Strategic Value Creation: Delivery, STP, and Porter's Chain

The Three Phases of Value Delivery

We can divide the value creation and delivery sequence into three distinct phases. This process begins before a product exists and continues through development and after launch. Each phase has significant cost implications.

1. Choosing the Value (Strategic Marketing): This represents the “homework” marketing must complete before any product exists. Marketers must segment the market, select the appropriate target, and develop the offering’s value positioning. The formula Segmentation, Targeting, Positioning (STP) is the essence of strategic marketing.
2. Providing the Value (Tactical Implementation): Marketing must determine specific product features, pricing strategies, and distribution channels.
3. Communicating the Value (Promotion): The task in this third phase is communicating the value by utilizing the sales force, the Internet, advertising, and any other communication tools to announce and promote the product effectively.

Michael Porter's Value Chain Framework

Harvard’s Michael Porter proposed the value chain as a crucial tool for identifying ways to create more customer value. According to this model, every firm is a synthesis of activities performed to design, produce, market, deliver, and support its product.

The value chain identifies nine strategically relevant activities—five primary and four support activities—that create both value and cost within a specific business.

Primary Activities

The five primary activities are directly involved in the creation and delivery of the product:

1. Inbound Logistics: Bringing materials into the business.
2. Operations: Converting materials into final products.
3. Outbound Logistics: Shipping out final products.
4. Marketing and Sales: Activities related to promoting and selling the product.
5. Service: Providing support after the sale.

Support Activities

Specialized departments handle the four support activities:

1. Procurement: Sourcing inputs.
2. Technology Development: Research and development, process improvement.
3. Human Resource Management: Hiring, training, and compensation.
4. Firm Infrastructure: This covers the costs of general management, planning, finance, accounting, legal, and government affairs.

Optimizing Firm Performance and Core Processes

A firm’s success depends not only on how well each department performs its work but also on how effectively the company coordinates departmental activities to conduct core business processes.

We can identify best-practice companies by consulting customers, suppliers, distributors, financial analysts, trade associations, and magazines to see whom they rate as doing the best job.

Key Core Business Processes

These processes ensure efficient value delivery and customer relationship management:

• The Market-Sensing Process: All activities involved in gathering and acting upon information about the market.
• The New-Offering Realization Process: All activities in researching, developing, and launching new, high-quality offerings quickly and within budget.
• The Customer Acquisition Process: All activities in defining target markets and prospecting for new customers.
• The Customer Relationship Management Process (CRM): All activities in building deeper understanding, relationships, and offerings tailored to individual customers.
• The Fulfillment Management Process: All activities in receiving and approving orders, shipping the goods on time, and collecting payment.