In this article, Clinton and Graves introduce product value analysis as a unique tool for managers to achieve product and organizational effectiveness in strategic product performance measurement. Product value analysis integrates product life cycle, value chain analysis, competitive advantage analysis, cost driver analysis and the balanced scorecard approach. The authors explain these five tools and show how they connect for product planning and evaluation while maintaining a balanced perspective.

Product life cycle analysis is a cost analysis of a product over its entire life cycle and is directly related to the product. Product life cycle analysis outlines four stages over the life of a product: introduction, growth, maturity and decline stages. Various factors, i.e., customer needs, innovations and financial needs & rewards, influence the length and shape of the product life cycle in different ways and at different times.

Value chain analysis is an examining activity in the perspective of the value chain phases that take place every day in the life of an organization. Value chain analysis shows the progression of a product through successive functional areas and activities which typically include research and development, design, production, distribution and services.

Porter’s competitive advantage analysis defines key activities based on current value chain emphasis and specific product strategies such as: cost leadership, differentiation, or quick response. Analyzing competitive strategic issues will help management to maintain their focus as they establish priorities and make trade-offs in day-to-day activity management.

Cost driver analysis defines key metrics for product strategy performance evaluation. In general, it matches at least one short-term driver-type metric with every key value chain activity, then the short term metrics can be linked to broader, long-term metrics.

The balanced scorecard examines performance in the key broad performance areas of financial, customer, internal business process, and innovation & learning. It allows a balanced perspective over a product’s life while highlighting critical category emphasis in specific product life cycle stages.

The table below illustrates how all five tools can operate together to provide a comprehensive product value analysis for a product under differentiation strategy.

Product Differentiation Strategy Linkages

Any given product goes through each product life cycle stage only once, however, units of production might go through the phases of the value chain repeatedly. The combination of product life cycle and value chain analysis lays a foundation for product value analysis. The primary value chain phase emphasis differs as the product moves sequentially through the product life cycle. For example, R&D and design will be most critical in the introduction stage; while in the decline stage, service activities will be emphasized.

The strategic approach provides a consistent emphasis through out the product life cycle. For example, if a cost leadership strategy is used, cost management activities will be more important across the product life cycle than otherwise; similarly, with the quick response strategy, emphasis will consistently be placed on responding to customers in an exceptional way. Cost driver analysis is used to choose short-term key performance metrics to link to the performance evaluation system.

The Balanced scoreboard category encourages a balanced approach to performance evaluation. This evaluation system represents key metrics from each of the four areas that can help managers to pinpoint areas with problems. For example, a company may find that internal business processes are being executed without properly considering customer or financial results; alternatively, internal business processes may be executed flawlessly, but if they don’t meet customer needs, the company will eventually flounder. In product life cycle, a greater emphasis will naturally be placed on innovation and learning in the introduction stage; while in the decline stage, minimal operational losses are emphasized and new product investment will be the major concern.

Remember, success in all categories is important, but not all categories receive equal emphasis over the life of the product. All the tools mentioned above are useful and well accepted, but isolated. Product value analysis ties them together to help a company understand value creation while evaluating multiple strategic approaches with specific products.