“When the economy turns south, companies turn inward and focus on operational excellence to prepare for the upturn in economy” – Janelle Hill, Gartner Analyst.
The Value Chain is a concept of business management. The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing or service organization as a system, made up of subsystems- each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits. The main purpose of the theory is a shift in the focus on operational excellence as a source of competitive advantage.
Business process management (BPM) is a holistic management approach focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to improve processes continuously. It is argued that BPM enables organizations to be more efficient, more effective and more capable of change than a functionally focused, traditional hierarchical management approach. An empirical study by Kohlbacher (2009) indicates that Business Process Management helps organizations to gain higher customer satisfaction, product quality, delivery speed and time-to-market speed. Michael Porter through his book ‘The Competitive Advantage’ introduced the concept of the Value Chain. He suggested that activities that are efficiently managed within an organization will add relative value to the service and products that the organization produces, and all these activities should be run at optimum level if the organization aims to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organization and transact freely and willingly. By implementing BPM in the activities defined by Porter’s Value Chain Framework, the organization will not only ensure smooth functioning of the activity in isolation but also a seamless integration between all the activities. I believe an organization can achieve Competitive Advantage by studying the fundamentals of Michael Porter’s Value Chain Framework, and implementing the principles of the BPM.
Hence it is important to understand the relationship between the BPM and Value Chain and how BPM can facilitate creation of an environment that will provide the organization with a competitive advantage through Value Chain Analysis.