Value Chain

1. Value Chain Innovation, Entrepreneurship & Design Toolbox

2. Value Chain and Value-added What?– Why? – How? – Example – Conclusion • A Value chain shows all the stages of activity needed for a product to be made • and to reach the end customer • It is also a snapshot of your industry environment and the other players you will need to work with in order to do business • Value-added activities are those that increase your product’s worth to the • customer; • So , when making the purchase, the customer will be paying primarily for those activities that increase the product’s attraction, usefulness, pleasure, etc. • Value-added activities are therefore those that are essential to the success of your product/service offer • These often amount to more than the product itself, and include ‘complementary assets’

3. ‘Complementary Assets’ ‘Complementary Assets’ are “the assets needed to translate an innovation into commercial returns” (Source: Teece, 1986) Examples: Resources Brand name Distribution channels Customer relationships Capabilities Manufacturing capabilities Sales and service expertise What?– Why? – How? – Example – Conclusion

4. Why do this exercise? What?–Why? – How? – Example – Conclusion • A Value Chain analysis allows you to think ahead about: • your competitive position in the value chain; • the opportunities and challenges you may encounter with the other players in the chain; and • the probable consequences for your business model. In order to reach your customer, you will need to attract and negotiate with those players in the value chain who control any value-added or complementary assets that you do not have yourself, or that would be hard for you to build quickly.

5. VAC Analysis: How to proceed Plot the value chain around your business Identify the likely position of your product, service or idea in the chain, based on your own capabilities Identify where the main value is created Analyse the chain: Understand your weight/power with respect to ‘upstream’ and ‘downstream’ players in the sector What complementary assets do you not have currently? Identify the economic and operational impact that the chain structure may have on your business Will it make more sense for you to work with other players and leverage their complementary assets? Or to build your own complementary assets and overlap/compete with them? What?– Why? – How? – Example – Conclusion

6. What?– Why? – How? – Example – Conclusion Plot your Value chain UPSTREAM DOWNSTREAM Product development Technology Production Marketing Distribution • What are the different steps to finally reach the end user? • How many phases in the value chain can/should your business cover? • Who are the other players? What is their bargaining power? • Identify them by type of business, and by names if possible • What does the customer really pay for (where is the most value)?

7. Identify your position in the chain and the added value points; Analyse your weight/power in the chain Which steps are needed to reach the end customer? Where is the biggest added value for the client? What does the client pay for? What do you want to do yourself in the chain? What are your capabilities? Who are the other players? How many alternatives do you have upstream and downstream? Which ones have most power? Which would benefit from working with you (win-win)? Are there parties that can block your path to reaching the customer? Would you have to give away too much value (share of your income) to work with them? Do you need specialists to play on the downstream market? What?– Why? – How? – Example – Conclusion £€ $

8. Example: Innobev - Belgium Product: a new beverage, based on Pinot and beer, mostly for the clubbing circuit, higher segment 4,5 £/consumption. The beverage still to be developed. Packaging, which is totally new and creative according to the designers, is designed, but not manufactured or tested You are the designer who has developed the idea; your core competence is design of packaging. Analyse the value chain: Players? Where is the value in the value chain? Where is the power? What can you do yourself? Problems? Cures? What?– Why? – How? – Example– Conclusion STAGES Research Development Production Marketing Distribution ? Is it as simple as that?

9. 1. Types of players Upstream Developers of product/formula Packaging/labelling Design (You) Packaging production and printing Brewers Bottlers Marketing and sales Distributors Restaurants/bars/night clubs Retailers Downstream What?– Why? – How? – Example– Conclusion

10. 2. Plot the value chain Position the stages of activity in the chain Show the types of players for each stage What?– Why? – How? – Example– Conclusion R D P M D Research - formula Upscale For produc- tion Design Bottle (You) Produce packaging Brewing - bottling Specialised fairs – promotion Agent Brew- eries Conglome- rates Grey Mar- ket WS Re- tail Brew- ery owned bars Customers

11. 3. What is the customer paying for (where is the value-added)? What?– Why? – How? – Example– Conclusion What bargaining power do all the players hold? Can they make high demands on your value as a condition for doing business with you?

12. 4. Research/Analyse the industry and chain –Conclusions: Considerable value to be shared with the university that would develop the formula – licensing royalties Brewing and bottling is mostly done in one and the same facility Some strong breweries active in the market, it would not be possible to ask them to brew a competing product There are a number of alternative independent brewers of small batches = positive, because the venture has some choice of players to work with Producers of packaging: alternatives are available In the considered market, incumbent brewers own 50% of the bars! This market is locked for the new venture. Retail is very powerfull: they want proof of sales before they even consider providing shelf space Retail sector is also a very tough partner to bargain with because they own the distribution channel to the customer, but also compete in a mature or at least consolidated market Grey Market (gas stations, night shops) and smaller Wholesalers is organised in conglomerates which are very untransparent “who knows who” Independent clubs only want to work with ‘consignation’ You would need a specialised agent to go and look for “blancs” or niches for this product, but this competence is very rare and therefore expensive Working together with an incumbent brewer then? But then you would need to protect the idea (IP). Another niche can can always be developed… Very difficult value chain for a new venture Your power in the value chain is currently not large enough to make the idea viable More thinking needed for this venture! What?– Why? – How? – Example– Conclusion R D P M D Research - formula Upscale For produc- tion Design bottle Produce packaging Brewing - bottling Specialised fairs – promotion Agent Brew- eries Conglome- rates Grey Mar- ket WS Re- tail Brew- ery owned bars Customers **Raw material **Transportation

13. Conclusions and deliverables The Value Chain is sometimes more complex than at first presumed Research is necessary when you do not know the playing field well There may be several points in the value chain that your venture could occupy, or several entry routes; you need to determine the best approach based on your competitive position and access to complementary assets. For your venture to succeed, you must devise a business model that allows you to obtain sufficient power and impact on the value chain (through proprietary value creation). The smaller your impact on the value chain (e.g. less control over ‘Complementary Assets’ and value added): the more important the presence of multiple competing players (alternatives) in other sections of the value chain – this mitigates any single player’s power The greater your need for legal protection of your idea (Intellectual Property – this mechanism is further explained in the “Teece Analysis” (under Business Model) in the IE&D Toolbox What?– Why? – How? – Example –Conclusion