Value Driver Tree Analysis explained
Introduction: What is value driver tree analysis?
Value driver tree analysis (VDTA) is a tool used to help organisations understand the relationships between their business activities and desired outcomes. It can be used to assess current performance, identify gaps, and create plans for improvement. VDTA can be particularly useful during transformation initiatives, when organisations are seeking to achieve significant changes in their operations or results.
When conducting a VDTA, analysts first identify the organisation’s key value drivers – those factors that have the greatest impact on success. They then create a “tree” showing how these drivers relate to one another, and how they contribute to the desired outcomes. Some organisations use the tool as a roadmap for transformation, helping leaders to understand what needs to change and how best to go about making those changes.
What are the benefits of using the tool during transformation?
Value driver tree analysis is a powerful tool that can help organisations in the transformation process. By understanding the relationships between different factors, organisations can identify which areas to focus on in order to achieve the desired results.
It can help organisations save time and resources by identifying the most important factors that contribute to the desired outcome. In addition, it can help organisations avoid making changes that would not lead to the desired outcomes.
By understanding the benefits of value driver tree analysis, organisations can make more informed decisions about how to best allocate resources in order to achieve their desired results.
The benefits of using this tool include:
- Improved clarity on where organisations can create value: it can help help understand which activities are most important for creating value. This improved clarity can lead to better decision-making and more effective resource allocation.
- Enhanced focus on key drivers: By identifying and tracking the drivers of value creation, organisations can ensure that they are focusing on the areas that will have the biggest impact on results.
- Increased accountability: Value driver tree analysis can help hold individuals and teams accountable for results by linking their performance to specific value drivers. This increased accountability can lead to improved performance and results overall.
How to use the value driver tree analysis?
The tree is a graphical representation of how different factors contribute to value creation, and analysts usually use to identify areas of improvement and track progress over time. Also it helps to identify and track the most important drivers of value, it can provide valuable insights into where to invest resources and how to grow the business.
Michael Porter developed the tool in the early 1990s, and has since been used by companies all over the world to help guide their business transformation efforts. The tree is composed of three main types of drivers: financial, operational, and customer-related. each type of driver has its own set of sub-drivers that contribute to overall value creation.
Financial drivers are the most direct contributors to value creation, and include factors such as revenue growth, profitability, and cash flow.
The value driver tree analysis is typically used in conjunction with other data-driven tools, such as financial modelling and market research. By understanding the relationships between different drivers of value, companies can make more informed decisions about which areas of their business to focus on.
What are the steps in conducting a value driver tree analysis?
There are many different ways to construct a value driver tree. Some are complex that introduces the factors, constraints, patterns, trends,…etc some are much simpler. Below I will list the simple basic steps of constructing a value driver tree to help develop your first analysis:
- First, you will need to identify the different types of values that exist within your organisation. These can include things like financial value, customer value, operational value, etc.
- Once you have identified the different types of values, you will need to identify the specific drivers of each type of value. For example, if you are looking at financial value, some drivers could include revenue growth, profitability, and cash flow.
- After you have identified the drivers of each type of value, you will need to prioritise them in order of importance . This is based on how important they are to the organisation.
- Identify the potential solutions are evaluated in terms of their ability to improve the company’s performance on the identified objectives.
- Finally, you need to identify the different measures of success for each driver. This may include things like revenue goals, profitability targets, and customer satisfaction levels. This will help you to focus on the most important drivers when developing your value driver tree.
In conclusion, the value driver tree is a powerful tool that can be used to identify and improve the drivers of value in a company. By understanding the value drivers in a company, managers can make decisions that will create more value for shareholders.