An alternative foundation the value chain

What we have found to be most effective in creating some guidelines for making these decisions is to put together what is known as a value chain analysis ofthe business.

The point of a value chain analysis is to attempt to cut through the "clutter" created by the organizational and political structure and figure out what the core

Figure Value Chain

Figure 3.10 The "alignment" problem.

competencies and objectives of the business really are. When you do a value chain analysis, you ask yourself some simple and very direct questions. What is the point of our business? Who are our customers, and what needs do we meet? And then, finally, which are the core business functional areas that drive the process of meeting those needs? When we get the answer to this last question, we identify the business' core value chain.

The challenge to doing an analysis like this comes when you evaluate the existing organization (and the subsequent computer system's footprint created by that organizational structure) and try to figure out what is critical and what isn't. It is actually very industry dependent and business specific.

For example, in a services company like a law firm or a consulting business, human resources systems are going to be the key information repositories that drive the business. In the consulting business, human resources are the product.

On the other hand, in the coal mining business, core business value drives from people (human resources), equipment, property, and processing facilities.

In the insurance industry, human resources become even less important as marketing, underwriting, actuarial, and sales are the key areas, as shown in Figure 3.11.

3.3.2.1 Walking through the value chain

The first thing we do when we develop a value chain is figure out what the point of the business is. In the insurance industry case, it is to provide security to customers through the issuance of insurance policies. Notice, the main "driver system" for any insurance company will always be policies. (In every industry there will inevitably be one or a series of core driver systems upon which all other systems and the entire business are based.)

Basically, the creation and maintenance of policies is the point of this business. So in this case, the value chain is defined by figuring out which major functions need to be performed in order to create, package, and sell those policies, and then pay out to customers when they need it.

The main processes in the value chain are, therefore, marketing (figuring out what kinds of policies to sell), actuarial (how to price the policies), underwriting (crafting the specific policy solutions for customers), processing claims (paying out to clients), and sales (finding customers to sell policies to).

Marketing Operations Sales department department department

Marketing Operations Sales department department department

Insurance Industry Value Chain

Figure 3.11 Value chain example for the insurance industry.

We can then see listed above the value chain the different "departments" that manage each of the functions in the chain.

Our proposal is that with the value chain we have identified for the business, you can create a template for the development of a warehouse that will stand the test of time. The organization may change, and the operational systems may change, but the core process that it takes to deliver the goods to the customer (and the subsequent types of knowledge that must be managed in order to do so efficiently) will remain stable.

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