This document discusses the concept of value and the value chain. It provides definitions of value, including that value is determined by the benefits delivered to customers compared to the costs of acquiring those benefits. It also discusses the value chain as a way to analyze the activities involved in delivering value to customers. Specifically, it discusses how the value chain can be used to identify strengths/weaknesses, competitive advantages, and costs. It notes that traditional views of the value chain start with the organization, but that a more effective approach is to start with customer value expectations.

1. Value and information ± concepts and issues for
management
David Walters
Head of Department of Business, Macquarie University, Sydney, Australia
Geoff Lancaster
Chairman, Durham Associates Group Limited, Castle Eden, Co Durham and
Professor of Marketing, Macquarie University, Sydney, Australia
Introduction
Value is a term used frequently and for which
numerous interpretations exist. Our interest
is in its use within the context of all activities
designed for and coordinating customer sa-
tisfaction. Customers purchase products and
services for a range of uses and for a range of
reasons: hence value has numerous inter-
pretations.
Value delivery comprises all those activ-
ities involved in delivering the product-
service attributes that are considered to be
necessary to create customer satisfaction and
to maintain an ongoing, long-term relation-
ship with customers and in so doing build
competitive advantage. Our focus is on the
value chain rather than on the notion of
value added. Value-added analysis is mis-
leading. In a traditional accounting context
value added is defined as selling price less
cost of raw materials and production activ-
ities. In a colloquial context it is used to
imply benefits (or attributes) perceived by
customers; these may be tangible or intangi-
ble and are, by definition, often difficult or
impossible to cost. Shank and Govindaragan
(1988) suggest:
the value chain ± not value added ± is the
more meaningful way to explore competitive
advantage.
They suggest value added is misleading for
three reasons. First is that it arbitrarily
distinguishes between raw materials and
other purchased inputs such as maintenance
or consulting services which receive differ-
ent accounting treatment, but which are
significant inputs. Second, value added does
not point out the potential to use the linkages
between an organisation and its suppliers, or
perhaps between it and its customers with a
view to reducing costs or enhancing differ-
entiation. Third, competitive advantage
cannot be explored without considering the
interaction between purchased raw materials
and other cost elements that may result in
cost trade-offs.
By contrast value chain analysis is exter-
nal to the firm and sees each organisation as
a component in an overall chain of value-
creating activities of which the organisation
is but one element. Shank and Govindarajan
(1988) focus on the strategic cost management
issues. Our interest is broader. Clearly cost
management is an important component but
just as important is the management of a
value delivery system that achieves customer
satisfaction objectives.
It is here where we see an extension of the
supply chain context to be applicable. The
supply chain comprises the management of
physical product flows, information flows
and the management of inter- and intra-
organisational relationships. We suggest a
view of the value chain to incorporate these
activities but plan to meet both end-use
(customer) expectations and the expectations
of stakeholders in the value chain process.
This article reviews the concept of value
and contributions to developing a concept of
value creation systems ± the value chain. A
number of approaches are considered rele-
vant to the development of a value chain
concept (which is market and customer
based) and are discussed in this context.
Value: a perspective
As 2000 approaches views concerning value
and customer satisfaction begin to converge.
We offer three basic definitions:
1 Value is determined by the utility combi-
nation of benefits delivered to the custo-
mer less the total costs of acquiring the
delivered benefits. Value then is a pre-
ferred combination of benefits (value
drivers) compared with acquisition costs.
2 Relative value is the perceived satisfaction
obtained (or assumed available) from
alternative value offers.
The current issue and full text archive of this journal is available at
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[ 643 ]
Management Decision
37/8 [1999] 643±656
# MCB University Press
[ISSN 0025-1747]
Keywords
Value chain, Value analysis,
Management
Abstract
The notion of what is meant by
``value'' is explored and sum-
marised in terms of its involve-
ment in delivering the product/
service attributes, considered
necessary to create customer
satisfaction. Investigates the
business system in relation to the
value chain, as well as citing the
conflicting views of a number of
authors upon this topic. A specific
company is used as a template to
bring out many of the notions that
have been put forward. Concludes
with the fact that the traditional
value chain begins with the com-
pany's core competences,
whereas evidence suggests that
modern value chain analysis re-
verses this approach and uses
customers as its starting point.

2. 3 A value proposition is a statement of how
value is to be delivered to customers. It is
important both internally and externally.
Internally it identifies the value drivers it
is attempting to offer a target customer
group and the activities involved in pro-
ducing the value together with the cost
drivers involved in the value producing
activities. Externally it is the means by
which the firm positions itself in the
minds of customers. Webster (1994) sug-
gests: ``The value proposition should be
the firm's single most important organis-
ing principle''.
Value positioning has implications for mar-
keting strategy; it requires some fundamen-
tal decisions on segmentation, target
customer profiles and the identification of
target competitors. However, our interest is
in exploring the value concept, and how it is
being interpreted by businesses. Of particu-
lar interest is how value can be used to create
competitive advantage. Webster (1994) states:
The conclusion that market share caused
profitability (has) proved to be simplistic ±
strategy must be based on analysis of the
company, the competition, and the customer,
identifying those opportunities for the firm to
deliver superior value to customers based on
its distinctive competencies. The firm's value
proposition becomes the primary organising
force for the busines.
It will be recalled that Adam Smith (1776 and
reported in 1937) was concerned with the
notion of ``value in use''. He argued two
aspects of value. He was of a view that value
was determined by labour costs (subse-
quently, modified to production costs). Smith
also argued that value in use from the user
point of view is important; it is only when
used that the full costs and benefits of a
product-service may be identified. A number
of companies use the ``value in use'' concept
to arrive at pricing decisions. The notion that
an end-user should consider all aspects of a
product-service purchase, not simply the
price to be paid, enables both vendors and
purchasers to identify all of the elements of
the procurement-installation-operation-
maintenance and replacement continuum.
The process encourages both parties to look
for trade-off situations like high acquisition
costs, with low operating and maintenance
costs, together with vendor services.
Value delivery: process and systems
The value chain needs no introduction. It is
an ideal vehicle particularly when it is used
to identify an organisation's strengths and
weaknesses and to compare these with the
opportunities and threats posed by its ex-
ternal environment (i.e. competitors,
technology, social change, economic change,
political change and the legal environment).
The value chain may be used to evaluate
``relative position'', identify an organisation's
distinctive competence(s) and directions for
developing competitive advantage.
Both Webster (1994) and Kotler (1994)
compare the traditional transaction process
with the increasingly favoured view of mar-
keting being based upon value creation and
delivery, and upon developing long-term
relationships with suppliers and customers.
Webster (1994) suggests:
Our definition of marketing is built around
the concept of the value chain. Marketing is
the process of defining, developing and deli-
vering value.
A model created by Anterasian and Phillips
(1988) is highlighted. Webster refers to the
increasing importance of alliances and part-
nerships that are involved in the value
delivery process (ee Figure 1).
The business system and the value
chain
A number of authors have considered the
overall resource conversion process to be a
business system grant. Murray and
O'Driscoll (1996) suggest:
A business system is the chain of value-
adding activities that is undertaken in order
to bring a product or service from raw
material to the provision of final customer
service and support.
A macro-business system encompasses whole
industries, while a micro-business system
maps the input-transformation-output pro-
cess at the business level. This is the firm's
value chain. Figures 2 and 3 are illustrations
of both macro- and micro-business systems.
The authors also suggest that the macro-
business system is a series of markets, the
product or service offering of each market
becoming an input for the next. Thus each
step becomes a technological or economic
transformation. Technological transforma-
tions involve manufacturing processes
whereby form utility or value is added to the
previous output. Economic transformations
are distribution activities in which time and
place utility or value added is contributed to
the earlier output activities, typically these
include location and product availability.
Figure 4 represents forms of market organi-
sation and has been modified to illustrate the
notion that value is a derived demand within
the context of the macro-business system. The
task of the macro-business system is to
identify end-user value expectations and to
coordinate the individual value contributions
[ 644 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

3. from each firm to meet these competitively
and cost effectively (i.e. meet competitive
offers and meet the objectives of individual
firms in the macro-business system). The
activities include time and location utilities
(value) as well as form utility considerations
prescribed by product specification.
Murray and O'Driscoll (1996) introduce
vertical integration into their ``markets'' and
suggest this may occur if the firm's cost
structures are such that it can compete
successfully with external suppliers at each
market level. Whether or not this will occur
will depend largely upon an analysis of the
transactions costs involved. Williamson
(1985) and Dietrich (1994) made interesting
and useful contributions towards this issue.
These are considered later.
Porter's work on value chain analysis has
been the basis for a number of approaches to
analysing the activities of the firm. Porter's
approach is to consider the firm's activities
as comprising primary and support activ-
ities. The purpose is to:
...disaggregate the firm into its strategically
relevant tasks and activities in order to
understand better their structure and inter-
relationships, the behaviour of costs, and
Figure 1
The marketing value chain
Figure 2
A macro business system
Figure 3
A macro-business system for paper products
[ 645 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

4. existing and potential sources of competitive
advantage (Murray and O'Driscoll 1996).
Porter's primary and secondary activities are
suggested to be physical and managerial
flows whereby physical flows are activities
involved in the physical creation of a product
or service.
O'Sullivan and Geringer (1993) remind us
of the purpose of value chain analysis. Given
that the organisation has limited access to
resources, value chain analysis has, as its
primary objective, the purpose of ensuring
that the resources of the enterprise work in a
coordinated way such that full advantage
may be taken of market-based opportunities.
It follows that the analysis should identify
the optimal configuration of both the macro-
and micro-business systems that will max-
imise value expectations. Thus the concep-
tual concerns of the supply chain and the
value chain begin to converge.
It follows that to take full advantage of the
current resources available, three activities
are involved. First the value expectations of
the end-user (customer) must be established,
then the resources and structures required
should be identified and finally the value
delivery systems required to deliver the
expected value be structured. This may
introduce alternative structures that include
inputs from other organisations within the
macro-business system.
Porter (1985) proposed the value chain as a
means by which business actions that trans-
form inputs could be identified (i.e. value
chain stages). Furthermore, he proposed that
stages in the value chain be explored for
interrelationships and common characteris-
tics. This could (he argued) lead to opportu-
nities for cost reduction and differentiation.
A more detailed view of the value chain and
its efficacy is that its purpose at either level
(macro- or micro-business systems) is to:
1 identify the business actions (stages)
which transform inputs;
2 identify relationships (commonalities and
interdependences) between stages for both
systems. Within the organisation the
micro-system is used to identify mean-
ingful differentiation characteristics
which are unique, or exclusive, to the
organisation;
3 identify costs and cost profiles within the
organisation together with cost advan-
tages that do or could exist;
4 choose its competitive positioning:
. market segments
. customer applications/end-uses
. technologies
5 identify alternative value chain delivery
structures (ie. interrelationships intern-
ally and between business units within
the industry delivery structure ± the
macro-business system).
Both macro- and micro-business systems
should consider the value creation process.
More recently the interests of shareholders,
suppliers and employees (together with those
of the community) have been included in a
broader view of stakeholder interests and
value.
Brown (1997) pursues a conventional ap-
proach to the value chain but does add
emphasis to the need for an industry
perspective:
The value chain is a tool to disaggregate a
business into strategically relevant activities.
This enables identification of the source of
competitive advantage by performing these
activities more cheaply or better than its
competitors. Its value chain is part of a larger
stream of strategic activities carried out by
other members of the channel-suppliers, dis-
tributors and customers.
He introduces two additional perspectives to
the value chain: the emphasis on links or
relationships between activities in the value
chain; and, the firm's competitive scope as a
source of competitive advantage. Links and
relationships between buyers, suppliers and
intermediaries can lower cost or enhance
differentiation. Competitive scope may con-
cern the range of products or customer types
(segment scope), the regional coverage (geo-
graphic scope), its integration (vertical
scope), or its activities across a range of
related industries (its industry scope).
The changes in, and convergence of, in-
formation and communications technologies
are identified as significant issues by Brown
Figure 4
Hybrid forms of market organization
[ 646 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

5. (1997). He illustrates changes in value chain
structures in newspaper production, video
entertainment and ``branchless'' banking:
The emerging value chains in these examples
promise to restructure those industries and
redistribute value among different compo-
nents and players in the value chain.
The impacts of these changes will be very
significant, with irrevocable shifts in retail-
ing and distribution, the elimination of
intermediaries, shifts in market share and
moves towards mass customisation. Each of
these views of the value chain start with the
organisation and its industry onto which
customer interests are grafted. While they
now include the role of outsourcing to
achieve effective value delivery it could be
argued that the value chain concept would be
more effective if in fact it is created around
customer value expectations.
Scott (1998) takes a strategic management
view. He uses the value chain concept to
identify the tasks necessary to deliver a
product or service to the market. His ap-
proach is to combine segmentation and value
chain analysis and he suggests a number of
questions:
. In which areas of the value chain does the
firm have to be outstanding to succeed in
each customer segment?
. What skills or competencies are necessary
to deliver an outstanding result in those
areas of the value chain?
. Are they the same for each segment or do
they differ radically?
Scott (1998) argues:
All firms, whether industrial or services have
a value chain ... each part requires a strategy
to ensure that it drives value creation for the
firm overall. For a piece of the value chain to
have a strategy means that the individual
managing is clear about what capabilities the
firm requires to deliver effective market
impact.
It follows that the firm may not have the
relevant competencies to match opportu-
nities. Two questions follow:
1 Is the structure of the organisation rele-
vant and are its managers competent?
2 Can the firm compete effectively by form-
ing a partnership/alliance with other
firm(s)?
The core elements of Scott's (1998) value
chain comprise seven areas:
1 operations strategy;
2 marketing, sales and service strategy;
3 innovation strategy;
4 financial strategy;
5 human resource strategy;
6 information technology strategy;
7 lobbying position with government.
Coordination across the value chain is
essential and Scott identifies the fact that
traditionally this did not occur. The rela-
tionship between a company's value chain
and its SBUs (strategic business units) is
discussed. He suggests that certain parts of
the value chain are likely to be common to all
its SBUs. These include human resources,
information technology and large parts of its
financial and selling functions. It could be
argued that the information requirements of
individual SBUs might differ and require
specific services. It could also be argued that
in a market/customer-focussed business (and
most make this claim) the core elements of
the business should be capable of developing
specific service inputs to ensure competitive
advantage.
Figure 5 illustrates Scott's view of the
value chain.
Slywotzky and Morrison (1997) discuss the
value chain in the context of ``customer-
centric'' thinking. They suggest the tradi-
tional value chain, which begins with the
company's core competencies and its assets
and then moves to other inputs and raw
materials, to a product offering, through
marketing channels and finally to the custo-
mer. In customer-centric thinking the mod-
ern value chain reverses the approach. The
customer becomes the first link and every-
thing else follows:
...everything else is driven by the customer.
Managers should think of:
(1) their customers' needs and priorities;
(2) what channels can satisfy those needs and
priorities;
(3) the service and products best suited to flow
through those channels;
(4) the inputs and raw materials required to
create the products and services;
(5) the assets and core competencies essential
to the inputs and raw materials.
and:
The value of any product or service is the
result of its ability to meet a customer's
priorities. Customer priorities are simply the
things that are so important to customers that
they will pay a premium for them or, when
they can't get them, they will switch suppli-
ers.
Slywotzky and Morrison (1997) suggest that
value opportunities are distinguished by
understanding customers' priorities and
monitoring priorities for change. They give
examples: Nicolas Hayek (Swatch) under-
stood that a growing segment of consumers
would buy watches based upon taste, emotion
and fashion rather than on prestige. Jack
Welch (General Electric) identified custo-
mers who saw less value in the product and
more in services and financing.
[ 647 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

6. This suggests a broad perspective of value,
well beyond direct benefits and one that
encompasses the nuances of basic criteria.
Basic value criteria are broad characteristics
like security, performance, aesthetics, con-
venience, economy and reliability. However,
at the next level these may be seen to be wide
ranging criteria.
The approach suggested by the authors
will change the traditional value chain such
that it takes on a customer-driven perspec-
tive. Slywotzky and Morrison (1997) go
further:
In the old economic order, the focus was on
the immediate customer. Today, business no
longer has the luxury of thinking about just
the immediate customer. To find and keep
customers, our perspective has to be radically
expanded. In a value migration world, our
vision must include two, three, or even four
customers along the value chain. So, for
example, a component supplier must under-
stand the economic motivations of the manu-
facturer who buys the components, the
distributor who takes the manufacturer's
products to sell, and the end-use consumer.
The organisation's value chain becomes
merged with those of other value chain
members. Figure 6 takes an industry per-
spective of the value chain. An important
feature is the role of information manage-
ment that provides a coordinating activity.
Other authors have made contributions. Of
particular interest is that of Normann and
Ramirez (1993) who suggest:
Strategy is the art of creating value..the way a
company defines its business and links to-
gether with the only two resources that really
matter in today's economy: knowledge and
relationships on an organisation's competen-
cies and customers.
They see the value chain as an analytical tool
that facilitates strategy: ... strategy is pri-
marily the art of positioning a company in
the right place on the value chain ± the right
business, the right products and market
segments, the right value-adding activities.
They go on to add:
Their focus of strategic analysis is not the
company or even the industry, but the value
creating system itself, within which different
economic actors ± suppliers, business part-
ners, allies, customers ± work together to co-
produce value. Their key strategic task is the
reconfiguration of roles and relationships
among this constellation of actors in order to
mobilise the creation of value in new forms
and by new players ... their underlying
strategic goal is to create an ever improving
fit between competencies and customers...
The value chain has an expanded role. It
becomes an integral component in the strat-
egy process: the evaluation of the company's
core competence and its fit in the overall
creation of value. The questions to be asked
are:
. What is the combination of value drivers
required by the target customer group?
. What are the implications for differentia-
tion decisions?
. What are the implications for costs: do
economies of scale or scope exist?
. Are there opportunities for trade-offs to
occur between the value creation system
partners?
An example of the application of fresh
thinking is produced by Normann and Ra-
mirez (1993). They use IKEA as an example of
a company that epitomises the new logic of
value:
...any product or service is really the result of
a complicated set of activities: myriad eco-
nomic transactions and institutional ar-
rangements among suppliers and customers,
employees and managers, teams of technical
and organisational specialists ... what we
usually think of as prospects or services are
really frozen activities, concrete manifesta-
tions of the relationships among actors in a
value creating system.
The IKEA example is interesting because the
company has:
systematically redefined the roles, relation-
ships and organisational practices in the
furniture business. The result is an inte-
grated business system that invents value by
matching the various capabilities of
Figure 5
An alternative view of the value chain
[ 648 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

7. participants more efficiently and effectively
than was ever the case in the past.
This approach has been extended into the
relationship between IKEA and its custo-
mers. Customer relationships are based upon
the customers' acceptance of a new view of
the division of labour in which the customers
``agree'' to undertake key tasks traditionally
done by manufacturers and retailers ± the
assembly and delivery of products to custo-
mer homes. The value delivered to the
customer is a well designed, quality ``manu-
factured'' product priced anywhere from 25
percent to 50 percent below competitor offers.
Using the value creation system we can
identify IKEA's approach. The company has
both upstream and downstream links (Fig-
ures 7 and 8). Figure 8 identifies value
transfer items that are illustrated in Figure 7.
This notion is further developed by Voll-
man and Cordon (1999) who explain the
derivation of demand management in a
logistics context as:
Essentially, a company has a ``pipeline'' of
capacity which is filled in the short-run with
customer orders, and in the long-run with
forecasts of demand. The point is that order
entry consumes the forecast, and demand
management explicitly integrates both of
these processes.
They suggest a more current view to be one
that includes a band of knowledge and
expands this argument to suggest that in a
manufacturing context ``knowledge'' is an
understanding of precise requirements. This
is, however, unrealistic for retailing and
there is a basis for developing an argument
concerning a retail demand-based value
chain. It is suggested that retail collaboration
occur when sales and cost data are exchanged
and such collaboration is usually retailer led,
based upon their determination to reduce
costs and focus more closely on their custo-
mers.
Normann and Ramirez (1993) suggest that
value occurs, not in sequential chains, but in
constellations; the role of business is to
involve customers in creating value, taking
advantage of the expertise, skills and knowl-
edge possessed by each member of the value
creation system. As value creating systems
become complex and varied so do the
component transaction relationships needed
to produce and deliver the value offer. A
company's principal task becomes the re-
configuration of its relationships and busi-
ness systems.
It follows that if the key to creating value is
to coproduce value offerings then the only
source of competitive advantage is the ability
to conceive the entire value creation system
and make it work by coordinating the
activities among actors so that actor and
activity are better matched. Hence, this new
logic of value depends upon a dialogue
between the organisation's competencies and
its customer base. More specifically, its
knowledge of its customers (effective com-
munication) results in a business system
(Murray and O'Driscoll, 1996) that is recon-
figured to maximise coproductivity, in which
an organisation's value offer is based upon
its primary assets (i.e. its knowledge base
(core competencies) and its customer base
(or, more specifically, its knowledge of its
customers).
There was considerable comment following
Normann and Ramirez's (1993) paper. Van
der Heijden (1993) comments that business/
customer interfaces are dynamic, with ac-
tivities being divided between suppliers and
customers. Thus, value creation may be seen
as an optimisation problem identifying what
each partner can do best (and most cost
effectively) in terms of constructing value.
This suggests the process of coproductivity is
not new, but is a process by which activities
can be (and possibly are) evaluated and
negotiated within the industry value chain.
Van der Heijden (1996) suggests that if the
value creation systems of each party are
stable and cost-effective, changes need not be
frequent. What is interesting is his comment
concerning new entrants who introduce new
methods (often made possible by new tech-
nology) and who make significant impact on
market volume. What he does not suggest is
that the new entrant initiates responses from
existing participants and consequently, re-
evaluation of relationships; these are:
``...shaped by revolutionary advances in in-
formation and communication technology''.
Figure 6
A customer-centric value chain
[ 649 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

8. Carroll et al. (1993) suggest that many value
creation systems are interpreted retrospec-
tively and that to do so prospectively pre-
sents a number of problems. These include
many role configuration options, the lack of
accessible systematic information about key
relationships, the inadequate distribution of
key strategic knowledge and information
throughout the organisation as well as the
emergent, and somewhat serendipitous
nature, of co-produced offerings. This sug-
gests that whilst the notion of strategic
alliances and partnerships is established,
there is not an established infrastructure
Figure 7
The IKEA coordinated value creation system
[ 650 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

9. with which to evaluate options and plan
implementation.
Zeithaml et al. (1993) suggest that the most
important point that Normann and Ramirez
raise is the need to break from the value-
chain orientation, in which a company
engages in a series of dyadic relationships
with individual customers and suppliers. In
contrast, the new kind of company integrates
the best of the value-creating competencies of
all the economic actors to yield a new
offering with new relationships among the
players. He identifies several issues: adding
value and reinventing value are not mutually
exclusive; continuous improvement, change,
flexibility and responsiveness are essential if
competitive advantage positions are to be
maintained. Reinventing value appears to be
easier to apply in flexible situations such as
distribution and service organisations; by
contrast heavy engineering, with large in-
vestment in fixed costs, faces greater chal-
lenges.
It has been suggested that many arguments
about creating value are only about customer
satisfaction and assume profit may be taken
for granted. However, companies need to
think about their comparative advantages in
the value chain even before they start think-
ing about how to reconfigure it for their
customers. If they do not, they are not
making strategy; they are simply engaging in
business process reengineering.
Some interesting issues have arisen. Nor-
mann and Ramirez (1993) responded by
commenting that the commentators are ``...
yoked to the value chain''. They persist with
the view that value chains are no longer
basic building blocks and that ``needs'' are
less useful notions in a service economy than
value-creation processes and that product or
service offerings, more than companies,
compete for customers.
A number of topics now arise. The first
concerns the status of the value chain as an
analytical tool in developing competitive
strategy. Porter's (1980; 1985) arguments were
based upon three generic strategy options:
differentiation, cost leadership and focus.
Essentially there were two options ± a
differentiated product/service targeted at a
customer group or a cost-led offer resulting
in price leadership. Perhaps Normann and
Ramirez (1993) should have been more ex-
pansive in their comments: many manage-
ment academics and practitioners are
wedded to the concepts of the eighties
(despite practising the developments of the
nineties) and tend to view conceptual devel-
opments against this background.
Three developments that have had a major
impact are:
1 information management;
2 the focus on core activities and products;
3 the importance of relationships in mar-
keting.
Information management has been consid-
ered already and the virtual value chain is an
application. Gilbert and Strebel (1977) sug-
gest information can be a major facilitator in
new product development and customer
satisfaction but they add a proviso:
Information systems are necessary, but they
cannot be expected to do what they were not
designed for. Because they focus on specia-
lised tasks, they cannot help multidisciplin-
ary teams share the same information, to
recognise an opportunity and respond rapidly
and coherently. Competitive information
systems...focus on the information needed to
build and sustain a competitive advantage...-
Competitive information systems link several
operating systems and ``polarise'' them to-
ward competitive advantage. Operating in-
formation systems help an organisational
unit do its job right. Competitive information
systems help several units do the right job
implementing a competitive formula.
Figure 8
The IKEA value creation system
[ 651 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

10. Their contribution is helpful in the context of
organising to deliver value. Competitive
information systems start from the formula
which itself depends upon effective relation-
ships existing between several functions,
each of which is a key success factor of the
formula. They also use IKEA as an example,
which, it will be recalled, organises a value
delivery system through ``co-productivity''. It
represents an ideal example of a competitive
information system in which many different
operating systems (i.e. design manufactur-
ing, delivery, inventory and retailing) are
brought together to focus on a ``fast response/
low inventory'' formula:
Each key success factor is supported by an
``information cluster'', that retrieves and
processes the information on which a key
success factor depends.
This does, of course, consist of databases and
applications.
Strategic and operational
effectiveness
In a world of constant change it should come
as no surprise that other established con-
cepts are increasingly questioned. Porter
(1996) suggests that for many companies
technological developments can create pro-
blems:
...the quest for productivity, quality and speed
has spawned a remarkable number of man-
agement tools and techniques and bit by bit,
almost imperceptibly (these) management
tools have taken the place of strategy. As
managers push to improve on all fronts, they
move farther away from viable competitive
positions.
He develops an argument between strategy
and operational effectiveness:
A company can outperform rivals only if it
can establish a difference that it can preserve.
It must deliver greater value to customers or
create comparable value at lower cost or do
both. The arithmetic of superior profitability
then follows: delivering greater value allows a
company to charge higher average unit
prices; greater efficiency results in lower
average unit costs.
Operational effectiveness is insufficient for
long-term competitive success:
(competitive strategy)...is about being differ-
ent...the essence of strategy is in the activities
± choosing to perform activities differently or
to perform different activities to rivals.
In essence Porter (1996) is suggesting that
strategic effectiveness is doing the right
things and operational effectiveness is doing
the right things right. His model of a
productivity frontier does not address the
entire problem. The productivity frontier
(Figure 9) rather than being:
the sum of all practices at any given timethe
maximum value that a company delivering a
particular good or service can create at a
given cost...
may best be viewed as a coordinated value
creating process in which delivered customer
value is optimised within a set of constraints
imposed by the necessity to deliver long-term
stakeholder value (i.e. profitability, produc-
tivity and economic cash flow for the value
creating system or configuration). Opera-
tional effectiveness is achieved by extending
value creation into the implementation of the
customer value delivery, either by copro-
duction processes within customer or, possi-
bly, supplier organisations.
A solution offered is for the firm (and its
partners in the virtual corporation context)
to identify a value strategy. We can now
modify the earlier definition of value:
Value is determined by the utility combina-
tion of price and non-price benefits offered. It
is a relative measure i.e. it is determined by
comparison with similar market offerings to
a target customer group.
Value and competitive advantage are com-
patible concepts. A value-based competitive
advantage can be established by identifying
those benefits, or attributes, which offer
vendors an opportunity to increase the
attractiveness of their market offer to their
target customers. Within the context of our
earlier definition of a value driver, the
benefits or attributes (expected or perceived)
are the value drivers that are important to
the target purchaser.
Porter's (1996) productivity frontier may be
used to identify alternative value proposi-
tions (defined earlier) ± see Figure 10. Two
value offers are possible, the decision be-
tween them is clearly influenced by a number
of factors. The first consideration is market
potential and the probability of achieving
Figure 9
Porter's productivity frontier
[ 652 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

11. stakeholder objectives. The second concerns
the ability of the organisation to deliver the
value package expectations: this will be
influenced in turn by the extent to which the
organisation either has the required level of
competence(s) and whether shortfalls are
available by entering partnership relation-
ships to provide the service activities re-
quired. This does of course also assume
mutual acceptance of role, tasks and rewards
by the partner organisation(s). Thus, it
follows that the virtual corporation concept
permits an organisation to pursue a range of
strategies. It would no longer be constrained
by its range of competencies; rather it may
identify market opportunities that were be-
yond existing capabilities, such as logistics
services.
Cronshaw et al. (1994) argued that a
number of companies can, and do, earn above
industry ROI by pursuing a strategy that
results in being stuck in the middle. They
offer examples of organisations whose custo-
mer bases have broad, but manageable,
segmentation criteria to which selective, but
expanded offers, can be successfully made.
Porter's view that being ``stuck in the mid-
dle'' results in two feasible strategies is
shown as Figure 11.
Figure 11 shows that optional ROI perfor-
mance is obtained by either a differentiation
or cost-leadership strategy: being stuck in the
middle results in low performance.
Porter's (1996) productivity frontier offers
a useful model for revisiting differentiation
and considering a more valid and attractive
approach of value-based segmentation. Fig-
ure 10 identifies two possible value offers. We
suggest this can be developed. Figure 12
identifies a range of options. The components
of value will differ as the options move from
ultra-high service/no price-led value,
through to an outright price offer with no
service support.
Mathur and Kenyon (1998) offer an inter-
esting view when they note the general
evidence of past over-diversification, and the
case for suspecting a deep-seated human
tendency towards it. Its psychological ele-
ments are likely to be conferred by power,
and a sense of living in a jungle in which
management teams must either kill or be
killed. They go on to state that these tend to
blind managers to:
. the need to add value in the sense of
beating the cost of capital;
. the risks of a proposal, especially the
future competitive pressures on a new
offering like countermoves by competitors,
and changes in consumer preferences;
. the costs of implementing the project;
. the skills, efforts and expenditures
needed, and the difficulties of motivating
or even retaining key staff in the acquired
business;
. the costs of restructuring, or harmonising
information systems and the like.
Figure 12 suggests three generic strategies.
Cronshaw et al. (1994) furnish poignant
evidence that by providing a limited variety,
an offer can prove to be profitable. We
suggest that provided substantial market
share is available, selective exclusivity value
strategies can be profitable. Their evidence,
based upon the UK retailer Sainsbury, sup-
ports this view.
Mention has already been made of the
extent to which organisations are prepared to
invest time and money into the effort to
capture and hold customers. We have also
established that scale economies are rapidly
declining as a significant competitive factor.
Variety is no longer expensive and
Figure 11
Optional ROI performance
Figure 10
Using the productivity frontier to identify two
value offer/strategy options
[ 653 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

12. profitability is moving towards customised
products that have been tailored to the
expectations of their respective segments. As
customisation ceases to be distinctive and
becomes cosmetic we can see the attractive-
ness of selective exclusivity or value-based
strategies. Increasingly, we see the terms co-
production and co-destiny as being ap-
proaches in which risk, costs and increased
profitability are shared by suppliers, manu-
facturers, distributors and end-user custo-
mers. The IKEA example quoted by Normann
and Ramirez (1993) is an example of both co-
production and codestiny: end-user custo-
mers willingly involve themselves in the
coproduction activities and suppliers work
with IKEA towards a long-term relationship
for mutual success.
Figure 13 suggests a selective approach. It
is proposing that given an identified range of
market segment options a firm will respond
by investing in ``technology'' relevant to its
core capabilities and activities and which
will address the needs of a selected segment.
The ``virtual value chain'' approach will be
for groups of companies with complementary
core capabilities to develop a range of
activities that together will enable them to
position themselves to gain competitive ad-
vantage with the selected segment.
The organisational implications of alter-
native value strategies are shown in Figure
14. Both marketing and operations differ-
ences are addressed. Whilst this is a basic
view of the differences that exist, it still
serves to illustrate the problems confronting
organisations attempting to be `all things to
all customers'. The virtual value chain
Figure 12
A focussed approach to the productivity frontier: value-based strategies
Figure 13
Matching the productivity frontier with market opportunities
[ 654 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656

13. approach is for complementary companies to
match core competencies into an integrated
offer that responds to a selected target
market. Competitive advantage is jointly
created and owned.
Conclusion
This paper has introduced the notion of value
in terms of its various interpretations, and
more specifically our concern has been with
its association in connection with the co-
ordination of customer satisfaction. In the
new millennium, views of value and satis-
faction are now seen to be merging and we
see terms like coproduction entering the
marketing vocabulary.
The notion of the traditional value chain
begins with the company's core competen-
cies, whereas contemporary evidence sug-
gests that the modern value chain reverses
this approach and uses customers as its
starting point. It is additionally suggested
that value appears in constellations rather
than sequentially.
Many organisations are now prepared to
invest heavily to retain loyal customers and
it is even suggested that being ``stuck in the
middle'' might be a more profitable and
stable course in the long run.
This is the first paper from the authors that
addresses the issue of the delivery of value by
companies. The next paper concerns the
issue of value-based marketing to customers.
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management
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37/8 [1999] 643±656

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Application questions
1 How do you add value for customers? 2 What are the three most important things
that you do to ensure that you retain
customers?
[ 656 ]
David Walters and
Geoff Lancaster
Value and information ±
concepts and issues for
management
Management Decision
37/8 [1999] 643±656