Leg 6. From Hong Kong to Auckland (V). Value Chain Analysis explained.
Good morning to all.
Here is the position of all my sailor friends on our way to Auckland.
Here is our position, where we are in our strategy race: starting to understand the Value Chain Methodology.
Wishing you a beautiful week. Today we will see the Value Chain Analysis Methodology Approach applied to Cost Analysis. This theme is very extensive and I will do my best to explain it step by step. If you see it too theoretical at the moment, I believe when I show you future examples, we will finally comprehend it. But first, we will have to understand the VCA methodology.
As far as my wonderful competitors and friends at the Volvo Ocean Race 2017-2018, it seems the route tactics used by Sun Hung Kai-Scallywag and Akzo Nobel helped them to surpass the rest. At the moment the first place oscillates between Scallywag and Akzo Nobel leading the fleet. As you can see all the teams are very close to each other. In addition, there is a tropical cyclone called Gita near Fiji Island, and I pray with all my soul all our team friends may start to build a strategy to avoid Gita (if that is the case), and they can finish the race safely. 
Now, it is time, to go to our strategy race. Let´s start our material for today:
If you wish to download the last slides in PDF Format, click here: Eliescalante Leg 6 The Value Chain Analysis c 13feb2018.
Obtaining a cost advantage in a key value activity stage can mean a significant competitive advantage. After doing our Cost Analysis using the VCA methodology, we will be able to be sure in what activity can we cut costs and see the whole picture in comparison to our competitors. Nevertheless, the Cost Analysis using this tool has to be done carefully. To apply the VCA is an art. Why? Because first of all, we have to refine our pencils in order to classify the costs in each activity. If we don´t do this well, it will be difficult and arbitrary to judge whether how to reduce our costs, or how to reconfigure our value chain, and what cost drivers may we choose for that. In addition, value chains are constantly evolving depending on the scope.
For example, not bigger plants or bigger factories for certain regions (such as Africa) are the better. To this day, Nestlé has 418 factories in 86 countries, and this swiss conglomerate sells in 191 countries. In the year 2011, Nestle found that its large food plants were increasingly unable to meet the demands of local African retailers and local supermarket chains for rapid response, small runs and greater product and packaging variety. Nestle restructured its value chain for Africa into smaller focused factories and it was able to achieve both lower costs and higher satisfaction ratings from their retailer local customers for its greater flexibility and speed of response. The Nestlé´s management decision was based using the VCA Analysis. Can we see why is it so useful to learn the VCA tool? “Rather than maintaining a few large, centralized plants with too many dedicated production lines (which add higher electricity and logistics costs), Nestlé decided to operate smaller with nimbler plants with versatile production capabilities for Africa. Nestlé wanted to depend less on imports, and source-produce more materials locally there”. Moreover, Nestlé has adopted the VCA tool in its actual status (Shared Value Chain). Remember we have just started to understand the uses and application of the VCA. And we have started with the “pure” concept, from the “origins” of the VCA framework (1985). Right now the topic has evolved to become the Shared Value Chain Analysis which we will see in a few days. Don´t lose sight, please. Have patience, we will get there. Also, as I have told you previously, by far the VCA from Porter which has evolved to “Shared VCA” today, is his top beautiful legacy for all of us.
I will introduce to you a separate set of slides for the “cost drivers” subject. I am preparing it right now and will upload it as soon as I can, as adjacent material for this post.
This is all for today. I love to write but I am learning to stop these posts when reaching a certain amount of words. If I write too much, I can make you feel tired with so many information, and it is not my aim to cause you to run away from me. I call “my friends” to all the authors of all the books I have read about strategy and business, and they know all these themes are better understood when we digest them slowly. Step by step. The Strategy Professors who have written all the books I have recommended since I started this blog have given me hope in the middle of all these years in El Salvador since I came from Zurich, and I am so thankful for their books.
I wish you a beautiful and magnificent afternoon (for those who live in America) and for the ones who are near the ocean where our fantastic Volvo Ocean Race Team friends are racing, I wish you a good night. By now after 5 months of racing with Mapfre, Brunel, Akzo Nobel, Scallywag, Vestas 11th, Turn the Tide on Plastic and Dongfeng, I consider all these sailors as my friends too: “So far away, but so close to my computer”. You are teaching me things about Sailing I never knew. Each of the teams is teaching me something about sailing every day. Before closing this writing, from Alejandro Guillermo Lozano Artolachipi and me, please do take care of yourselves very much, on our way to Auckland. Blessings from my land.
Thank you again.
12:15 pm – San Salvador
Source References:
https://www.isc.hbs.edu/strategy/business-strategy/pages/the-value-chain.aspx
https://www.nestle.com/aboutus/globalpresence?zone=Africa#Africa
https://www.nestle.com/media/mediaeventscalendar/allevents/creating-shared-value-forum-2016
https://www.radionz.co.nz/news/world/350226/cyclone-gita-homes-destroyed-as-storm-hits
https://www.reuters.com/article/ozatp-kenya-nestle-20110407-idAFJOE7360JP20110407
Disclaimer: The content and presentation slides shown on this blog are prepared by me. Nevertheless, all the pictures or videos shown on this blog are not mine. I do not own any of the lovely photos posted unless otherwise stated.
Eleonora Escalante Strategy 