From Value Chain to Value Cycle: The Role of Risk Management and ICT

Abstract

This paper reviews the origins and development of the value chain (Porter,1985) and its development into value shops and value networks. We argue that these “value models” pay insufficient attention to the increasing role of information and communications technology (ICT) or to the emergence of new understandings of risk and risk management.The role of ICT has moved from being merely a support activity to being integral to primary business value adding activities. As ICT has become more embedded in primary and secondary activities, risk management has become more important to the organization’s value adding activities. Risk management has become a primary business tool, aimed at achieving organizational objectives given a predetermined organizational risk appetite and an acceptance of the risk/return trade-off. In turn this has led to risk management driving performance metrics and internal controls. Both ICT and risk management play a role not only in primary value adding activities but also in supporting the primary functions, both of which can be sources of competitive advantage. We argue that ICT and risk management are cyclical in nature and we apply life cycle theory to consider value chains, ICT and risk management as interdependent. We develop the idea of a value cycle to reflect a shift in thinking from the value chain as a linear process into a cyclic one based on continual evolution and learning. This takes account of organizational developments – especially those relating to ICT and risk management – that have taken place since Porter’s original value chain model was developed.