Discover A Your Prime Value Chain

Focusing on the PVC Helps Re-Align Management to the Lifeblood of the Business By Stephen A. Wilson, Hundley Elliotte, Tim Collins and Andrei Perumal

ll great businesses share common traits: ey focus on the true needs of targeted customers, center on their core competencies, and relentlessly pursue perfection in how they execute. General Electric and Dell Computer are both rms that have succeeded by integrating these essential traits. More speci cally, wed describe the three criteria for success as:

Sound business strategy clearly de ning what solution to sell and who to sell it to Strong core competencies that lead to di erentiation in the eyes of the customer Strong business processes to deliver value to the customer quickly, reliably, and at a pro t. Unfortunately, the Dells and the GEs tend to be the exception rather than the rule. While many rms may excel in one of these elements, the integration of all three is extremely di cult, especially as an organization grows in size and complexity. Over time, the key elements that make a company successful and give it its lifeblood can become lost amid the functional silos, clutter and inward focus that o en accompany growth. Stripping away the clutter is what can help turn the tide for many companiesand thats the focus of this article. Once you strip away the clutter, whats le is the Prime Value Chain (PVC): the major sets of activities that represent the companys core value proposition. Focusing an organization on its PVC helps re-align management to key business priorities, break down functional silos, and prioritize improvement e orts. Figure 1 shows an example of a PVC that helped a functionally structured organization focus on the key activities that matter. Where does all the clutter come from? 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 pro tability, since everyones paycheck depends upon it. Everyone is clear on the critical priorities. As that company ages and grows, it may end up 10 or 20 years down the road with 20,000 employees in multiple functions at widespread locations producing diverse o erings. Its no wonder that the simplicity of the few activities that matter most to customers can get lost in the shu e as: Managers and executives are given responsibilities for narrow slices of a big pie; they have a limited view, o en seeing only one piece of the market, strategy, or organizational capability. Business policies drive increased complexity in o erings and processes, and management has no way to evaluate how that complexity is dragging down e ciency, productivity, and pro ts. Innovation and creativity get stymied by a sense that, is is always the way weve done it, which self-limits strategic and operational options. e company loses the ability to be speci c, with strategy statements too vague to allow consistent interpretation at lower levels. e size and isolated nature of the organization hinder alignment as to whats really important, leading to misallocation of resources. A recent case illustrates the point. An organization had a stated mission to be fast, exible, e cient and innovative. Over time, with tremendous growth, its structure and processes grew out of line with the mission and strategy. e organization evolved not for speed or innovation but to provide oversight and prevent fraud. is led to organizational

Big lead time opportunity here

Develop
Market Research Test Lab Requiring a cross-functional approach here Marketing

Source
Forecast Tactical Purchasing Logistics Manufacturing Strategic Sourcing

Deliver
Warehouse Transportation Finance

Service
Customer Service Regional Service Operations Sales Parts Center

Transfer Team Development Pricing

Dealer Networks

Drives Ownership of Metrics/Communications/Accountability

Figure 1: Example of a Prime Value Chain

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silos and a culture built around inspection. Just about anyone could say no to a deliverable at any stage of development, driving an incredible amount of rework, yet few could override these vetoes or drive signi cant process changes. In sum, development was weighed down by rework, rigidly con ned to established principles, and anything but innovative. e company launched many signi cant reform initiatives, but none tackled the key systemic issues around responsibility and authority, which prevented sustainable change.

Reconnecting With the Core: PVC Analysis

So what can help? Isolated improvement e orts cant, by de nition, address a systemic issue. What we have found to help organizations escape this misalignment trap is PVC analysis. e purpose of a PVC analysis is for a company to rede ne its core business and understand how its many functions and roles align, or misalign, in support of those business goals. e misalignment and gaps reveal the change e orts that are more likely to produce meaningful results because those e orts will be coordinated and aligned with elements that customers care about, not internal activity traps. is is why we say PVC analysis is the starting point for strategic transformationit anchors all improvement e orts in the highest-level objectives of the organization. Using PVCs to anchor improvement e orts ensures business mission alignment and clari es interactions and intersections among strategy, policy, mission, process and organization. PVCs arent process maps; rather, they seek to clarify the relationship among strategy, mission, policy, process and organization. Bene ts 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 and organizational bureaucracy Helping identify the optimal portfolio of improvement opportunitieswhich will likely be cross-functional organizational opportunities Aligning all stakeholder groups, breaking through silos, and generating alignment on a path forward that leads to implementing projects with a strong strategic impact.

How It Works

ere are two natural phases to PVC analysis:

Phase I: Asserting the PVC. Management works to rede ne the core business activities, evaluates strategic objectives vs. current process and organizational capacity, and identi es the key improvement opportunities that could contribute most to improving the business as described in the PVC. Phase II: Developing the PVC transformation roadmap. Management prioritizes strategic gaps and develops a transformation roadmap. is strategic roadmap serves to focus the organizations on the biggest strategic gaps and determines the order of focus. Before beginning this work, it helps to identify a PVC
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champion or executive sponsor who will be responsible for overseeing the planning and execution of the assessment and implementation work. Heres more detail on both phases.

Phase I: Asserting the PVC

A critical rst step toward developing a roadmap of strategic and operational improvement is to ensure that the organizations business has been properly de ned. A companys business de nition should capture the essential role or roles of the organization with a focus on where it adds real value. e companys core purpose sets the PVC the highest level of interdependent processes critical to the objectiveapart from support activities. Getting the business de nition right is essential to aligning strategies and maximizing performance across key functions. For example, consider a large private bank. Where does the bank create disproportionate value across its value chain? e bank creates unique value in the sourcing and selection of investment opportunities and little unique value in the servicing of the resulting assets, predominately loans. At best, the bank could aspire to be an average servicer of loans. So it rede ned itself as a deal houseand eschewed activities outside that de nition (such as loan servicing and other related functions). e result: signi cant cost savings and, perhaps more important, the opportunity for management and sta to focus on what it did best. Results can sometimes be surprising. A er going through this approach, a large supply chain operation recently realized that its purpose wasnt just distribution (which is how it saw itself) but also archiving (storing items that arent expected to be used but must be kept for a while in case theyre needed). ese two functions are quite di erent. For example, obsolescence should be nearly eliminated in a well-run distribution operation, whereas its expected in an archive operation. e misalignment of this operations stated strategy with its actual business led to a host of operational issues. For example, the cost of storage, signi cant for an archive, wasnt quanti ed and captured in its pricing structure. De ning the business is the rst critical step to de ning the PVC. You need to answer the question: Given this business de nition, what are the three to ve key critical activities required to deliver on that? Much of what a company does presently wont be in this short listor will be fragmented across functions. But thats the point of PVC analysisto re-assert what matters beyond the organizational noise. And thats the next critical step: to assess the level of noise. With the PVC as the anchor, how does the organization align? e goal of this step is to gain a rapid understanding of the companys strategic objectives, process capabilities, culture, organizational roles and performance, systems, etc., leading to identi cation of strategic gaps. e primary e ort in this phase is focused on gathering data on silo structures, nancial performance, customer satisfaction and needs, and process performance, then piecing the data together to understand major disconnects with the PVC and quickly develop hypotheses on why the
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organization cant achieve the strategic objectives. Youre looking for systemic issues here, ones that cut across the organization. Making the analysis cross-functional is essential. e challenge of implementing enterprise-spanning opportunities is exacerbated by functional silos that exist in most organizations. Silos creep into organizations slowly and set deep roots in the companys culture. ey contribute to having misaligned incentives, an excessive focus on departmental performance, and rewarding those who nd problems in other areas (i.e., they dont have to change themselves or o er solutions). Having all parts of the PVC represented in one room simultaneously is a good way to start breaking down the silo mentality. What you ultimately end up with is management alignment around the PVC and the gaps or challenges related to ful lling the goals of that PVC. Moreover, youll have identi ed the set of broad opportunity areas which, if addressed, would close the strategic gaps.

PVC analysis is the starting point for strategic transformation it anchors all improvement efforts in the highest-level objectives of the organization.

Phase II: PVC Transformation Roadmap

is phase has three key objectives. e rst objective is to align leadership and all stakeholders (internal and external) on the PVC and the implications for change e orts going forward. Failure to do this will result in silos enduringpreventing

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transformation roadmap development and implementation. Many times functions can be misaligned against critical PVC elements, or may only be e ective working in close concert with other functions. e rationale, and importance, for cross-functional collaboration is underscored by the PVC. e second key objective is to develop the transformation roadmap. is is the prioritization of the initiatives. is roadmap will focus resources on the highest impact initiatives along the PVC. e approach here is to nd the few big areas that need to be addressed to close gaps highlighted in the PVC. O en, the resulting initiatives will cut across the enterprise, with multiple intersections with organizations and processes. e third objective is to de ne and scope the speci c improvement initiatives that best address the strategic issues and gaps identi ed in Phase I. One best practice here is to identify and assign an initiative sponsor, someone who will identify an initiative leader and form the crossdepartmental team. Once the initiative leader is identi ed, that person will dra the initiative scope and begin the vetting process, aligning the leadership and stakeholders on the initiative bene t and e ort.

Summary

Gaining clarity around a companys mission or objectives and de ning its PVC helps the organization begin to break down silo barriers and sets the foundation for gaining faster, deeper, more meaningful improvements. is PVC approach provides a clear strategic picture and cements the interrelationships among the critical business components: between business strategy and core capabilities, and between core capabilities and process execution. With the foundational de nition of the organizations mission and PVC complete, the rm is ready to identify and implement strategically important project opportunities using the PVC assessment. ere are several guiding principles that must be followed: e PVC approach must have top-level sponsorship e participation must be cross-organizational and 100 percent e output must be managed as an integrated initiative, with clear roles and responsibilities.

Finally, be prepared to tackle major shi s in the companys culture. As noted, misalignment between strategy and execution is o en linked to embedded policies and practices, and establishing new ways of doing business wont be easy. Also, be prepared to tackle initiatives of all shapes and sizes: easy to hard, go-do-it type projects to resource-intensive projects that may last many months. Resist the urge to complete the easy opportunities rst. Rather, tackle whatever is most important to your business. Retain focus on your PVC roadmap. By working to re-align the company on what matters most, youll be helping return its lifeblood.

Aligning IT and Business Strategy

Takeaways Focusing an organization on its Prime Value Chain (PVC) helps re-align management to key business priorities, break down functional silos, and prioritize improvement e orts. It helps to identify a PVC champion or executive sponsor who will be responsible for overseeing the planning and execution of the assessment and implementation work. Be prepared to tackle major shifts in the companys culture. Misalignment between strategy and execution is often linked to embedded policies and practices. Isolated improvements e orts cant, by de nition, address a systemic issue. Making the analysis cross-functional is essential. The challenge of implementing enterprise-spanning opportunities is exacerbated by functional silos.

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For More Information:

Stephen Wilson Managing Partner
Stephen is Managing Partner and co-founder of Wilson Perumal & Company. He works with CEOs, COOs and other senior leaders, advising them on critical strategy and operations issue. Stephen is a thoughtleader on the topics of complexity, cost-competitiveness and operational & organizational performance and has worked with clients in the US and Europe to achieve transformational results. He is co-author of Waging War on Complexity Costsand Conquering Complexity in your Business, both published by McGraw-Hill. Stephen is a contributor to journals such as Chief Executive magazine,CNBC.comand Investors Business Daily. He holds an MBA from The Wharton School in Finance and Strategic Management and resides in Dallas. Contact Stephen at swilson@wilsonperumal.com.

Andrei Perumal Managing Partner

Andrei is a seasoned advisor to senior leaders in both industry and government and an innovative thinker on complexity, strategy, and operations. He has deep business and technical expertise across a variety of disciplines, and draws from his broad base of experience to help clients solve their most critical strategic and operational issues. After graduating with his engineering degree from MIT, Andrei excelled in the US Navy's Nuclear Power Program. Andrei began his consulting career with Bain & Company. Following his time at Bain, Andrei was recruited by Andy Beal to be Director of Strategic Operations for Beal Bank, one of the most protable banks in the nation. Andrei later joined George Group Consulting to help build George Group's Operations Strategy practice. Andrei is also co-author of Waging War on Complexity Costs(McGrawHill). Contact Andrei at aperumal@wilsonperumal.com.

Tim Collins Manager

Tim is a seasoned manager with signicant industry and consulting experience. Tim's expertise includes complexity management, operations strategy, supply chain management, product development and lean manufacturing. At Wilson Perumal & Company, he has led large organizational transformations in extremely complex environments. He previously held leadership roles at ABB Automation, including Senior Product Manager, Plant Manager and Sales Manager for Japan. He holds an MBA from the Ohio State University and a Bachelor's of Science in Computer Science from Northwestern University. Prior to consulting, Tim was an adjunct lecturer for the Fisher College of Business at the Ohio State University, where he taught Operations Management and Supply Chain Strategy courses. He currently resides in Columbus, Ohio. Contact Tim at tcollins@wilsonperumal.com.

Wilson Perumal & Company, Inc. Two Galleria Tower 13455 Noel Road, Suite 1000 Dallas, TX 75240 +1-972-716-3930 tel

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