How to perform Value Chain Analysis (VCA)?
No Objective Method
Companies always have and will continue to view the world and their competitive environment in a unique manner, have their own mission, vision, ambition and corporate objectives and define their own unique competitive advantages.
Due to this, there is no objective method to conduct a value chain analysis. Hence, the basic approach to be followed for any value chain analysis should start with identifying the industry-wide value chain and mapping the value linkages of the MNE within the industry. A value contribution analysis should contain evidence as to what prices, cost premiums, margins, etc. are, in light of the economic contributions the individual companies, considered reasonable.
In simplest terms, mapping the industry value chain requires identifying and separating the value-creating activities of an MNE. Such separation could, for example, be made, if:
- There is (or could be) an external market for the product or source of an MNE’s activity
- The activity represents a significant percentage of operating costs for the MNE
- The activity is performed by competitors of the MNE in different ways
- The activity has a high potential for creating distinctiveness
Example: Business Model Canvas for Intangible assets
Depending on the specific case, a variety of VCA tools can be applied. Below, the Business Model Canvas model for Intangible assets is shown with the specific steps to be taken under this approach.
- Step 1. Create a Capital Inventory – Fill in 4-6 key resources in the box for each type of capital. This step helps move from abstract concepts around “capitals” to the unique set of resources that explain how your company creates value for your stakeholders.
- Step 2. Measure the Capitals – Gather varied kinds of measures of the capitals. This step builds on the inventory so that you can demonstrate how well you create value for stakeholders. There are three major alternatives for measurement:
- Quantitative – KPI’s are a traditional way of measuring intangibles and sustainability. These include things that can be counted or quantified to track the performance of a resource.
- Qualitative – Assessments are a growing way of measuring intangibles and sustainability. These include stakeholder assessments (like Glassdoor and the Smarter-Companies diagnostics) and third-party assessments (like brand and sustainability ratings). The worksheet includes a sample of a five-point system that you can use to self-assess the capitals.
- Financial – Financials can be a powerful way of measuring intangibles if and when data is available. These can include investment, revenues, costs, and profits.
- These three kinds of metrics can be used together to triangulate the health and outlook of your capitals.
- Step 3. Tell Your Story – The inventory can be used to create a specific, integrated value creation story. The measures help fill out the story and make it more tangible.