You are not Uber, you should actually lower (yes, lower) your value chain

Editor's note: In Uber great way to get the unusual success of today, not the same industry many enterprises want to follow the tiger painting cat, copy People's mode, often raise the value chain hanging on the mouth. But have you ever thought about whether boosting the value chain is really right for your industry and your business? Perhaps the opposite is what you should do to lower the value chain. Below please see from HBr Bradley Staats How to say, the Chinese version by the Heaven Zhuhai Branch rudder to compile ...

Many of today's high-level enterprises, whether engaged in manufacturing, or engaged in software services, or engaged in consulting industry, or even health care industry, once said how to bring more profits for the enterprise, often hanging in the mouth of the word is: "We need to improve our value chain." At first blush, this makes sense: let the business do something higher, and get a higher profit. For example, before I compiled an article, "The 1 billion-dollar class of" unicorn "business is how to develop" the Uber approach mentioned in:

The expansion of the enterprise function, the interaction between the passenger and the driver of the price and other business stripping out, completely to the passenger and the driver to deal with, thereby greatly reducing the marginal cost, and their own attention to their own higher value platform services.

But is this practice of boosting the value chain appropriate for every company? I disagree.

I think the senior executives of these enterprises should reconsider: they should not blindly accept this kind of popular view, but should have their own independent thinking ability. To seriously analyze the people who do not go with the flow to promote the value chain, but by reducing the value chain to achieve success of the company, see if there is worth their own reference.

In general, lowering the value chain will sometimes bring you some of the following benefits:

• Make your company work more efficiently
• Give birth to more opportunities
• provides greater operational space
• In case the tiger is infested
• Put your reputation on a moral vantage point.

Here we analyze each of these benefits individually.

Increase efficiency

As companies become more aware of their own modes of operation and supply chains, companies sometimes appreciate their "low-value (Low-value)" suppliers. One obvious example is the morning start of California, the company that can be said to be the world's leading producer of tomato sauce.

In the past, it transported tomatoes to a factory in California to process the tomatoes and make them tomato ketchup. They began to feel that the plant was inefficient and should be improved in order to increase the value of processing in the value chain – such as improving the technology for heating and decomposing tomatoes, and improving the delivery of tomato sauce packages.

Unfortunately, the value of the factory has risen but the company's earnings have not risen. Morning Star's high-level discovery problem is, at least in large part, because of their tomato suppliers – the "low value" of farmers who grow tomatoes. These farmers were not able to plan the planting and harvesting of tomatoes because of the efficiency of the plant, so they could not provide enough tomatoes to morning Star. There is one more situation in which some farmers are still involved in a lot of impurities in tomatoes to impostors. The end result is that the factory efficiency up, but the quantity of tomato supply has not increased, but the tomato impurities increased, the quality of tomato paste down, and eventually led to the company's earnings.

So morning start makes a decisive move: begin to invest money in organizing farmers to grow and harvest tomato systems to meet demand, rather than simply outsource the supply of tomatoes to boost the value chain. Eventually morning start to gain huge gains by taking control of the entire tomato production from the beginning to the end.

Opportunities to be spawned

In addition to improving efficiency, the way you reduce the value chain can also give you the opportunity to create new ways to grow. Or take Morning Star, the tomato sauce industry giant, for example, the other advantage of organizing a farmer's systematic planting is that it can grow tomatoes and plant other plants as well. As a result, the company has the opportunity to offer its customers a variety of products in addition to tomato sauce to surprise customers and expand market opportunities.

Another example is the practice of some IT companies in India, such as TCS, Cognizant, Infosys, and Wipro. In traditional practice, they promote the value chain by pursuing a more stable and profitable service to customers. As a result, they may be able to provide customers with technical support and claims processes for mainframe and other services, outsourced to professional service providers outside, and try to improve the entire value chain through this approach.

But what if these companies are not going to raise the value chain, but to lower the value chain? The integration of resources within your own company to specialize in claims and technical support, as well as customer opinion collection – more thorough tracking of customer needs and complaints, should be more pronounced. Because you can control the entire process to get more business opportunities to sell customers, but also easier to grasp the user's needs and pain points for better future improvement and new product development.

Greater space for operation

Reducing the value chain also allows you to take a bigger look at the running space. In this case, the fashion world is a good example. In the late 20th century, most fashion retailers were doing their own design of fashion, and then outsourced the production of fashion to factories in Asia, where costs were very low. This means that the entire lead time-that is, the time between ordering and supplier deliveries-will take longer than nine months. The end result is that retailers are in a hurry to design and order the next quarter's fashions when they are not sold out this quarter.

We look at the chain of Zara in 88 countries around the world. Zara is a subsidiary of the Spanish Inditex Group (stock code ITX). Zara has its own apparel manufacturing plant, so it can be from the creation of fashion ideas, fashion production out of the shelves, just a few weeks. So it doesn't have to guess what kind of wind is blowing in the next quarter, because it can be produced in a very short time when it comes to this trend, which is why it offers a variety of fashion secrets every year in different quarters.

In case the tiger is infested

Where does our new competitor come from? In fact, they are often from our industry to the low-end market or accept your outsourcing of those enterprises, they have been sharpening ready to look for opportunities to attack you. Once they have learned to build the skills of the same products as you, they will be able to raise their own value chain and give you a deadly blow to their food and clothing parents. Similar tragedies have occurred in industries such as personal computers, bicycles, software services, and musical instruments.

So in order to prevent the recurrence, we should probably have reservations, and should not go blind outsourcing, or help you do outsourcing companies are likely to become your competitors the next day, why raise the tiger infestation?

Standing on the commanding heights of morality

Many companies now have a complex supply chain that is so complicated that the companies themselves often don't know which one to play. This makes it difficult to ensure that the products you offer to your customers are really high quality, such as you may not even know that the steel rods you bought from Chittagong in Bangladesh have been detached from a broken ship, and you cannot guarantee that your outsourcing partner in Asia is a sweatshop, not to mention that you are handing over to Japan's neighbours (taboo, I guess who is the supplier of the products built by the existence of black-hearted cotton.

This is not to say that we have to be pro-know everything to accomplish these things, but, at least, we should look for those who have no moral problems in the good reputation of the partners. For example, Pactics, a company headquartered in Cambodia that provides microfiber products, dares to assure its customers that the entire production process of the products provided is not contrary to human ethics. Their approach is to produce in a pro-pro way, and if they are too busy to outsource, they will have a very thorough investigation into the outsourcing company.

Starbucks's approach is similar, and as you know, it has developed a set of rules for coffee and Farmers ' Fair Practice (CAFE), which has a complete guide to the conditions their suppliers should meet, and also provides third-party agencies to oversee to ensure that suppliers are effectively implementing and fulfilling these terms. It is this strategy that has been guarding the company's gold paint signs and excellent reputation.

So, lowering your value chain may seem like a stupid and crazy idea. But maybe it's the smartest thing you can do to bring more value to your customers, expand your business, and keep your money.

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You are not Uber, you should actually lower (yes, lower) your value chain