A value chain is the complete range of activities a business undertakes in order to create a product or service. Investigating each process within the value chain will increase production efficiency so that a business can deliver optimum value for the least possible cost. It's also an opportunity to innovate, maximise sustainability, and create a legacy that has a lasting impact on the world.
To accomplish that, a value chain analysis can't just concentrate on the steps required to take the product or service from conception to completion. It must also investigate what happens to the product after it's delivered to the market.
Understanding and fine-tuning the value chain is crucial to any business's success. Ignore the value chain and things can go badly wrong, as fast-food giant McDonald's recently discovered.
The McDonald's Straw
Last year, McDonald's axed plastic straws from all its UK branches in a very public bid to become eco-friendlier. Their solution was to introduce paper straws instead - a move which should have worked out perfectly for everybody, including McDonald's, their shareholders, their customers and the planet. The restaurant chain uses 1.8 million straws a day in the UK. Switching from plastic to a paper alternative would be a significant step in helping to reduce the high-profile problem of single-use plastic.
But here's where their troubles started. Whereas McDonald's plastic straws could be recycled, their new paper alternatives can't (even though they're technically biodegradable.) When the media discovered that McDonald's were quietly throwing their supposedly eco-friendly paper straws into the general waste, it generated a lot of very bad PR and angry customer feedback. On top of that, it exposed them as a company that hadn't cared enough about the environmental issue to think the solutions through. As one insider told The Sun, "When McDonald's introduced paper straws it was getting pats on the back for being environmentally responsible, but it seems like it was a stunt to appease green campaigners because the things go straight in the rubbish. It's ridiculously stupid."
The website Wired.co.uk hit the nail most perfectly on the head, writing: 'The fast-food company switched its straws from plastic to paper, but admits it isn't recycling the new straws. The problem? Dodgy recycling infrastructure and a short-term approach to sustainability.'
The 'McDonald's Straw Incident' is a perfect example of what happens when a business makes a knee-jerk decision based on the influence of the market, not because they genuinely care about the issue. For McDonald's, it backfired spectacularly. At the time of writing, their stock has fallen by another 3% and looks headed for their biggest percentage decline in almost a year 1. If McDonald's had stopped to consider all the issues instead of jumping thoughtlessly onto the eco-friendly bandwagon, it could all have been very different. In fact, it could have resulted in a win-win for everybody.
Understanding the issues
The real issue is two-fold. Firstly, it's the value chain. More specifically, it's about understanding all the processes it takes to bring the paper straws to market and how to recycle the straws after they've been used. Secondly, it's about how this could have been an invaluable opportunity to lobby for improvements in waste management.
Here was McDonald's dilemma. When a customer buys a drink in one of their restaurants, they need a way to be able to consume it. McDonald's customers like to use a straw but, as plastic straws are bad for the planet and McDonald's want to be perceived as environmentally friendly, they decided to make themselves look really good by introducing paper straws instead.
That was the first mistake because this isn't simply an environmental/plastic versus paper issue. The real question McDonald's should have sought to answer is: what's the best way to deliver drinks to customers which is easy to use, doesn't affect the taste, and reduces the ESG (Environmental, Social and Governance) impact? For example, being more environmentally responsible by tackling single-use plastics is counter-productive if the straws are made in a third world country by children earning 1 cent a day.
The opportunity to innovate
McDonald's should also have looked at opportunities for innovation. After all, paper versus plastic isn't the only alternative. What about seaweed, cardboard or pasta? Only a few weeks ago, one hopeful entrepreneur brought his pasta straws into BBC's Dragon's Den! By solely considering paper straws McDonald's didn't just limit their choices, they automatically ruled out all the potential innovation taking place in the drinks packaging field.
After looking at the issue on a macro innovation level, McDonald's should have asked themselves the micro questions like, 'Do our customers need a straw at all? Why not just use the existing cup lid, or add a lip to the cup lid, or design an entirely different kind of cup?' That kind of micro brainstorming will have led to more productive conversations about long-term sustainability as well as how they could give their customers more choice.
Not looking at the issue on a micro-level meant McDonald's missed other significant SDG and PR-rich opportunities. Instead of removing plastic straws, they could have thought about reducing the cup size or halving the straw to get people eating and drinking more healthily. They could have reduced the portion size of their sugary drinks to align with the Good Health and Well-Being SDG. Or maybe they could have run an education piece on how they recycle their in-store waste, encouraging customers to do the same.
The value chain
Now let's think about the value chain and some of the processes involved with creating a plastic straw, the expense and complication of producing the plastic, forming it, distributing it and recycling it. You've also got to consider that plastic can't be indefinitely recycled. From an environmental standpoint, that has an additional impact on how 'green' McDonald's want to be.
The value chain for a paper straw would be almost identical. Creating a paper straw involves a wide range of processes including cutting down the tree, milling it, taking it to the factory, manufacturing the straw (with all the attendant processes and costs) plus the logistics of transporting the straws from the factory to all the different delivery locations.
Ultimately a recyclable straw should, over the course of its use, reduce its environmental, recycling and production costs because all those costs are dispersed over a more extended period of time. However, if you take the non-green route and produce lots of non-recyclable straws instead, you could potentially reach the same reduced cost point, but the environmental cost will be much higher.
The last part of the value chain
In terms of the value chain, a company like McDonald's aren't invested in getting the tree to the straw. There will be several other organisations involved in doing that. But McDonald's share price is affected by the value chain. Not understanding their value chain had a massive impact on what happened after their customers bought the new paper straw, resulting in poor customer experience, increased costs, decreased share value, and catastrophic PR.
It's vitally important to look at the value chain and see what happens after your product is delivered. For example, McDonald's should have asked 'What's the next stage after our customer uses the straw? What are our recyclable products being recycled into after our customers and stores dispose of them?
When you look around a McDonald's restaurant, there's plastic everywhere. Plastic chairs, tables, door handles etc. Why don't they invest in 3D printer technology so they can recycle all that used packaging into furniture and signs for their stores? Plastic which has been recycled to create a door handle has a much longer and more useful future than the plastic in a recycled straw, which only has a finite lifespan. If their customers (and the rest of the world) knew that when a plastic straw goes into the bin it will be recycled to become a piece of furniture in another branch of McDonald's, think about the incredible business, sustainable development, and PR gains McDonald's would make. They wouldn't only be ticking the environmentally-friendly box; they'd be ticking off one or two other SDGs too.
Here's a case in point: Burger King just announced they're installing amnesty bins in all their UK restaurants so that customers can drop their free giveaway toys inside the bins, and the plastic will be transformed into new restaurant items and play areas 2. It's an innovative move that will be great for Burger King, great for the environment, and fantastic for BK's bottom line. It also underlines how badly McDonald's missed the boat. With a lot more thought into innovation, their value chain and the SDG's, they could have got their first.
How sustainable is your product?
In overview, a sustainable product is a product or service which provides environmental, social and economic benefits across the whole of its life cycle, from the moment the raw materials are extracted to the moment the final product is disposed of. It should be capable of continuous improvement and, if it's going to survive in the market long-term, it must always meet your customer's needs..
Sustainability should be reflected in every part of your value chain. As we mentioned earlier, your value chain isn't just about the cost of production and the sustainable cost of recycling; it's about making sure your processes are socially, ethically and environmentally sound so that you're not solving one problem by inadvertently contributing to another
Take a look at your value chain and ask yourself the question - could your business be more efficient, cost-effective and sustainable than it is right now?
If the answer is yes, get in touch.