A Scoping Study of How Can Firms in the UK be Encouraged to Create More Value.docx

A Scoping Study of How Can Firms in the UK be Encouraged to Create More Value.docx

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AScopingStudyofHowCanFirmsintheUKbeEncouragedtoCreateMoreValue

MovingtotheNextLevel

AScopingStudyofHowCanFirmsintheUKbeEncouragedtoCreateMoreValue

BackgroundandFocusoftheStudy

Governmentreports（PorterandKetels,2003;Cox,2005）andthepress（Smith,2006;Giles,2006）havehighlightedagrowingconcernabouttheUK’sproductivityperformanceandcompetitiveness.“TheCompetitivenessReport”publishedbyPorter&Ketels（2003）highlightstheneedfortheUKtotransitiontoahighervalueeconomy.ThisreporthastriggeredfurtherresearchintowhatcanbedonetoimprovetheUK’ssituation.OneofthereportstriggeredbyPorterandKetelshasbeen“PostPorterWheredoestheUKgofromhere?

”（Birdietal.,2003）,itstates“Inordertoremaincompetitiveandconsistentlyincreaseprofitability,firmsneedtomoveupthevaluechainintheirindustriesovertime”（p21）.

Thethemeofcompetingonvalueaddedhasledtoapaperentitled“HowCanFirmsintheUKbeEncouragedtoCreateMoreValue?

”（Edwardsetal2004）proposesthreestrategiesasameansofincreasingafirm’svalueadd.Thethreestrategiesare:

1）Adoptingpromisingpractices

2）Creatingvalue-Product,processandservicedevelopment

3）Re-positioningalongthevaluechain

Thefocusofthisliteraturereviewisthethirdstrategythatofre-positioningalongthevaluechain.Theresearchersbelievethatthereislessunderstandingofthisstrategyandfurtherworkisrequiredonthissubject.Theothertwostrategieshavebeenwellcoveredintheliteratureonstrategy,marketing,innovationandgeneralmanagementliterature（forexampleNickBloom,JohnBessantetc）.

Attheoutsettheliteraturereviewaimstomapthecurrentliteratureintheareaandanswersomeoftheinitialresearchquestions（including,howdofirmsrepositioninthevaluechain?

Andisitworthit?

）,andidentifygapsinknowledgeforfurtherinvestigation.

LiteratureReviewMethodology

Theresearchteamadoptedasystematicapproachtoreviewingtheliterature（Leseureetal.,2004）.Theprocessofthesystematicreviewstartedwithidentifyingtheneedforthereviewandthepreparationtoincludeareviewprotocol.

Thefocusofthereviewwasagreedtobeanexaminationoftheliteraturethatdiscussedthestrategyofrepositioningalongthevaluechain.Theinitialresearchquestionsforthestudywere:

∙Whatisthevaluechain?

∙Whatarethewaysforcompaniestomoveinthevaluechain?

∙Docompaniesthatmoveupthevaluechaingettheproductivitygainstheyexpected?

∙Whatarethelinksbetweenproductivityperformance（atthefirmandnationallevel）andapplyingthestrategyofmovingupthevaluechain?

Itis

Isnot

Toestablishwhathasbeendonealready

Anevaluationofvaluechainmodels

Anindepthanalysisoftheliteratureonproductivity

Figure1–ScopeoftheLiteratureReview

Figure1illustratesthediscussionsoftheresearchteamhadonthescopeoftheliteraturereview.

Figure2-ReviewProcess

Figure2showstheprocessfollowedtobuildupthelistofpaperstoreview.Thekeywords（seeappendix1）wereidentifiedbythesevenmembersoftheresearchteamandvalidatedbytheprincipalinvestigator.Thedatasourcesusedarelistedinappendix2.

TheresearchteamfollowedthemethodologyforrankingthearticlesusedbyLeseureetal.（2004）.Fromalistof62articlestheresearchteamwereaskedtogradethearticle’stitlesandabstractsbythefollowingcriteriaofA（shouldbeinshortlist）,B（uncertain）,orC（shouldnotbeinshortlist）.Appendix4containsalistofthereviewedpapers.

MeasuresofProductivityataNationalandFirmLevel

Beforegettingintothemainfocusoftheliteraturereview,re-positioninginthevaluechain,theresearchteamhadsomepreliminarydiscussionsonhowthisstrategytiesupwiththeAIMresearchthemeofproductivity.Therewasalsoalevelofpre-understandingworkthatwasrequiredtoensuretheresearchteamhadacommonunderstanding.Thiscalledforabasicreviewoftheliteratureonproductivity.

AmeasureofeconomicactivityatthenationallevelisGrossDomesticProduct（GDP）.TheUK’sGDPperformanceperpersonisaccordingtoPorter（2003）isinfluencedbythefollowingfactorstheamountofpeopleandtimecontributiontothelabourforceandtheproductivityperformanceofthelabourforce.

TobeabletoclosetheproductivitygapthattheUKhaswithitsinternationalcompetitors（Porter,2003）theconnectionsbetweentheindicatorsatanationallevelandafirmlevelneedtobemade.

Thelevelofthefirmistheunitofanalysisforthisstudy.Soweneededtobeclearonhowproductivitycouldbemeasuredatthislevel.TheresearchteamagreedthatValueAdded（VA）peremployee（Beachman,2006）couldbeusedasanindicatoroflabourproductivityatthefirmlevel.Valueadded,althoughitcannotbeusedinisolation,isoneoftheindicatorsthatcanbeusedtoevaluatefirmsthathavemovedinthevaluechaintoassessiftheyhavemadeproductivitygainsfrommoving.

ValueanditsManyMeanings

Intheearlystagesoftheresearch,therewasalsoaneedtoclarifyourunderstandingofvaluegiventhemulti-disciplinedbackgroundoftheresearchteam.Againweturnedtotheliteraturetoclarifythemeanings.

Thetraditional“engineering”viewofvalue（valueanalysis,valueengineeringetc.）tendstolookatwaysofmaximisingthefunctionalitywhilsteliminatingwaste.Thisviewisstillseentodayinengineeringdisciplines,withauthorssuchas（WomackandJones,1994）encouragingcompaniestofocusonthewholeratherthantheparts,thusallowingcompanies“todifferentiatevaluefromwaste”.

ToPorterafirmisprofitableifthevalueitcommandsexceedsthecostsinvolvedincreatingtheproduct（Porter,1985）.（Merrifield,1991）definesvalueastheincreaseinvaluethatoccursateachstageofthemanufacturingprocessandvalueresidesintheconcentrationofresourcesfocussedonselectedbusinessareas.Movingfromproductiontowardsexchange（Condra,1985）interpretsvalueasafairreturningoods,servicesormoneyforsomethingsexchangedthatareworth,incomparison,withsomethingsimilar（competitors’product）.（TreacyandWiersema,1996）gofurther,definingvalueasresultingfromthefulfilmentofcustomers’expectationsthroughwhichtheorganisationachievestheeconomicbenefit.（MilesandSnow,1978）sayvaluecomesfromchoosingcustomersandnarrowingtheoperationfocustobestservethatmarketsegment;customersatisfactionandloyaltydoesn’t,byitself,createunmatchedvalue.

Itisfromthestrategicmanagementliteraturethattheseminalcontributiononthestrategicvaluecreationprocesshasbeendeveloped,basedlargelyontheworksofMichaelPorterandtheconceptofthevaluechain（1985）.Thispermittedmarketerstothinkbeyondcategoriesofperceivedvaluetothestrategicmeansandprocessesfordeliveringtoorenablingthecustomer.Thishasmorerecentlyledtoafocusonvalueinthecontextoftherelationshipsthatexistbetweensuppliersandcustomers.

Anotherconceptusedintheliteratureisthatofvaluepropositions.（TreacyandWiersema,1996）suggestedthattherewerethreebasisonwhichfirmscompete–or“valuepropositions”,namelyproductleadership,operationalexcellenceandcustomerintimacy.（MartinezandBititci,2006）developedthisfurther.Their“valuematrix”buildsonearliervaluepropositionsdevelopedby（TreacyandWiersema,1996）.Thismatrixgeneratessix,asopposedtothreevaluepropositions,whichareidentifiedas:

Innovators,BrandManagers,PriceMinimisers,Simplifiers,TechnologicalIntegratorsandSocialisors.

These“valuepropositions”wereinitiallydesignedtohelpcompaniestounderstandthebasisonwhichtheycompete,andthereforethestrategicandoperationalissuessurroundingtheircompetitivestanding.MorerecentlyBititci（2005）hassuggestedthattheconceptofthevaluepropositioncouldalsobeusedbyorganizationsasameanstoconsiderrepositioningwithinthevaluechain.Hesuggeststhattherearemanycompanieswhowishtogetoutofthe“priceminimiser”situation–sotheyeffectivelyneedtorepositionthemselvesinthevaluechain.Wewillcomebacktothistopicinthesection,whatdowemeanbymovingupthevaluechain?

Companiesprovidevaluethroughproductsand/orservicesbythewaytheyarrangetheiractivities,theactivitiestheyselecttodoandtheirabilitytodevelopproducts/servicestocreatevalueforthecustomer（Livesey,2003a）.Withthevaluetocustomersbeingtheabilitytomeetacustomer’spriorities,prioritiesbeingthingsthatcustomersarewillingtopayextrafororaresoimportantthattheywillsearchoutalternativesuppliersiftheycannolongergetthem.（SlywotzkyandMorrison,1997citedby（WaltersandLancaster,2000）

Theexpectationsofvaluethatthecustomerislookingforisincreasingintermsoftimetomarketandneedforinnovativeandcustomisedproductsmakingvaluecaptureharder（Livesey,2003a）.Thatisassumingthemanufacturerhasthecapabilitiestoexploitthevalue,intheexampleofthepharmaceuticalindustry,newcompanieswiththetechnologycapabilityhavetheabilitytoexploitthevaluewhilethemoreestablishedcompetitionhavetogaintherelevantcapabilitiesinordertocompete.（Champion,2001）

Eventheclassificationofthefirmsdeliveringvaluearebecomingharder,thereisnolongeracleardistinctionbetweenaproduct,serviceoracombinedserviceandproductprovider（NormannandRamirez,1993）.

ValueChain

Thevaluechainhasbeendefinedaseitheratoolforanalysis（Sturgeon,2001）,abusinesssystem（WaltersandLancaster,2000）oraconceptthatoffersatoo