The Value Chain was outlined by Professor Michael Porter back in the 1980s, including in his ground-breaking book ‘Competitive Advantage’. Meanwhile, charities have long been conducting portfolio management of beneficiary groups, funder groups and portfolio management of their surplus funds via professional investment firms managing diversified asset classes of investments on their behalf.
Options theory says that in periods of high volatility (uncertain outcomes) and for options with a long period to their expiry date, such options have more value, that options about to expire and in highly certain environments. Real options value is also separate from financial options value (put or call options readily valued and actively traded in financial markets).
An exciting opportunity for charities is to actively manage a portfolio of (real) options within their Value Chains. If they systematically examine each of the primary activities (inbound logistics, operations, outbound logistics, marketing & sales, after sales service) and the secondary activities (firm infrastructure, HR management, technology development and procurement), the options residing in their overall options portfolio can be linked to those different parts of the Value Chain and managed accordingly.
For example, in the finance function within the secondary activities of the Value Chain, unrestricted (free cash) financial reserves held in excess of the reserves policy is an option to be managed by the finance function. Likewise, transactional data, which is essentially a record of business behaviour, with its associated data attributes (ideally held in structured data fields) is an option to be managed by the IS/IT function in the first instance, but leveraged by other parts of the business in due course. Latent professional skills within the workforce is an option to be managed by the HR function and leveraged by other parts of the business in due course etc.
The golden opportunity for charities is to develop a capability in assessing options value, managing the portfolio of options in its entirety and replenishing options as they expire. Why? Such options are a source of competitive advantage for the charity concerned.
Simon