Strategic alignment and value chain analysis in business processes

Business Processes

The concept of strategic alignment reflects the need of an organization to align its people and processes with its strategic objectives. A high degree of alignment means that resources and processes are oriented in the same direction, and that direction is consistent with what management feels is the best direction for the company. In essence, strategic alignment means that the entire organization is pulling in the same direction.

An example of strategic alignment would be the fourth element of business processes, which is process-based competition. In this, business processes are examined, and those that are weakest are changed to strengthen them, while the organization seeks to utilize its strengths to a greater degree (Deming Prize Application, 1998). Campbell, Kay and Avison (2005) note that all elements of the business should be aligned. They advocate aligning the information systems with the processes and with strategy. The logic behind this is that the organization must gather the right information to ensure that its processes are working effectively. This means understanding how the processes are affecting strategy so that if there is misalignment that the processes can be changed in response to the need for a new strategy.

One of the interesting dynamics with respect to strategic alignment is that, as Campbell et al. (2005) note, strategies that are developed at the highest levels of the organization are often undermined, or altered, at the lower levels. The reason for this that the processes by which the organization works at those levels has poor alignment with the overall strategy. It can be difficult to achieve this alignment. As Campbell notes, however, the closer that the CEO and CIO work, and the COO could be included in this discussion as well, the more likely it is that the systems that drive the organization can achieve a higher level of alignment. To do that, there need to be an understanding that permeates the organization with respect to what types of information, and decision-making processes, are needed in order to facilitate the organization's overall strategy. There will also need to be flexibility and willingness to implement changes to these processes, should they be found to have poor alignment.

2. The value chain is one of the main ways in which a business renders itself competitive (or uncompetitive, as the case may be). The value chain reflects the "all the activities a firm performs, and how they interact" ("Value Chain ... "). It consists of inbound logistics, operations, outbound logistics, marketing & sales, and service. Each of these has the potential to add value for the company, so if the company can distinguish itself from its competitors on these dimensions, then it will be more competitive.

The relationship between the competitive environment and the value chain flows two ways. First, the competitive environment influences the value chain by defining where value is added. For example, a company might start life with a competitive advantage, and gain market share by exploiting that. But if all competitors adopt that advantage as well, then it no longer becomes an advantage. That same company will need to find something else within its value chain to make itself competitive again. So the competitive environment helps to define what elements of the value chain have genuine value within that particular competitive marketplace.

Going the other way, the value chain can determine how a firm performs within the competitive environment. The OM3 text uses the example of Apple, which derives value from many places. That company has been so successful that it has altered its competitive environment -- having an integrated suite of products that work well with one another is an idea now adopted by Microsoft, which has changed Windows to be a system can work seamlessly between many devices. Thus, Apple's value chain influences what consumers consider to be valuable, and that has changed the competitive environment, so there is a give-and-take with respect to the value a company presents to the market, and what the market perceives as valuable.

3. The Powerpoint interprets outsourcing as hiring another company to perform a task, and offshoring as moving production of something to another country while maintaining ownership. The latter is an unorthodox interpretation -- these are not mutually exclusive concepts. You can offshore to a third party, and that is often the case . Outsourcing is about who is doing the production (another company); offshoring relates to where this is taking place (another country). If both another company and another country are involved, it is offshore outsourcing.

There are a number of different issues that need to be considered with respect to an outsourcing decision. A frequent one is cost, but cost has to be weighed against a number of other factors. First, the company has to be confident that the quality will not be affected. With physical goods, there is also transit time to consider, and changes in production schedule. Companies sometimes even consider the ethics of outsourcing, because it almost always means job losses within the company. Another commonly cited reason is that companies wish to focus their energy on critical business processes. Apple, for example, is a design and marketing company, so it outsources the production of its products to focus on those two functions. This allows Apple to let production specialists worry about production management.

There are also more refined issues that need to be taken into consideration, such as control over the product. If outsourcing, another company will know how to produce an important component to your product. There is a risk with respect to proprietary information when outsourcing that can only be partially mitigated in the terms of the contract. Firms need to weigh the loss of control, the increase in risk and the ethics against the cost savings that they perceive. In many cases, firms decide that it is still worthwhile to outsource.

4. Support processes in the value chain are those processes are things like the firm infrastructure, human resources, procurement and technology development. These facilitate the key aspects of the value chain. Perhaps the easiest to illustrate is procurement, as this specifically relates to inbound logistics, the first link in the value chain. Procurement expertise allows the organization to maximize the quality and price of its inputs, and if it is able to do this, then it can find itself in a position to gain competitive advantage. A good example is a company that wishes to have the best quality phones -- it will need the most cutting edge component parts. That is where procurement supports the inbound logistics and operations; it takes all three to end up with the highest-quality finished product.