The company is a leading global manufacturer of industrial products, with a significant presence in all regions. However, the company was facing unsatisfactory margins and a lack of competitiveness in important and growing market segments.
An initial assessment to identify causes revealed a mismatch between the company’s industry and value chain strategy – and the actual market realities the company was operating in.
Strategy
The industry and value chain strategy was geared towards standardisation and synergies (a “one size fits all” philosophy), while the customer demands and products offered in the various market segments were actually quite different.
The mismatch between industry and market strategies lead to an unmanageable complexity and multiple “work arounds” throughout the entire value chain, and ultimately product costs that were too high to be competitive.
Misalignment between market & industry strategies lead to unmanageable complexity – products with too high cost – and a lack of competitiveness in key market segments.
To turn the situation around and improve competitiveness, management decided to revise its product strategy – and also redefine the supporting industry and value chain strategy.
A cornerstone of the new industry and value chain strategy was a holistic approach, where the “recipes for success” in each market segment reflected backwards throughout the entire value chain.
This lead to the design and structuring of two distinct and different value chains:
One value chain was designed to deliver highly customized products, towards bigger customers who typically placed large but infrequent/irregular orders.
The second value chain was designed to deliver more standardized products and options, towards smaller customers who typically placed smaller orders on an annual cycle.
Functional strategies and goals were all aligned with the overall value chain strategy, affecting essentially all functions involved; sales, R&D/innovation, purchasing, manufacturing, logistics, sales and operations planning and aftermarket.
A complete organizational overhaul was made to support the realignment; in which functions were separated towards the two distinct value chains. Select subsets of functions were kept common across value chains in order to support synergy capture – where this did not conflict with the “recipes for success” per value chain.
To make the new strategy and organization operational, a new operating and governance model was also defined, where each value chain was given new process designs, roles and responsibilities, as well as performance goals and KPIs.
