Human Resources and the Value-Chain Analysis

ARTICLE

 

In 1985, Michael Porter, Ph.D, a Harvard Business School professor, described his theories of value chain analysis in order to pinpoint problem areas in manufacturing and distribution industries.

According to Dr. Porter, the value chain is comprised of five primary activities of:

1.      inbound logistics

2.      operations

3.      outbound logistics

4.      marketing & sales

5.      service

 

Porter further states that there were four additional, but supporting, activities vital to organizational success:  

 

1.      firm infrastructure

2.      human resources management

3.      technology development

4.      procurement

Dr. Porter argues that each of the nine activities adds value to the finished products or services that customers and clients value and will buy.  The failure in any one of the activities diminishes the value of the product or service, reduces competitive advantage, increases costs for repair and replacement, and degrades competitive advantages. Thus, leadership focuses its efforts on intently managing each link of the value chain to immediately address and correct any weaknesses.

As one of the four support activities, Human Resources value is added or subtracted by the deliverables of its work.  These deliverables are cross-functional and their strategic objectives are to help insure that all other departments achieve their business plans.  It has a direct impact on the perception of value by the customers to our products or services.

How is this so?  Imagine that there is a measureable quality problem within the production department.  The production people justifiably own the problem.  However, the solution to the problem commonly involves input from a variety of sources.

1.      Finance and production people partner to analyze whether inappropriate application or availability of funding is contributing to the problem.  

 

2.      Marketing and sales work with the production crew to understand the problem and then convince customers that the defects are temporary, the problems will be fixed, and that quality will return immediately with the next and all succeeding orders. 

 

3.      Human Resources partners with the production people to determine if the employees are properly slotted, trained, and have the tools and skills necessary to produce the quality products or services demanded by the customers.

 

Each discipline has a vested interest in the success of the production department’s work and to help spot defects before they appear in the marketplace.  Paraphrasing an old adage, a customers’ perception of value is only as strong as the producers’ weakest link. 

The idea that only production people are capable of generating production problem solutions is risky.  In one recent case, a milk processing facility experienced a broken part for one of their machines, effectively shutting down production for that machine.  Since there were four machines in the plant, the shutdown represented a loss of 25% of production capacity.  The production and maintenance personnel determined that it would take three and a half weeks to procure the necessary replacement part. Faced with the loss of three and a half weeks of  Idle production and corresponding loss of revenue, the Human Resources leader and the sales manager forced the issue with the purchasing department by establishing a 24 hour window for all replacement parts from primary vendors and 48 hours from secondary or alternative vendors. Rather than focusing on activities performed, the purchasing department job descriptions were re-written to focus on deliverables crucial to the company and its customers. 

As people emerge from their silos of expertise and gain knowledge of the various links that each must support, there is strong recognition that a weak link harms everyone, not just those within that link.  A weak accounts receivable department means that cash is not coming in as it should.  The absence of cash means that funding capability for things like systems upgrades, pension scheme contributions, new delivery vehicles, and marketing initiatives are delayed until our accounts receivables return to acceptable levels. Competitive advantages weaken and customers may seek other vendors of your goods and services.

By understanding and focusing on the needs of their internal customers, i.e. the employees and line managers, HR is adding strength to the value chain.  It is a crucial deliverable of every HR professional. Your customers will appreciate and value this focus.

 

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Article:            685 words