healthcare.
PORTER’S VALUE CHAIN
Michael Porter asserted “there are two basic types of competitive advantage: cost leadership and differentiation.” Differentiation is where EVI’s Brand Promise and Brand Architecture comes into focus. “In a differentiation strategy,” Porter continues, “a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.” Porter argued that differentiation may vary significantly from one industry to another. He also asserted that the differentiation is not a single holistic concept, but is broken down into smaller components. This is also where is there is significant overlap with Enterprise Value Integration. EVI’s approach is to look at individual business processes and microservices as the smallest units of measure in quantifying the value created and delivered as part of the brand promise.
This Value Chain video was produced by Ducere Business School, a social enterprise that delivers education initiatives in Australia and Africa.
COMPONENTS OF THE VALUE CHAIN
Porter writes, “the value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors.” Porter keenly points out that profits are of the value it creates for customer that exceed the costs. In order words, differentiation – including the brand promise – is vital to stand out in the minds of buyers. Since his book was introduced in 1985, many companies have pursued the alternate generic strategy of lower costs, which is only a temporary fix in a highly globalized economy. There are always cheaper places to procure raw materials or components. This has led to tariffs.
Porter’s Value Chain model was based on the manufacturing industry, with transformation of raw materials and tangible assets delivered. This video has a three-step process in analysis in the service industry. Learn more at MindTools >
VALUE CHAINS ENABLE PARTNERSHIPS
Porter explains that “every value activity employee purchased inputs, human resources (labor & management), and some form of technology to perform its function.” This is based on the manufacturing industry, which has tangible inputs (raw materials) and tangible outputs (assets) in the form of products or finished goods. The service industry does not necessarily have purchased inputs. Enterprise Value Integration has advanced value chains in the age of cloud computing, with the premise that inputs may be from partners or third parties. In this context, application programming interfaces (APIs) are enabling technologies that make partnerships easier to spin-up and test in the market. Each partner in the modern serverless value chain brings a competitive advantage to the relationship to benefit customers. APIs can publicly expose processes and microservices that execute the brand promise. Brands can also create private and secure access, with limited views of proprietary data.
This video analyzed IKEA, a Swedish-founded multinational group that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories, among other goods and occasionally home services. It has been the world’s largest furniture retailer since 2008.
DATA IS INTEGRAL TO VALUE CHAINS
Porter notes, “every value activity also uses and creates information, such as buyer data, performance parameters, and product failure statistics.” The author continued, “value activities may also create financial assets such as inventory and accounts receivable, or liabilities such as accounts payable.” He made emphasized that value activities and accounting classifications rarely are the same. Therefore, there is a need to evolve accounting systems to address value activities in detail, and not abstract financials in a way that has little to do with the brand promise and its competitive differentiation in the market. IKEA has many prototypical characteristics of Porter’s value chain model, because it has tangible goods. Porter points to five categories of value activities that would apply to IKEA: Inbound logistics, operations, outbound logistics, marketing & sales, as well as service.
McDonald’s is a fast food company, founded in the United States in 1940. After Ray Kroc bought it from the McDonald’s brothers, it introduced and expanded various franchise business models. It now serves over 69 million customers daily in over 100 nations, across approximately 36,900 outlets
VALUE CHAIN ANALYSIS
A consulting firm found that around 80% of McDonald’s restaurants are owned and operated by independent franchisees. Research Methodology found that conventional franchise, developmental license, or affiliate are the three types of McDonald’s franchise restaurant formats. Regarding the value chain with McDonald’s, there are differences between each type of franchisee, but there are three primary value activities: Outbound Logistics, Marketing & Sales, and Service.
SERVICE. McDonald’s put the “fast” in fast food, with business processes designed to reduce wait time of customers after they place an order. Many of the ingredients have been prepared with only a final step required to finish the product for consumption.
MARKETING & SALES. Locations of McDonald’s are designed to reinforce brand presence, supported by extensive print, online and broadcast media advertising. McDonald’s advertising budget in the US alone equaled to USD 1.42 billion in 2014.
OUTBOUND LOGISTICS. McDonald’s uses various formats to reach consumers and deliver fast food quickly. Drive-thru is popular at rush hour, often integrated with sit-down restaurants. They also have counter-service outlets in food courts.
Aurora Automotive Company was formed in the mid-1950s by Alfred A. Juliano, a Catholic priest. It was partially financed by parishioners of his church in Connecticut. A value chain analysis was conducted by Astranti.
PREDICTING FUTURE STATES OF VALUE CHAINS
The consulting firm Deloitte conducted forward-looking value chain analysis on the automotive industry, with four possible scenarios. The worst case scenario “the fallen giant,” which cannot even survive. Second worst is the emergence of the “stagnant car maker,” with cars that have fewer technologies and autonomous features than the innovators. Then there are two additional scenarios which draw a contrast between data and platforms. The “hardware platform provider” is poised to focus more on the machine, and less on the software. This enables internet giants such as Google, Apple, and Facebook to create brand experiences. While the “data and mobility manager” thrives in a connected world. In this scenario, auto makers/OEMs set standards and have a rich portfolio of products and services. In the data and software realm, these OEMs will thrive with consumer data, mobility analytics, backend development, and service platforms.