A Perspective from The Investment Recovery Association

Maintaining the Links in the  Value Chain
 
As you increase your experience with Michael Porter’s value chain model, the investment recovery function should become a constant, almost invisible part of identifying opportunities that add value, drive out costs and better respond to customer needs in your organization’s primary and support activities. When your IR team has achieved such proficiency that its value chain contribution is both expected and routine, it’s time to start identifying new ways for investment recovery to add value – to creatively extend your value chain experience and to competitively differentiate the IR function and your entire organization.
 

Differentiation can occur along any link in the value chain. As a function of uniqueness, companies can differentiate themselves by altering a particular primary or support activity to transform a product or service into something entirely unique in the marketplace. Because many opportunities to differentiate also add costs (see article three in this series), IR’s role in generating revenue or cutting costs, or both, may become increasingly important. For example, if your company requires new

equipment to achieve product differentiation, your IR team may need to identify a use for the machine it replaces to offset the new cost.
 

Another source of differentiation is organizing your value chain to uniquely deliver a commodity product with greater efficiency or lower cost. Opportunities include horizontal or vertical integration,

development of new process technologies or utilization of new distribution channels. As with product or service differentiation, value chain differentiation may incur new expenditures that demand innovative investment recovery solutions to offset or minimize costs.
 

Porter identifies multiple uniqueness drivers, many of which are relevant to investment recovery:

  1. Policies and institutional leadership. These are among the most important IR group differentiators: If corporate policy directs that IR is responsible for the distribution of all surplus assets, it increases credibility and empowers the IR team to get results, which is typically not the situation in competing businesses’ value chains.
  2. Linkages among activities and synergistic interrelationships. As noted in article four of this series, an effective IR department can have organization-wide visibility that helps the group know what assets will be available, when, and where those assets may add value within or outside the company. The unique differentiator in these circumstances is the ability to more efficiently redeploy or dispose of assets than competing companies can.
  3. Timing. Linkages and relationships are time sensitive. With greater advance notice about the availability of or need for assets, the IR group can generate more options to optimize the re-use or sale of those assets.
  4. Technology. As indicted by the emergence of eBay as a tool for recovering the value of surplus assets, technology has a significant role in the value chain. Systems that match assets and needs can quickly improve allocations among diverse and far-flung business units, and a corporate or IR group commitment to technology can just as quickly create an important differentiator.
  5. Outsourcing. While the investment recovery operation of any business is expected to be the expert, no one person or group can perform at an expert level on all subjects. If your group is struggling to implement or understand a particular project, you may create a drag on the value chain. This is an excellent opportunity to look at outsourcing as a strategy to create a competitive advantage.
  6. Location. As with the cost drivers discussed in article three of this series, IR professionals can minimize transportation costs and reduce taxes and import/export duties.
  7. Training and development. Frequently overlooked as a competitive differentiator, ongoing education can more fully engage IR professionals in understanding and implementing best practices in their organizations. The Investment Recovery Association creates and helps educate members about those best practices.
As companies around the world look for strategies that will keep them one step ahead of the competition, investment recovery professionals are strongly positioned to add value, cut costs, improve productivity and generate revenue. However, to develop the reputation and relationships necessary to make these significant contributions, IR teams must talk to executives and colleagues in a language they understand. Porter’s value chain model provides an excellent framework for investment recovery leaders to improve the functioning of both their IR groups and their organizations.
 
Reprinted from ASSET 2.0, the Investment Recovery Business Journal, Vol. 5, 2006

© The Investment Recovery Association