DEVELOPMENT OF VALUE

CHAIN MANAGEMENT
Using the previous definition as a basis, it is helpful to review how VCM was developed.
Traditional industries focused on vertically integrated operations. For example, if you
manufactured a product, you wanted to control the material sources, the transportation,
the warehousing, the production, and possibly even the retailing of your product. The
theory held that more vertical elements that were under your direct control, the more
efficiently you were able to perform.

International competitive pressures caused organizations to realize that they simply were
not good at everything; thus, they began to focus on what they did best. In other words,
they focused on their core competencies. This shift away from vertical integration
encouraged organizations to look outside of themselves for services. For example, a
manufacturer would have a shipping company do all their packaging and shipping. This
introduced more steps in the vendor-to-customer linkage, making the management of this
process more complex.

The trend toward operational diversification focused organizations on developing a

supply chain whereby an organization would establish a relationship with shippers,
vendors, and customers so that all the linkages in the supply chain could be effectively
integrated. These interrelationships became extremely complex to manage. Initially, the
management of these relationships and linkages was primarily performance-based.
Having too many linkages in the supply chain would often cause unresponsiveness to
customer demands. Time-to-market became the buzzword of successful competitive
positions; the organization that managed its supply chain most effectively tended to have
the competitive advantage, at least in terms of customer responsiveness and order
fulfillment.

Soon, managers realized that time responsiveness was not the only important element in
customer satisfaction. The supply chain linkages-the links among upstream suppliers,
manufacturers, and downstream distributors-also had a cost element and resource-
efficiency element associated with them. This realization generated a need for value
chain management, which is the management of all the linkages of the supply chain in the
most efficient way. Sometimes this includes the elimination of elements of the supply
chain; for example, Web marketing has eliminated the need for retail outlets.
Amazon.com is a well-known example of eliminating the need for physical "bricks-and-
mortar" retail locations. Another example is Atomic Dog Publishing. This textbook
company leases online textbooks to students for a semester. Because the texts are online,
Atomic Dog has cut out an intermediary between text development and customers; in
other words, Atomic Dog manages its value chain through disintermediation by
eliminating the need for college bookstores.

Returning to the definition of value chain management, we can now look at the key
aspects that are incorporated in VCM. These include:
 • integrated supply chain planning and scheduling
• full resource management
• cycle-time responsiveness
• chain-wide resource optimization
• information integration

Organizations today are faced increasingly with fierce competition, demanding

customers, economic pressures, and financial crises. To be effective, they must
reduce costs, improve product and service quality, and respond quickly to new
opportunities in the marketplace. This management accounting guideline addresses
the topic of transforming an enterprise in practical terms, describing common
practices, comparing structural options, and identifying relevant issues in planning,
implementing, and measuring the success of organizational transformation. The
transformation involves complex and simultaneous interactions. In his process, a
variety of possible forms can emerge. Each of these forms is a possible alternative
future of the system-which may range from complete destruction and annihilation of
the system to a complete transformation to a higher level of complexity.

Definition

Organisational Transformation is a term referring collectively to such activities as

reengineering, redesigning and redefining business systems. The dominant enabling
technology in transforming organization is information and technology.

As business model change rapidly in the financial environment and mergers and
acquisition change the face of the organization. So, organization continually need to

a. A flexible, effective and efficient organization.

b. A customer-centric approach to organizational activities
c. Recognition of current strengths to create a more productive environment
d. Understanding and reaping the benefits of competitive IT and business alignment
e. Promotion of an integrated approach to IT and business

Three Types of Transformation

1. Improving Operation: To achieve a quantum improvement in the firm's efficiency,

often by reducing costs, improving quality and services and reducing development
time.
2. Strategic Transformation: The process of changing strategy seeks to regain a
sustainable competitive advantage by redefining business objectives, creating new
competences and harnessing these capabilities to meet market opportunities.
3. Corporate Self-Renewal: Self-Renewal creates the ability for a firm to anticipate
and cope with change so that strategic and operational gap does not develop.

Phases of Transformation
Phase-1: It begins with the automation of existing activities to reduce cost and raise
capacities and expands to encompass a broader range of applications to optimize
operations.
Phase-2: It focuses on adding features, functions, value-added processes and new
service to the core business.
Phase 3: It may become principal vehicles for growth; the existing business can be
redefined.