Ok I’ve decided that we’ll stick with value chains for another week, for 3 reasons….
1. The more I think about them the more excited I get (I did mention that I’m a bit dorky about this sort of thing, didn’t I?!).
2. Last week was soooo theoretical that we didn’t even look at an example of what a value chain is, which isn’t fair to any readers (are there any readers out there? Feel free to say hello down below to let me know you’re out there!).
3. I’m impatient to bring along a bit more practicality even if I’m saving it up for the next cycle of the SBA corkscrew.
Anyway, this is why I’m so excited – I just read the below equation and although it’s similar to saying income- cost = profit is still produced one of those light bulb moments for me. In fact today’s thought processes are all like that – zing, zing and zing!
The equation… Value Created and Captured – Cost of Creating that Value = Margin
(Equation taken from MindTools at http://www.mindtools.com/pages/article/newSTR_66.htm .)
So why does this put my brain in a tizzy? Well it all comes back to the value chain and (in my opinion) its universal applicability to organizations, be they private sector, public sector or not-for-profit.
Today (maybe as usual) I’m going to focus on the government sector because this is where my heart is. In the sector that is the administrative arm guiding how most things in our society are run and yet has the reputation for doing a very bad job – or at least a very slow and resource intensive job of it. That’s just common opinion you understand – I am not passing any judgement here!
But in the government sector, I do think this concept of value creation is severely impaired or misunderstood. While many public servants join government to loosely make the world a better place, it is sometimes unclear whether the focus is on achieving ‘value’ in an objective rather than subjective sense.
Often governments and their departments do have strategic goals and corporate goals respectively. These define the ultimate products which are delivered to their constituents – a certain amount of jobs created, sustainable use of certain resources perhaps. However the form that these are delivered in, the ways in which these goals can be met, the exact composition of how multiple goals may be able to be cooperatively delivered in novel, invigorating and efficient ways – well that is where value chains can help.
Do you remember from last week? Value chains keep the focus on the consumer and can help identify where previously unthought-of value can be added. If we go back to that equation with this value proposition in mind, then it provokes a whole new way at looking at the work of a government agency.
Value Created and Captured – Cost of Creating that Value = Margin
Not only does this equation draw me to think about how we evaluate value in the public sector but also the margin. That ‘margin’ that somehow smudges together the metrics of ‘value’ and ‘cost’ is very hard to define, but epitomizes that ongoing government balancing act that has tended to see the numbers of public servants bob up and down through the political cycle. However whereas in private sector, that margin is generally financial and all about making as much profit as possible, in the public sector the margin is not fully quantifiable and the associated red tape is publicly perceived as just breaking even or even slipping into negative territory.
I think value chains also play a role in enabling the full value of a department to be identified, broken down and better quantified.
But where is this practical way of looking at Value Chains though, I hear you asking… Give me an actual example!
Well here is a traditional picture of Porter’s value chain.
This is a value chain for a firm, a private enterprise, and it makes the distinction between primary and supporting activities. To be quite honest, there is unlikely to be too much difference between the supporting activities of a company and government (although as you’ll see below, I’ve chosen to add a couple in). However, the primary activities, which form the real chain of value-adding activities, will be quite different.
The Queensland government has done a great deal of work on its Enterprise Architecture as part of its Performance Management Framework which includes a high-level value chain (at www.premiers.qld.gov.au/publications/…/pmf-public-sector.doc). I like this as it provides useful context, but I don’t think it goes to the level of detail that I’m looking for today. (It might be that they’ve gone to this level also and I just haven’t found it!)
Here I am delving down deeper into the Queensland Public Sector’s value chain though to propose, in contrast to Porter’s value chain for firms (private sector companies), a universal value chain for government departments. I’m not completely sold on this yet, so would be interested in any feedback. See what you think:
This is another high-level chain, but it can be broken down further and tailored within a specific department to include the different resources within the department’s porfolio. Note that when I talk about these resources, I mean the resource within the portfolio of the department. It could be the resource of “health”, “environment” or “education”.
However the key purposes of this value chain are to: keep the focus of an agency on the value it should be creating and the end consumer of the value, provide a useful classification of an agency’s processes; as well as providing all the other benefits that we covered in the last post. Not alone obviously, but as part of the whole organisational analysis framework. It is one way in which a large organisation can identify and classify the activities that contribute to its business goals and then what processes to focus on to drive valuable improvements.
I will finish here before this post turns into an essay though! And I promise to move on to something new next time.
What do you think?
What value chain would you use for the public sector? Does this one work? And could you define a universal value chain for a not-for profit organisation too?