What Is The Value Chain?

Mike Harden | | Operating with Vision, Thinking Strategically

In economic terms, the Value Chain describes the process by which a company receives raw materials, modifies them to add value, and delivers a final product to the market. While optimizing this process is essential in any company, there’s another kind of “value chain” that leaders need to monitor: the internal value chain. What does each individual along the chain add? What value do they contribute and help to deliver?

Evaluating the internal value chain is practice we see regularly in sports. Even when teams have high profile, high-talent individuals, they know that they need a team of competent individuals to succeed.

A Big Screen Example

A great example of this is seen in the 2011 film “Moneyball” which takes a look at the best way to win a baseball game. Most teams thought that stocking their teams with homerun hitters was a sure path to the playoffs. Homeruns win games. Teams spent incredible amounts of money recruiting big power hitters and then wondered why they were not winning.

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In 2002, Oakland A’s general manager Billy Beane, prompted by his low budget, used a different approach. The A’s could only afford “low-value” players, or those who didn’t hit homeruns. Turns out, the real valuable players are the ones who could get on base. That’s a much better indicator of success. Beane put together a team of players who had the ability to get on base, and who had the ability to take the A’s to the playoffs.

Beane and his coaches looked at the value chain and the contributions of each player. One homerun hitter doesn’t win the World Series. A team with great fielders, a submarine pitcher, quick thinkers, and people who can get on base – first base is perfectly fine – that is a team that wins. Other MLB teams caught on, and you can thank (or blame) Beane for the Red Sox’s first World Series championship in 89 years.

How’s Your Line-Up?

It is important to look at your own team: what does each one contribute? Rather than looking at one or two stars, or one or two products or services that are supposed to propel you to success, you have to look at each individual. You can’t hang the success of an organization on a product or a high-potential employee. They are simply not enough if other team members are not up to par.

Instead, build a team of individual contributors who excel in their specific areas. When they function as they are supposed to function, they create significant value and take the company to the next level. Coaches do it on the field all the time, but we don’t do it that often in corporations. We don’t analyze our internal value chain and look at our people, what they do, and how they do it. If we did, we’d have more checks in the win column.

Mike Harden

Mike Harden has developed exceptional depth and breadth of knowledge over his 40+ year career as an entrepreneur, executive, teacher, mentor, and coach. Today, as one of DC’s premier Executive Coaches, Mike helps good executives become great leaders. Find Mike on Google+

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