Value chains in the 21st century: To be or to transmute?
Value cannot be contained to a specific indicator, as it takes on different meanings based on which perspective is taken.
A product-centric view of value places the product at the core, and a company’s strategy and linear value chain are built around it. On the other hand, a customer-centric value chain views the customer as a profitable asset, and all business decisions and the value chain structure are based on maximizing customer lifetime value.
Our industry insights and deep understanding of adjacent businesses as well as emerging technologies, have helped us put together a new value chain structure, as depicted in Figure 3, which will be relevant for the 21st century. The value chain transformation is anticipated to be a two-step process:
Step 1: Creating the digital spine
The manufacturing enterprise of the future will be powered by technology enablers, which act as an enterprise’s digital spine, helping it participate in multiple, new value chains such as those for design, materials, logistics, customer experience, and circularity. The digital spine will rely on cloud hyperscalers, AI at scale, digital thread, digital twins, platforms, edge computing, low-latency infrastructure, and more such enablers. While the existing value chains will remain important for business as usual, the new value chains will come together as niche ecosystems through which the various needs of the enterprise and customer will be met. While improving its traditional value chain capabilities such as research and innovate, source and produce, distribute and sell, marketing, and product in use, the enterprise will also develop new specialized capabilities that can be provided to other participants in these ecosystems in exchange for different forms of value.
Figure 3: New capabilities and business ecosystems for manufacturers in the 21st century
Step 2: Establishing the multimodal value chains
For the new operating and business models, manufacturers need to choose between designing multimodal value chains with the superlative capabilities of cognition, collaboration, and connectedness, and working on transmuted ones. While establishing a strong digital spine is the foundation, using this spine effectively through a seamless neural fabric should be the next focus area for manufacturers. This fabric ensures that there is a smooth exchange of intelligence through the different systems, processes, and entities within and outside the enterprise. Multimodal value chains utilize the cognitive power from the neural fabric. These multimodal value chains should be designed considering the future manufacturing enterprise’s business strategy for gaining competitive advantage and growth, be it in customer centricity, products and services differentiation, or cost leadership. As a next step, manufacturing enterprises should focus on how to bring forth these capabilities and align them meticulously with their business strategies.
We see the emergence of two constructs of value chains to serve the above-mentioned business strategies:
- Multiple value chains converging around the customer, with the extended manufacturing enterprise playing the part of an orchestrator of customer value – the new avatar of the erstwhile customer-centric value chain. This model, illustrated in Figure 4, has a significant upside from accruing revenues, as it meets all the needs of the customer and secures enhanced lifetime value, increases the net promoter score (NPS), and hence, ensures competitive advantage.
Figure 5: The manufacturing enterprise participating in multiple value chains through different services
In the medley of changes seen in manufacturing enterprises, the successful transition to a 21st century value chain will depend significantly on numerous factors:
- Remote operations
- Distributed decision making
- End-to-end transparency of company resources and assets
- Personalized and agile product or services development
- Collaboration with customers and partners to drive new opportunities
To meet these demands, value chains need to be designed to exhibit characteristics such as being data driven and intelligent, promoting networked and flexible collaboration with supply chain partners, providing multi-tier visibility for planning and operations, enabling intelligence for autonomous decisions making, and reducing carbon footprint of operations. The conventional linear structure does not lend itself to the networked, data-driven, and agile-focused needs of the enterprise. A quick comparison between the characteristics of a traditional and 21st century neural value chain is shared in Table 2.