Why? Consider outcomes that depend upon inputs and capabilities from across the business such as:

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4 Our experience has shown that organizations can address complex performance issues by beginning topdown with a focus on a few vital business outcomes. This approach serves as a virtual pull mechanism for alignment and clarity in execution through processes, systems and capabilities. One of Accenture s capabilities for top-down performance diagnosis, alignment and improvement is Insight Driven Value Chain Management; the capability has proven to drive remarkable results across numerous industries and countless performance issues. A core component of our capability is Prime Value Chain Analysis (PVC) a technique that creates a dynamic view of major sets of activities that represent and deliver the company s core value proposition or those that impede performance. Focusing an organization on its PVC helps re-align management to key priorities, breaks down functional silos, and prioritizes improvement efforts to drive performance and deliver business outcomes. Large, complex organizations are often challenged to deliver substantive performance improvement owing to the fact that value is created by inputs and transactions that traverse numerous functions and flow in and out of countless processes. Owing to their size and matrices, typical improvement efforts are often seen in the context of their functional area and related processes as shown in figure 1. In short, they often lose sight of the fact that, together, they must enable strategic objectives and outcomes. How do organizations lose sight of their strategic objectives? Consider a start-up company. It begins with a relentless focus on the few customers it has, constantly innovating because ideas are at a premium, while being keenly aware of profitability, since everyone s future depends upon it. Simplicity abounds and everyone is clear on the critical priorities. As that company ages and grows it may end up 10 years later with 20,000+ employees in multiple functions at widespread locations producing diverse offerings for several customer segments. It s no wonder that the simplicity of the activities that matter most to customers and business outcomes can get lost: Managers and executives are given responsibilities for narrow slices of a big pie; they have a limited view, often seeing only one piece of the market, strategy, or organizational capability. Business policies drive increased complexity in offerings and processes, and management has no way to evaluate how that complexity is dragging down efficiency, productivity, and profits. Innovation and creativity get stymied by a sense that, This is always the way we ve done it, which self-limits strategic and operational options. The company loses the ability to be specific, with strategy statements too vague to allow consistent interpretation at lower levels. The size and isolated nature of the organization hinders alignment to what s really important, leading to misallocation of resources. So what can help? In an effort to improve execution and create an end-to-end view of the organization many firms depend heavily on continuous process improvement. However, experience has shown that traditional bottoms-up, reactive and isolated process improvement efforts across disparate parts of the business typically has little impact on delivering strategic objectives. Why? Consider outcomes that depend upon inputs and capabilities from across the business such as: Improving the total customer experience Accelerating time to market Delivering the perfect order Improving Operations productivity Reducing cost without risking quality and agility These and similar outcomes are dependent not only on processes but also systems, capital, human capabilities and policies to name a few. Even if processes were the greatest impediment the development and virtual stitching together of myriad process maps won t depict the way work actually gets done and fails to capture how customer-valued transaction types traverse the enterprise. Traditional continuous process improvement efforts can indeed provide performance improvements and deliver meaningful impact to the P&L especially for issues that are well bounded. These efforts are necessary but in terms of driving alignment to strategy they are not sufficient. What we have found to help organizations escape this reactive, disjointed problem solving trap is the adoption of top-down PVC analysis as a management solution. The purpose of PVC analysis is for a company to realign its core business and understand how it s many functions and capabilities either support or impede business goals capturing all inputs that contribute to business outcomes. PVC consolidates all activities and inputs required for a given outcome regardless of their function or process origin. Beginning with the outcome in mind, PVC charts the path that enterprise transactions take in delivering value depicting the way work actually gets done in terms of interrelated value streams that traverse the business as shown in figure 2. Each value stream, or critical path, helps organizations target where alignment, ownership and capabilities are needed to deliver strategic outcomes efficiently improving the way it executes. But identifying and consolidating all activities and inputs related to outcomes, regardless of where they originate, has another benefit it helps the organization optimize the way it s structured. Once all related activities and outputs are captured in a single view the organization can understand the relationship between execution and the operating model: how they re organized, how functions and processes interact, what capabilities are required, where they should reside, how they should be managed, etc. We ll share a company example of how execution and structure can go hand in hand as shown in figure 3. 4

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6 Prime Value Chain Analysis in action A global Fortune 500 consumer products manufacturer faced pressure to improve efficiency and effectiveness in its Product Development organization. The objective was to support a 25 percent growth target amid a corporate mandate to lower total operating costs. The environment was large, complex and challenging: numerous functions, dozens of processes, thousands of global resources. The product portfolio contained tens of thousands of items which were developed to serve common, global markets as well as unique products for regional demand. To improve product development performance the client initially considered bottoms-up analysis in search of waste across all processes within Product Development. This democratic reengineering approach would certainly have found local improvement opportunities with positive impact to the P&L. However, this was considered sub-optimal by senior leadership given the need to safely reduce costs while significantly improving product development output not to mention the number of processes in play and complex inter-relationships between structure, execution, the product portfolio and customer segments. That exclusively bottoms up approach was discarded in favor of Prime Value Chain analysis which looked across functions and processes to identify inefficiency at the enterprise level and determine how the operating model could be optimized for increased output at lower cost. Prime Value Chain helped to diagnose and ultimately manage product development as an ecosystem gathering a comprehensive inventory of all activities and inputs associated with the development of a new product regardless of where those activities reside or originate from in essence creating a company-specific world on a page view for that segment of the business, shown in figure 4. It s important to note that a PVC is not an industry process model. Instead it s a structured, current state, consolidation of all activities and capabilities that are associated with a given business outcome. Each of these activities or input cells shown in figure 4 can have a one to one or a one to many relationship with underlying processes, systems, technologies and capabilities. PVC helps roll up inputs from across the business that impact strategic outcomes. The benefits of Prime Value Chain Analysis are many and can include: Establishing a true north for reaching strategic objectives, independent of existing organizational boundaries and bureaucratic constraints. Illuminating the core activities that can become obscured over time by functional structures, singular process ownership and organizational bureaucracy. Helping identify the optimal portfolio of improvement opportunities which will likely be cross-functional organizational opportunities. Aligning stakeholders, breaking through silos, generating alignment on a path forward to implementing performance improvement projects with a strong strategic impact. Serving as a catalyst toward becoming a performance-oriented organization removing ambiguity about how value is created, delivered and by which accountable groups and individuals. Setting direction for Continuous Process Improvement: by providing an interrelated portfolio of projects that directly serve strategic outcomes. In the first phase of Prime Value Chain Analysis management works to redefine the core business activities, evaluates strategic objectives vs. current process and organizational capacity and identifies the key improvement opportunities that could contribute most to improving the business as described in the PVC. In the second phase management prioritizes strategic gaps and develops a transformation roadmap. This strategic roadmap serves to focus the organization on the biggest strategic gaps and determines their priority. Before beginning this work, it helps to identify an executive PVC champion or sponsor who will be responsible for overseeing the planning and execution of the assessment and implementation work senior leadership engagement is vital. A first step toward developing a roadmap of strategic and operational improvement is to ensure that the organization s business has been properly defined. A company s business definition should capture the essential role or roles of the organization with a focus on where it adds real value. The company s core purpose sets direction for the PVC. Getting the business definition right is essential to aligning structure and execution. 6

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8 Much of what a company does presently won t be on this short list or it will be fragmented across functions. But that s the point of PVC analysis to identify what matters beyond the organizational noise. And that s the next critical step: to assess the level of noise. With the PVC as the anchor, how does the organization align? The goal of this step is to gain a rapid understanding of the company s strategic objectives, process capabilities, culture, organizational roles and performance, systems, etc., leading to identification of strategic gaps. Starting from the Customer s perspective, PVC analysis segments all of these inputs and activities to identify those which directly create the outcomes and deliverables. These are deemed Customer Value-Add activities. Next, the analysis looks for those activities which primarily enable outcomes. These are termed Business Value-Add activities. The last set of activities are those which neither create nor significantly enable customer outcomes. These are simply termed Low Value Add. While the idea of segmenting activity in terms of value-add is not new, what s unique about PVC is that it does so, top-down, at the enterprise level not exclusively at the local process step level. Analyzing zones of value at the enterprise level can lead to powerful insights about performance and journey development as we ll discuss later. Figure 5 illustrates the consumer products manufacturer s PVC but now with all activities segmented according to those which directly contribute to customervalued outcomes and which do not. It also illustrates how the development of products traverses the PVC what s called the critical path of value. Of the (96) activities currently associated with product development only (11) directly resulted in new products moving from brand strategy to launch and then to retirement called the Customer Value category. Also identified were the enablers of outcomes called the Business Value category, as well as those remaining in the Low Value category. Charting the critical path to value helped objectively identify those enabling inputs and activities which directly support product development and those of low value having minimal contribution to outcomes. This allowed for separation of good costs that support outcomes from bad costs that may destroy value hence shaping the direction for deep dive analysis. Further, this company develops global products as well as specialized ones for local markets. Local products chart a different critical path in the PVC; identifying the unique activities supporting local offerings helped reveal the true cost of complexity. While some enabling and low impact activities can be rationalized many in the PVC s Business Value or Low Value activity groups must be preserved for the organization to safely operate and comply. However, once it s clear which activities and inputs create desired outcomes and which are on the critical path of value, leadership can begin to ask powerful questions: Where are company resources deployed across the Value Chain? Where do ownership gaps exist, where are managers focusing? Which activities consume the most Operating Expense (OpEx)? Is capital being deployed along the critical path or in the fringe? Where do redundancies, hand offs and poor flow exists? These and countless other questions can be answered by correlating company data with the PVC to create lenses of analysis. These lenses should specifically address the strategic business outcome in the context of the PVC. For example, the consumer products manufacturer segmented their PVC by a lens called type of work. This and other lenses, helped shape the direction of a new operating model shown in figure 6. By segmenting activities by the type of work the company found what was true innovation and what was rote and repetitive. Comparing the type of work analysis lens plus headcount allocation by activity (not shown) along with value add analysis helped set a course for transformation enabling them to meet their business objective of 25 percent growth amid a corporate mandate to lower total operating costs. A targeted set of activities, along with underlying processes, systems and resources, could safely be centralized and standardized at lower cost without impeding innovation shown in figure 6. Low value but high cost activities would become the focus of deep dive analysis targeted process reengineering could commence in support of a more efficient and effective structure tied to the critical path of value and outcomes. With changes to the Product Development structure along with the launch of an interrelated set of continuous improvement projects the client is on track to improve total productivity by 30 percent. 8

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12 Who to contact for more information on Prime Value Chain at Accenture Christopher D. Bradley Hundley Elliotte Jan Freundt Mark George Jansen Gerrit-Jan Lars Kraehmueller Melissa McCoy Adrian Smith Tinke Wesseling Edwin Van der Stam About the Author Mark George is a Managing Director in the Operations group in Accenture Strategy, and is the global practice leader for Operations and Process Strategy (OPS). OPS combines offering groups and capabilities including Business Process Management (BPM) Supply Chain Transformation and Configuration, Operational Excellence, Lean Transformation, Lean Analytics, Lean Six Sigma and Complexity Management. Mark is the author of The Lean Six Sigma Guide to Doing More with Less (John Wiley & Sons Publishing, 2010 pp327) and holds US Patents in Lean analytics and Enterprise Speed. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30 billion for the fiscal year ended Aug. 31, Its home page is Copyright 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture