By Dr Ian Mc Cabe NUIG & Dr. Diane Cresswell, Bionow
This introductory article aims to explain the key elements of Value Chain Analysis (VCA) and how it can be used by companies as a working model of the interconnected technical environment in which their business operates.
We live in a rapidly changing world where new technologies evolve quickly and often find application outside of their initial field of influence. Some new technologies are disruptive – rapidly making existing technologies obsolete and creating new markets. The commercialisation of medical devices is costly in terms of time and money, not to mention risk so healthcare businesses, and in particular SMEs, need an efficient method to horizon-scan effectively, consider opportunities objectively and to be able to revisit and refine their conclusions. Value Chain Analysis offers one such methodology which can be deployed by an SME to guide its strategic direction.
The Atlantic KET Med Project has applied the VCA approach developed by the National University of Ireland, Galway (drawing partially on the original work of Shteyn and Shtein1 2013) to medical technologies. This has proved to be challenging, in terms of new people with different backgrounds, learning to apply value chain thinking to 25 medical innovations that are in themselves quite profound. But it has led to the development of a streamlined VCA process which is transferable and can be delivered by anyone with sufficient technical background and understanding of the product in question. And who better than the leadership of the SME itself.
Understanding your Product in terms of its Value Chain
So how do you get started with VCA? The first step is to undertake a thorough and unbiased product review. The Atlantic KET Med Project has formalised the product review into a structured Define the Product workbook (Part 1) to fully define the Product, its future Applications, the potential End User Products and the unmet healthcare needs that these products would address (the so-called Societal Challenges). The Technical Readiness Level2 (TRL) of the Product, Applications and potential End User Products is assessed and for each Stakeholder we also speculate what TRL that Stakeholder will need in order to engage with the technology. The Part 1 analysis is critical as it determines the direction and emphasis in the subsequent search for stakeholders.
Once the Product is well understood within the context of the company and market the next step is to explore its Technical Value Chain. The Technical Value Chain is defined as the sources of technical value centred on the Product that begins with the raw Materials and concludes with the Product addressing a Societal Challenge. The technical value chain is always focused on the Product with the ‘Supply’ side consisting of: Materials, Processes, Components, Sub-Systems, Systems, and Product. The ‘Demand’ side spans the chain of: Product, Application, End User Product, and Societal Challenge. It is this Demand side of the Value Chain that becomes the primary focus of this value chain analysis. The elements of the Demand side value chain are considered to be linked, with a single product having multiple possible Applications, each Application enabling one or more End User Product(s), and each End User Product addressing one or more Societal Challenge(s).
A value chain analysis is most easily achieved via an experienced VCA facilitator who can meet with the relevant technical and business leadership of the company and draw out the salient information. This helps to minimise internal bias from the start, but if an external facilitator is not available the Part 1 exercise can be carried out as an internal brainstorming exercise involving the product development and business development teams. A flip chart and Post-it notes come into their own here, making it easy to move applications and end-user products around as the discussion develops, but flow-charting software can be used in virtual settings. The key output of this exercise is the downstream value chain diagram which sets the scene for the consideration of the System Model and the stakeholder search. You should allow up to 3 hours for the Part 1 analysis, then some time to document it properly as the Part 1 VCA workbook and agree the final write up with the team. A blank Workbook is provided as a download.
The Stakeholders are other potentially interested parties, these could be other companies or research institutes with whom your company might collaborate to develop the product. Stakeholders may be customers who will buy the Product itself or an End User Product. Stakeholders may also be specialist providers of goods and services in the wider environment without which the Product cannot function e.g. imagine a car without fuel stations. Stakeholders are identified through a targeted web search which is explained a little later in this article.
For the purposes of introducing these concepts I have chosen the internal combustion engine as an example product. Cars, trains, ships and planes are familiar to us all and serve as useful examples of the considerations for scalability so let’s turn the clock back over 100 years and develop a downstream value chain for the invention that replaced the horse!
Downstream Value Chain for the Internal Combustion Engine
So starting with our Product, the internal combustion engine, we then consider all the possible Applications. We then develop this thinking into specific End User Products, that that will be designed, packaged and sold all of which embody our own Product, the internal combustion engine. We then consider the societal benefits that will come about and the societal challenges that will be overcome. All of the Societal Challenges listed are on the common theme of improving transport.
The three top Applications are then considered in terms of the System Model which is a way of representing all the other things that must be in place for that Application to grow at scale. The three Applications are chosen by considering the ability of the company to develop them and the associated benefits in terms of End User Products that could result and the scale of the Societal Challenges that would be addressed.
Constructing the System Model
The System Model is a powerful concept providing a framework for looking at the ‘global’ system or market that a Product sits within. The system embodies both the commercial market and the technical environment. The System Model allows you to consider your product from several different viewpoints and how that Product interfaces with other technologies/products. These working interfaces are critical; if the product cannot easily utilise other products/technologies it will not be scalable so is unlikely to succeed. It is best illustrated as a diagram.
In summary:
- A novel or disruptive Product must sit within a Global System where all the necessary materials, services, distribution and controls are available, in order to scale successfully. The System Model provides a means to explore all the elements of this Global System, to identify strengths, weaknesses and gaps while assigning example Stakeholders (other companies).
- There are five parts to the System Model which comprises the Source, Distribution of Packaged Payloads, Control, and the Tool.
- Gaps in the System Model (where a part, e.g. Control, is missing) may identify areas where there is a genuine absence of technology or know-how which may represent additional opportunities for the company to exploit.
- The five Interfaces in the System Model represent areas where IP can be generated and where system-side value can be created.
The System Model concept can be a little difficult to grasp at first reading. It is much simpler to visualise using familiar real world technologies. There are several examples and some further definitions in the System Model download.
For now, staying with the Value Chain diagram for the internal combustion engine, let’s consider the first Application Replace Horse-drawn road vehicles. Instead of the horse, the engine is now the Source (of power) and the System Model considers the Car as the Tool which produces a useful output – Transport.
We can also look upstream and consider the System Model representation of the engine itself.
In the above diagram you can see how the System Model explores the environment that the engine sits within considering the Engine as the Tool which produces a useful output – torque or power.
Of course, the value chain above and the System Models were created with over 100 years of hindsight and illustrate many things that we take for granted today. But they demonstrate the overall system that the engine sits within and many of the interfaces, resources and controls that need to be in place for the engine (and subsequently the car) to deliver value.
The next stage is to consider the Stakeholders and where they sit within the Value Chain and the System Model.
Stakeholder Mapping
Before you can begin to search for Stakeholders, as a minimum you need to have derived the downstream value chain following the steps laid out in the Define the Product workbook. It is also helpful to sketch out a rough System Model for each of the top three Applications identified. This establishes the best natural overview for each Application and where the Product naturally sits within the web of Stakeholders. Once the analysis is underway the System Model also helps identify what role each Stakeholder plays in the System Model from this point of view. The System Model view is particularly helpful in cases where the Product is a platform technology which may support many possible Applications and End User Products.
Of course, to enable the online desk research you need a list of relevant search terms, terms that are used within the industry or technology. To derive the search terms, revisit the value chain and the Define the Product document, to identify specific terms and short phrases that are used within the industry or technology. Identify 10-30 such terms, from across all areas of the value chain, as your starting point.
Applying VCA to biomedical products
Now let’s try building a value chain for an imaginary biomaterial in a simple example and consider the future possibilities.
A University spin-out, Fycogel, has discovered a novel biomaterial that is derived from an abundant natural source of marine algae. The purified biomaterial can be made into a gel which forms a matrix for cell growth and skin cells have been successfully cultured in the laboratory. This strongly suggests possible applications in skin regeneration and wound healing and the company is embarking on pre-clinical studies. A future application may be to use a modified form of the gel as a drug delivery vehicle but no research has been done yet in this area. The company decides to use a value chain analysis approach to explore the possibilities and to provide a framework on which to hang new ideas which emerge.
The CEO assembles the R&D and new product development teams and they brainstorm their way through the Define the Product Part 1 workbook. This results in the downstream value chain diagram as below:
The team have added the Technology Readiness Levels (TRL) to the value chain, following the normal definitions of TRL2.
They have also identified an initial set of search terms as below, ready for the Stakeholder search:
| cell culture | regenerative medicine |
| 3D cell culture | tissue regeneration |
| skin cell culture | cartilage repair |
| biomaterial / bio-material | arthritis repair |
| wound healing | joint repair |
| venous ulcer | burns treatment |
| diabetic ulcer | connective tissue repair |
| hernia | chronic wound |
| cell scaffold | extracellular matrix |
| tissue scaffold | drug delivery |
They draw up the System Model for Application 2, Chronic Wound healing. They believe this is the easiest area to have an early impact as it doesn’t involve the addition of either cells or drugs, just stabilising agents to allow the gel to form a flexible wound dressing. This is a good start, but the stakeholder search may well reveal one or both of the other areas to be well worth pursuing. Wound care is a relatively mature field with many established players, whereas regenerative medicine is at an earlier stage of development with many novel treatments in the pipeline.
Encouraged by their efforts thus far, the team decides to dedicate a week or so to a systematic stakeholder search looking at all three Applications. The online desk research will be carried out by a postgraduate biomedical student who is completing a placement with the company, supported by the Head of R&D.
With ~100 stakeholders identified the results are summarised in tabular form as follows. Note that some of those identified offer competing technologies (either old or new technologies). Each stakeholder will have to be carefully considered as to whether a direct approach is sensible, or where a clear opportunity for collaboration exists.
The team reconvene and look again at the System Models for their three Applications, this time fitting identified Stakeholders into place and looking for any gaps, as in the woundcare System Model below.
So, with nothing more than a guided brainstorming, a focused Google search, Excel summary and the System Model, Fycogel has derived a suite of representations of the technical and commercial space that their Product sits within, and a list of ~100 relevant stakeholders for collaboration and business development, not to mention a wealth of competitive intelligence. On sharing their efforts with their Patent Attorney, she is quick to point out that the interfaces between the various elements of the System Model are a rich source of future IP.
The above examples illustrate the fundamental concepts and methodology. The published VCA methodology goes into much more detail in terms of scoring and ranking Stakeholders. There are also ways of making the search more productive and focused which will be covered in a future article.
Tips on searching
As mentioned above, to enable the desk research you need a list of relevant search terms, terms that are used within the industry or technology and which are pertinent to the derived value chain. You will need a list of 20-30 keywords spread across all elements of the value chain to enable a meaningful stakeholder search and consider common alternatives in spelling e.g. bioactive and bio-active, and US English spellings if searching sites in the USA. Broad terms will generate a large number of hits, many of which will be irrelevant, so drill down using more specific terms. It is important to make notes as you proceed, recording the search string used, the useful weblinks that result, together with a few comments, and maybe highlight any that you think are particularly relevant. Excel is ideal for this and over 4-5 days you build up quite a list of information.
Keep the value chain and your sketched system model in view and when you have used all your search terms and have identified 150-200 links, look through them again and highlight the ~100 or so that can be considered to be true Stakeholders meeting the three key criteria:
- Is our technology relevant to them?
- Is their technology relevant to us?
- Is there a mutually beneficial value proposition between my company and the Stakeholder?
Going forward
A value chain analysis is not a one-off exercise for a company. The stakeholder analysis provides a structured way to carry out horizon-scanning and is easily refreshed to include new information.
Now it’s over to you. Consider your own healthcare Product in the context of its value chain and the System Model. The Define the Product Guide and some System Model examples are available to download.
References and further reading
1. Shteyn, E. & M. Shtein, (2013) ‘Scalable Innovation: A Guide for Inventors, Entrepreneurs, and IP Professionals.’ Taylor & Francis.
2. Technology Readiness Levels in healthcare https://epsrc.ukri.org/research/ourportfolio/themes/healthcaretechnologies/strategy/toolkit/landscape/
3. Custom Search Engine http://akmsearch.datascienceinstitute.ie/ was built in Autumn 2019 by NUI Galway working in conjunction with the Data Science Institute in Ireland. It is populated with urls of 8000 relevant companies and institutes across Europe, plus MASSBio in Boston, USA.
4. You can read some real company feedback on Value Chain Analysis at https://atlantic-ketmed.eu/companies/company-profiles/
Downloads
Define the Product (Part 1):
System Model examples (PPT):
