Key lessons from the value chain

Elections are round the corner in Bihar and all the political parties are jousting to forge a better alliance which will suit the casting angle well or let us rephrase it, which will make sure that by hook or crook voters can be induced. The rule seems simple, the more the dominant is the cast the higher the probability that the candidate will belong to the same cast, irrespective of his reputation or familiarity with the local problems and the people. We are sorry to say maybe we are <g data-gr-id="107">indicting</g> the innocent people, but it seems even people don’t care if somebody belongs to their caste, community or religion. Though it is very sickening but we cannot run away from the reality. 

This is the ugly truth of our great nation that instead of aiming towards economic and intellectual prosperity, we are grappling with the issue of those negative lines which have divided and made feeble not only this nation but also many countries world over. If we ask to ourselves what a common citizen of this country ask for, first an opportunity to earn and have decent livelihood and the second, from our point of view, a decent opportunity to gain the knowledge and education to generate the thoughts. In fact if you take the example of one of the economically dominant and prosperous countries of the world, it has nothing but better economic and intellectual opportunity to live better and think better which ultimately serve the nation while weaker nations grapple with mundane issues rather than concentrating on these two.

 It is quite amazing to see the similarity between the companies and the countries. The way we have strong and weak countries, the same way we have strong and weak companies. The countries are made up of strong societies aiming towards economic and intellectual opportunities and companies are made up of strong value chain aiming towards superior customer value. The way society is <g data-gr-id="117">good</g> composition of all cast and communities in the same way value chain is the combination of primary activities and secondary activities. While secondary activities are called supporting and primary activities are considered as fundamental activities of the company. Primary activities include Inbound (Incoming of raw material) production, outbound, marketing and after sales. Secondary activities include human resource management, finance, information technology, infrastructure and <g data-gr-id="115">research</g> and development. 

In words of very famous thinker Peter F Drucker “in a company only two things are important production and marketing and the rest of the things are nothing but the cost.”  He further says that any company which does not give importance to its primary activities (production and marketing) is bound to get doomed because companies are for customers, not for their own sake. It is also taken as corporate gospel but still companies get into the honey trap of money minting and destroy themselves and it is happening time immemorial. Some learn lessons and prosper and some who don’t bite the dust. Quiet beautifully same goes with the countries, those which learn the lessons prosper with the time and rest of the countries emulate them and those who don’t, they get colonized by others. 

When talking about the value chain we talk about the movements. There can be two movements of a value chain, either towards low cost or towards differentiation. When the company decides to move towards low cost the concentration is to cut down the cost of production of the product in which the company is dealing and making sure that it reaches to the market. The company through its value chain makes the aim to hit on wasteful expenditure and anything which is not useful for the customer with full vigor. The company gets ruthless to make sure that their product has to be the champion of the low cost in the market. In this type of movement company sacrifices, the margin per unit sold and concentrate on the volume i.e. the number of unit sold. The volume takes care of margin. Most of the companies from developing and underdeveloped countries play this strategy with huge success. 

Chinese companies by applying this strategy ruthlessly entered in almost all the markets of the world. The whole game is based on cutting down the cost of production and keeping the value intact of the final product. Though we must tell you the product is produced with generic technology and functions of the product look basic but  it is always well capable of serving the needs of the market and that is why it is admired by the market and the appreciation comes in form of sales which is skyrocketing. 

Then there are companies which do not play through <g data-gr-id="144">low cost</g> strategy but instead they love to use differentiation. <g data-gr-id="140">Differentiation</g> is based on three aspects and these are unique flow, unique <g data-gr-id="142">composition</g> and unique components. Products are made with the help of these three and then they get patented.  That conforms that product cannot be copied by the competitors and company which has developed the product or technology has the exclusive rights to produce the product and to sell the it in the market for the specific period of time so that expenditure of research and development can be taken care of and companies get more encouraged to do more research and development. The product based on differentiation comes with exclusive features and quite costly in comparison to low cost products. Most of the products from developed countries belong to this category. German companies are known for their chemicals automobiles and mechanical engineering. Japan and Korea are for their electronic products and United states is known for defense equipment. The game is normally played on margin and volume is sacrificed as the price of the product is quiet high which makes it very difficult to get afforded by the mass market. Products have the ability to surprise the market with its exclusive features.

It is always considered as ill advice if somebody suggests that company can play with both the movements. Both the movements have different ethos and principles and <g data-gr-id="106">there</g> activities always oppose each other. Applying both the movements in <g data-gr-id="103">company</g> in different products does not bring fruitful results. Promoters of the companies are adventurous and they have tried this too in their <g data-gr-id="102">companies</g> but the companies later bite the dust. Some of the <g data-gr-id="99">marquee</g> of the companies of <g data-gr-id="100">60s</g> and 70s are no more. General motors got bankrupt and bailed out by the government. Kodak which was <g data-gr-id="97">synonym</g> of the still photos is no more. Xerox which was the signature of the hard work and dedication of Chester Carlson is into oblivion. We will start counting and the whole day will pass and the ultimate truth is one. Companies fumbled from their priorities. <g data-gr-id="105">Market</g> was asking something and they were stuck to their old ideas and the nostalgia of the past glory of their products.

Countries behave no differently, they live in the same nostalgia that we were  great in the past and this legacy will carry automatically whether we change ourselves or not, whether we set our priorities or not. At the time of independence though we were poor nation but if you could have seen the contour of the world there were many countries which were in total dilapidated state and in almost all the counts we were better than them. Countries like China, South Korea, Malaysia, Singapore, they were as poor as we were and today where they are that we have to ask ourselves. We don’t blame political parties for that because they are nothing but the manifestation of what we are. But the million dollar question is why we are like this. Don’t we learn from the history that whenever we were fighting within ourselves somebody came and ruled us? Don’t we learn that people from Britain and their companies, they did not rule us, and we allowed them to rule <g data-gr-id="228">us.</g> In very eloquent best Dr. 

Shashi Tharoor chastised rule of England in India but has he forgotten when the body is weak only then the attack of the disease is lethal so who is to be blamed for the immunity of our body which is so weak that all types of diseases are attacking it. Even the doctor when ask the question he asks about our own conduct of eating and personal hygiene and daily routine to reach <g data-gr-id="220">to </g>the conclusion. Have you seen anywhere when companies have blamed the market for their failure rather their own product and marketing strategies and if you have seen then it is nothing but <g data-gr-id="222">height</g> of <g data-gr-id="223">absurdity.</g>

Companies run well and they dominate the market when the primary and secondary activities run well as one unit and the focus is on superior customer value. By observing some of the finest of the products and their company’s value chain we will find three attributes by the name of SHORT, NIMBLE AND FLEXIBLE that means the value chain has to  be efficient, it has to be fast and it has to be dynamic as the world is dynamic. By the same analogy, our nation has to be efficient, quick in decision making and must have broad mind to accommodate all the new and positive changes rather than squabbling among each other with all these mundane issues. In the end all we want to say is those who do not learn from the history are condemned to repeat it.