Organization Capability Evaluation Matrix. 4 Supply Chain Business Strategies – Eliminate, Divest, Partner and Own
In order to be successful it is essential that you are able to articulate your supply chain’s value proposition from a position of profound understanding.
What you would do in business:
i. Understand your competence and capacity;
ii. Assess the current and future importance of the activity; and
iii. Review the external market and its capability to provide you with what you would consider a good quality and cost-effective service.
Once you have looked at your supply chain or business process and identified its constituent activities, then evaluate how well you perform each of the activities currently and assess how important each is to your business.
Figure 1: Organization capability evaluation matrix
This is an assessment of how good your company is at performing the activity. This should be evaluated against your current capability, because it is important that the assessment is objective. It is also important that you have some sort of benchmark against which to assess your organization’s capability.
Importance/core to the business
Against this dimension you need to evaluate the contribution of each activity to the success of your customer value proposition or business objective.
A good way to think about this is to assess what the consequences would be for the business if the activity failed or, with more optimism, what the uplift could be to the business if the activity were executed flawlessly.
The sort of questions you are likely to ask yourself will include consideration of the activity’s impact upon your profitability, customer proposition, market share, cost base, operational integrity and reputation.
Within the model, the four quadrants show the strategies you should take for the activities that plot within them. They are eliminate, divest, partner and own.
The extreme response to anything that plots into this quadrant will be that as you aren’t very good at the activity and it isn’t at all important to your supply chain or company, then the activity should be a candidate for elimination. After all, why do it in the first place if it is non-added value and executed poorly? More realistically, an activity that plots into this quadrant will be something that is of low value to the organization and not executed particularly well. So, while it might not be a candidate for extermination it is one for which you could seek an alternative provider, especially if someone else can do it better than you in terms of quality, cost or time. If you do decide to seek an alternative provider then the business risk is going to be low and therefore your selection criteria for the service provider are likely to be largely ones that would deliver operational excellence and cost-effectiveness to your organization.
An activity will be plotted into this quadrant if you are very good at it but its outputs are not particularly important to the success of the value proposition. In such a situation you could consider selling off that part of your company, together with its processes and systems, to another entity for which the activity is core. You could even negotiate a deal whereby you sell the business and then buy back the services – it may not be important to you but it is probably still something that you need to have done. What it does mean is that in an environment of scarce resource, you don’t need to do it yourself. This type of sale and buy-back construct is one that is particularly popular, especially to smaller organizations that need critical mass, or start-ups that are backed by venture capitalists and keen to kick-start a business around their acquisition. By contracting to become a customer of the entity you are providing an important revenue stream that can have a significant impact on the sale price you receive.
If you look now at the right hand side of the diagram – things that have been plotted in these two quadrants are very important to your business.
If something is plotted into this quadrant then you are recognizing that you aren’t very good at the activity but it is critical to your proposition. In such a situation, it is important to improve your performance and you can do this either alone or with someone to help you. For example, you could invest in the activity – buying skills, processes, tools, systems, etc and really boost your in-house capability. Alternatively, you could look to collaborate with a company that is already very good at doing it. In this scenario you might still want to outsource the activity, but you will want to select your provider very carefully, ensure that you are strategically aligned, incentivize them appropriately and manage them closely – because their success and yours will be inextricably linked.
If an activity is plotted into this quadrant, congratulations are in order. What you are saying here is that the activity is both important to you and something you are already very good at. Therefore I suggest that you will want to do nothing other than continue to invest appropriately in the activity to ensure that you remain in this strong position. After all, the activities in this quadrant are important to your success and they are things that you excel in, and as such you should nurture and relish them.
Once you have plotted things onto this diagram, you will have a clear understanding of what activities you are good at and which ones are important to your success. For activities that plot into three of the four quadrants, you might consider getting suppliers to help you, either through outsourcing, collaboration or sale and buy-back arrangements. I say that you ‘might consider’ doing this because actually your options are going to be influenced by the capability and willingness of the supply market to help you. There is little point in outsourcing an activity to a third party if it is going to be more expensive and of poorer quality than in-house provision.