Performance Management: Value Drivers and Strategic Value Builders

“Performance management” has both short-term and long-term perspectives. Short-term performance management comprises modifications to a product service and possibly to the activities and processes that are responsible for its “production.” It is the short-term aspects that are most immediately impacted by Industrié 4.0 and Value Chain Network 2.0. Understanding the importance of “value” to customers and other stakeholders helps strengthen relationships among stakeholders, customers, suppliers, shareholders and investors, and organizations with indirect interest and influence, as these “value-based” relationships are the links an organization needs if it is to develop a strong competitive position. To do so, it clearly needs to identify the operational performance value drivers (and in the longer term, the value builders) that are important to the end-user customer to structure a value delivery system that reflects these and the objectives of the other value chain participants. Within the context of a value chain network, operational performance value drivers assume short-term significances. One is clearly that of the role of the process of adding relevant value for customers and its ability to differentiate the value offer (via its value proposition) such that it creates value advantage for both the customer and the supplier organization. The second is that like their customers, their suppliers also have operational performance value drivers, and creating value creates costs for supplier organizations, thereby raising questions on the impact on the value and cost drivers of the supply/vendor organization. The third questions the impact on the value and cost drivers of the supply/vendor organization network. Accordingly, an analysis of the impact of enhancing a customer value driver should be accompanied with an evaluation of its impact on the supplier’s own operational performance value drivers and on the impact of the supplier’s cost of focusing on the customer’s value driver(s). Clearly, these two issues are linked as a supplier’s operational performance value drivers include supplier financial performance, and it follows that unless the marginal revenue generated by enhancing a value driver exceeds its marginal cost, there would be little point in pursuing the proposal.