In investment recovery as in primary useful life asset management, the Value Chain is a sequence of analyses and decision elements that define issues of operating value, risk, opportunity and return for identified assets. Each of the elements in the process chart illustrations has it’s own set of detailed considerations for success, or Best Practices.
 
As investment recovery professionals, we help our companies compete. Yet, within our organizations, lack of understanding of the asset recovery function frequently hinders us from fully contributing to our
companies’ welfare. To remedy the limitations that lack of understanding can impose, we frequently

rely on professional and personal relationships to educate colleagues about the important role asset recovery can play.
 

But, to succeed, IR professionals must employ another important strategy, as well: full integration into business processes. The value chain – a series of analyses and practices that extend throughout a company’s processes – has become a vital business concept. Understanding how IR can contribute to improvements along your organization’s value chain will improve your ability to save money, eliminate costs or both.

 

Harvard Business School Professor Michael Porter developed the value chain model to analyze specific activities through which firms create value for customers and better position themselves in competitive markets. Porter defines two activities – primary and support activities – that are generally present in organizations. According to Porter’s value chain model, primary value chain activities include, in sequence:
1. Inbound logistics: accepting delivery of and then storing the materials necessary to produce your company’s products or services, and the efficient distribution of those materials to manufacturing.
2. Operations: the production or manufacturing processes necessary to transform raw materials into the finished products and services your customers demand.
3. Outbound logistics: the maintenance, storage and distribution of finished products and services.
4. Marketing and sales: the processes of identifying customers and their needs, and generating demand for goods or services in the target markets.

5. Service: customer support after closing the sale of products and services.
 
Support activities in the value chain include:
  1. The firm’s infrastructure: organizational structure and hierarchy, locations, transportation and communication, corporate culture, financial and operating control systems, and similar institutional circumstances and practices.
  2. Human resource management: the processes of recruiting, hiring, training, developing and compensating employees, and planning for future employee needs.
  3. Technology development: identifying and implementing solutions that support your company’s value enhancing activities internally and support marketing, sales and service externally.
  4. Procurement: purchasing the raw materials, supplies, and equipment necessary for production.
IR functionality extends across several primary and support activities. Aside from the contributions re-used or re-deployed assets can have in logistics and operations, integrating IR into your organization’s structure, controls, culture and procurement activities can yield immediate, tangible benefits for your department and your company.
 


Armed with this knowledge, you can conduct a value chain analysis in three sequential steps to identify opportunities to contribute to your organization’s value chain:

  1. Activity analysis: identify the activities necessary for your organization to manufacture and deliver its products or services. Specifically, note which of these activities IR currently supports and determine if there is any reason IR is not supporting other necessary activities.
  2. Value analysis: for each necessary activity, determine what investment recovery action or actions will add the greatest value for your customers. For example, your company’s strategy of warehousing service parts may pre-date the emergence of easy and cheap overnight delivery. In that case, IR may consolidate warehouse locations near transportation hubs and sell or lease facilities the company no longer needs.
  3. Evaluation and planning: after establishing the greatest value-adding activities, evaluate whether the benefit of taking the action justifies its cost. If so, plan for its implementation. IR can have a major impact on this process by disposing of surplus assets and using the proceeds to offset the costs of new equipment or more expensive processes.
Part two
 
Building the Value Chain Link by Link
 
Equipped with a solid understanding of the value chain model, leaders throughout the organization can conduct a value chain analysis, identifying the activities necessary to manufacture a product or service, determining what change will add the greatest value to each, evaluating the costs and benefits of those changes, and planning which to implement.
 

Investment recovery professionals can participate in the value chain analysis in two ways. First, as part of an organizationwide assessment of value-adding activities, investment recovery should determine if IR offers a value-adding role for each activity. Second, IR departments can use the same value chain analysis tools to assess the value of each element of its activities. In the value chain analysis, first assess each activity your company or your team undertakes as a part of regular business practices. While it’s easy to consider primary and support activities and daily, monthly, quarterly or annual activities, the analysis leader should work with a diverse group of colleagues to brainstorm all activities that contribute to internal and external customer experiences. Remember to include routine managerial and outsourced activities such as team building and motivation, reporting, training and development, and internal and external feedback loops, both formal and informal.

 

To ensure that all appropriate activities are included in the analysis, it may be useful to construct a visual workflow that individual contributors can review and mark up with their individual responsibilities. This visual representation of IR tasks then can become part of an organization-wide flowchart that will be important in the value analysis and evaluation and planning steps. The added benefit of conducting the activity analysis with a larger group is that you can secure the support and buy-in of people who will determine whether your changes will succeed.

 
In the second element of a value chain analysis, assess which of your activities add or don’t add value for customers. Consider eliminating activities that don’t add value – this may cut costs and allow you to become more competitive in your market. If you cannot eliminate non-valueadding activities (as might be the case with legally mandated training or reporting), determine how you can consolidate them with value-adding activities or in a centralized support function that can leverage economies of scale.

 

Consider why activities that add value to your processes and customers are worthwhile. Do they generate revenue or move a costly asset off the books? Do they extend the life or functionality of an existing asset? For each answer, ask the next question: If this activity adds value, what change could we make to add even more value? Again, brainstorming with a diverse group of colleagues is likely to generate the most useful solutions. It is during this step that you ask your customers, both internal and external, what adds value to the investment recovery process.

 

The third step in a value chain analysis is to evaluate the suggested changes to determine whether the cost of making each change justifies the benefit you may derive from it. Some ideas simply will not survive an honest cost-benefit analysis. Some will be marginal, and this is another opportunity to include your customers in the analysis. For example, if a customer tells you a particular change would generate more business, that information may justify a change which, on paper, appears to deliver benefits roughly equal to costs.

 
Ultimately, though, what you really seek in the evaluation is any change that carries a low risk or cost and delivers a high reward or return on the investment. Once you identify changes that will add significant customer value, you are ready to plan for their implementation. This part of the value chain analysis will be far easier if you have made a point to include associates and customers in the activity and value analyses. Change is difficult under the best of circumstances, and people who have contributed to a process are more likely to succeed in carrying that process through to its logical conclusions.
 
A successful value chain analysis should create substantial new value for your organization and its customers. However, revenue is only half the equation in a successful operation – you must also consider costs.
 
Reprinted from ASSET 2.0, the Investment Recovery Business Journal, Vol. 3, 2006

© The Investment Recovery Association