What is value chain assessment? It is the determination of the strategic advantages and disadvantages of an organization's activities and processes that create value within their marketplace, thereby giving the organization a competitive advantage. The actual value is determined by the customer, as it relates to the competitive advantages of lower cost or product differentiation.

In order to conduct an effective assessment, strategic managers must first identify these activities. This knowledge comes from business process mapping. This strategy maps out all business processes and identifies the activities and resources required to complete these activities, thereby providing a detailed and accurate snapshot of all that occurs within a company.

This is often the first time management is able to obtain a crisp awareness of the processes that occur in all areas of the organization. This holistic view facilitates the identification of the activities that are involved in the design, production, marketing, delivery and support of products and services.

A meaningful value analysis also requires an internal cost analysis. By identifying all of the internal costs attributable to each value-creating process, an organization can begin to get a firm handle on where it does and doesnt meet the low cost value-creating criteria; thereby demonstrating to the organization where it is able to maintain and perhaps even increase its cost advantage to its customer base.

The next phase is to examine all of the processes to identify where and how the organization creates differentiation value for its customers. This type of analysis can be more complex as the 'data' is not as easily identifiable as cost drivers. Differentiation value creators are solely from the perspective of the customers, therefore it will be necessary to keep that perspective in mind when developing strategies for sustaining and enhancing this value. Some of the strategy areas that should be considered are product features, marketing channels, pricing, product image and customer service and support.

The final phase of the value chain analysis requires expanding the parameters of the processes to include all links from the supplier sources to the disposal or recycling of the product. This analysis can uncover unique advantages for a competitive edge, by creative strategies for activities involving an organization's suppliers, channels or users.

By addressing the issue of value chain analysis, an organization can give itself a real competitive edge. Not only will it be intimately aware of all of the factors and activities that contribute to its value attainment level, but it can exceed the performance and offerings of the competition.

Today's customer is more sophisticated and better informed. Through effective value chain analysis, the organization will also become savvier at identifying the needs and wants of its customer base and surpassing their expectations.

Copyright - Kelly Melanson, Certified Management Accountant