A Landscape View into Value Chain Relationships
By Stephanie Overby
A supply chain is not necessarily a value chain. They’re related, but different. And that supply chain mapping you’ve been doing? The result is not a map of a landscape; it’s a graph. These are two bits of wisdom Simon Wardley will share with you if you talk to him about his two decades of work studying strategy and the ways organizations create value.
In 2005, Wardley, then a startup CEO, synthesized his theories into what’s now known as the Wardley Map: an open-source tool that helps leaders make informed and intelligent decisions.
The tool guides a user or team to sketch a business with people who benefit from the system at the top; the benefits the system offers them below; and below that, a chain of actions required to provide those benefits. Embedded in the sketch are assumptions that conditions, influenced by capitalism and other forces (like climate change), are subject to change. In this way, the sketch illustrates both an organization’s raison d’être and what it needs to meet it. A Wardley Map empowers decision makers to better navigate the environment in which they operate.
Years on, Wardley’s approach is as relevant as ever, particularly for supply chain leaders facing down some of the most significant challenges of their careers over the past two years.
In a conversation with SAP Insights, Wardley, a researcher at DXC Leading Edge, argues that leadership relies too much on storytelling (which makes it difficult to challenge leaders’ assumptions), and that businesses are not good at understanding customers’ needs – and are therefore puzzled about how to meet them.
He shared his approach to strategy, why organizations should laser focus on the value they add for customers, and the importance of visibility in value chains and what it will take to get that.
Simon Wardley, creator of the Wardley Map.
Q: The terms “value chain” and “supply chain” are often used interchangeably, but they’re not necessarily synonymous. What’s the difference?
Simon Wardley: I am utterly guilty of using them interchangeably, too. Whenever you build something, you take a bunch of inputs and transform them into some sort of output. There are nodes and connections, and you can map them out in a chain. If you look at that chain at any point in time, there are suppliers and there are consumers and there are exchanges of some form of capital. The same organization can be a supplier or a consumer depending upon the point in the chain. And when you’re talking about that chain and exchange of capital it’s important to understand where your value is.
When we say value chain or supply chain, they are two sides of the same coin. If you’re talking about a supply chain, you’re talking about a value chain but only at a specific point where you are the consumer. But a value chain is all the activities needed to fulfill user needs mapped against how all the individual activities required to meet that need change over time as a result of supply and demand conditions.
How mature would you say most organizations are in their understanding of how they create value?
There are two aspects of this: the value and the construction of the supply chain. You can start off with the super basic ideas of whether you know who your users are, what their needs are, and how you meet them. My experience has been that organizations are not very strong at understanding users, they’re much poorer at understanding users’ needs, and they can be quite poor at understanding the chain of components required to meet those needs. They have a bill of materials and they understand – one up and one down – who they are selling to and who they are buying from. But when it comes to visibility into the whole chain? They don’t have that visibility. But there’s one other complication – even if you had all that information and graphed it out, that’s not near enough. You need to map the environment.
– Simon Wardley
What’s the difference between graphing it out and mapping it out? A lot of companies do supply chain mapping.
Imagine you had three nodes – say, London, Dover, and Nottingham – connected by two roads, and you put them on a map of England. Whether you put London north or south of Dover makes a difference. But in a graph, there is no concept of space. There are only nodes and relationships among them.
We’re all familiar with business process maps. But they’re not maps; they’re graphs. On a map, space has meaning. If you move Australia on a map of the world, that changes the whole meaning of the map. Why does this matter in economics? Because economics is a landscape and, like landscapes, they can be mapped.
So, most organizations are bad at understanding users, worse at understanding their needs, and downright awful at value chain mapping. If that’s true, then how does any business survive? It gets back to the Red Queen hypothesis in evolutionary biology which says that while evolution is generally essential to survival, it’s okay if you’re helpless as long as everyone else is. The problem only comes when someone comes along who isn’t helpless and outperforms you – like Amazon, who’s really good at this stuff.
How did you come up with your approach?
I was CEO of Fotago, an online photo service, charged with writing strategy. I realized I hadn’t a clue about what I was doing. I read all these books and listened to people talk about strategy, but I was coming up with really vacuous vision statements. I went into a bookstore one day and was talking to the bookseller, and she asked if I’d ever read Sun Tzu’s The Art of War and suggested I buy two different translations. In the second version, I noticed a particular pattern of the five factors that matter in competition. One of these factors was landscape. Maps have always been important in military history, and I realized that I didn’t have any maps as a business leader. I assumed this must be what you learn when doing an MBA. It took me seven months to develop a map and even longer to build up a competence in it.
Do MBA programs teach mapping?
I don’t have an MBA, but I subsequently found out that you do not learn mapping in most MBA programs. Most organizations are run by stories. There’s an entire industry that says if you want to be a great leader, you have to be a great storyteller.
The problem with stories is that if you challenge a story, you challenge the storyteller. You’re saying they’re not a great leader. What I like about maps is that if you put information into mapping form, you can challenge the map instead of challenging the person. I can tell you from experience that once I ask someone to put their ideas into a map, it’s much easier to challenge their assumptions without challenging them.
You first came up with your Wardley Maps in 2005, but they seem more relevant than ever. Why is this kind of mapping not a best practice?
I get these lovely e-mails every now and then. A company with a $7 billion market cap thanked me because their business and strategy was built with my maps. I’ve gotten similar notes from a sexual health campaign in Brazil and from NASA. It’s nice that they take the time, but I have no idea how far the maps have spread. What I do know is that management practices typically take 30 to 50 years to spread. We’re really still in the Babylonian clay tablet stage of mapping.
– Simon Wardley
What do you wish more business leaders understood?
If there were one thing that I want people to learn, it’s the difference between map and graph. Space has meaning. We can learn from areas that have been using maps for a long time, such as geography and the military. Maps will always be an imperfect representation of a space. They have to be created on a one-to-one scale to be accurate, but you can’t carry a map the size of France in your pocket. It’s a model, and all models are wrong.
But despite being imperfect and wrong, they are useful, particularly as communication tools and media for understanding the landscape of the system in which we operate. Mapping has been enormously useful in enabling me and others to challenges the assumptions we make.
Have the events of the last few years offered any wake-up calls to think differently?
Hungary graphed its entire economy, which is better than a story but not as good as a map. They found that 70% of their economy was dependent on 100 companies, and 25% of their GDP was dependent on 36 companies. If any of those companies had a problem, it would impact their economy. There was a sudden realization of how much dependency there was in the system, with large parts of the nation’s economy dependent on a few entities. There are scattered examples of such realizations but limited action.
The issue is that people think their suppliers and their supply chain are their secret sauce.
I saw this pre-pandemic when a bunch of companies in a particular industry were exploring the use of blockchain to verify custody of the goods they produced so they could trace the origins of any problems.
There was a lot of resistance, because companies were concerned about sharing information that they thought provided them with a competitive advantage. It turned out they were all using the same market research companies to collect data on competitors and sometimes themselves, because their own systems were so poor. In essence, they all had the same data, yet they were worried about sharing it via blockchain.
There can be a lot of irrational and strange arguments when it comes to sharing supply chain information. Realistically, the only way we will overcome these irrational arguments is if we end up with some sort of government department of supply chain, which makes sense because there are issues of critical national infrastructure. I welcome positive efforts in this space, but so far, it’s been very spotty (for example, executive orders on software bills of materials or strategies regarding critical materials.)
One idea you emphasize is the value lost when companies expend corporate resources doing something that someone else offers as a good, commoditized service. Can you talk through that in the context of supply chain?
Let’s talk about a late-stage product like a toaster. It’s almost a commodity, but there’s some variability and it’s full of components. A chap called Thomas Thwaites at the Royal College of Art had what he called the Toaster Project, wherein he built a toaster completely out of raw materials – no standard components. Rather than spending about £20 (US$25) and a few days, he spent eight months and over £1,000 (US$1,236) to make a toaster that was almost unrecognizable as a toaster and burst into flames the first time he turned it on.
Using standardized components has value. We see this in the software supply chain. The user need is met by an application built on a developer platform using an operating system and running on hardware. Compute was once a product in a data center that needed power and cooling, and we created all sorts of best practices to care for these big expensive computers in a data center. For a while, that was fine. Then Amazon came along and said we can offer this as a utility service and it changed the game. Rather than waiting for weeks, you could access compute in seconds.
Many organizations indeed outsource commoditized activities, but in the wake of supply chain shocks in recent years, some wonder if supply chains got too long and lean.
Part of the issue is assuming that if you outsource something, the market will provide. But just because you outsource doesn’t mean it’s someone else’s problem. It just means they specialize in building it. What you need is a view of how they do that, not just for resiliency’s sake but for other issues like embedded carbon and making it green. Today’s ESG efforts are a lot like sticking your finger in the air and hoping. You don’t give up responsibility for something when you hand it over. The big problem is there are no systems for visibility. Amazon has a whole team of people looking at its supply chain, but most organizations can’t afford that.
Michael Porter was early in writing about value chains and competitive advantage. Is he a particular influence for you?
I’ve read his stuff and without a question, he’s an influence. I have an enormous library of books behind me written by people who have influenced me in different ways and whose words and language I’ve adopted. Sun Tzu had an enormous impact as did Laozi’s Tao Te Ching. In the world of business, there’s Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez, The Entrepreneurial State by Mariana Mazzucato, and Doing Capitalism in the Innovation Economy by Bill Janeway, as well as works by Tom Peters and Roger Martin. I could go on and on.
Has your thinking evolved in major ways over the years?
I’m constantly improving and tweaking my approach, but the core thinking about a chain and its components remains the same. People come up with their own different ideas. We’re creating a mapping foundation, and I hope that a community takes over this work and evolves it as its own. That’s what needs to happen.
Your mapping techniques are taught at Harvard University’s Kennedy School of Government, the London School of Economics and Political Science, Peking University, and the Moscow Institute of Physics and Technology. Why are the maps so widely appealing?
They’re imperfect, and they’re wrong because they are models. But the thing they’ve got going for them is some people find them useful. And then those people show other people so they spread. There’s no secret sauce. Someone will come up with better and more useful maps. But, even in their current primitive state, people find them useful.
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