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O R IGINA L PA PE R

Krista M. Donaldson Kosuke Ishii Sheri D. SheppardCustomer Value Chain Analysis

Received: 16 August 2004 / Accepted: 17 November 2005 / Published online: 23 March 2006 Springer-Verlag London Limited 2006

Abstract Customer Value Chain Analysis (CVCA) is anoriginal methodological tool that enables design teamsin the product definition phase to comprehensivelyidentify pertinent stakeholders, their relationships with

each other, and their role in the products life cycle. Byperforming CVCA, design teams are better able to rec-ognize diverse product requirements and their relativepriority when undertaking Product Definition Assess-ment and using downstream Design for X (DfX) tools.This paper discusses the evolution of the CVCA in re-sponse to the need for a DfX tool which is able todelineate customer needs early in the product develop-ment process. A step-by-step guide clarifies the imple-mentation of CVCA with an example. Three case studieshighlight the tools broad utility and important featuresto support design decision making, including: (1) con-firmation of the products business model, (2) recogni-

tion of the critical stakeholders, and (3) clarification ofthe value proposition to be embedded in the product.

Keywords Product definition Design support DfX tool

1 Introduction to Customer Chain Analysis

The Customer Chain is a visual mapping design tool usedat the start of a product development process that en-ables design teams to identify pertinent stakeholders andtheir relationships to the product or process being de-

signed (Ishii 2001). The stakeholders, or customers, areall important parties who are involved with the effective

delivery of the product to the end user and the supportof the product throughout its life cycle (Ulrich andEppinger 2004). For example, customers may rangefrom the individuals who will manufacture the product

to those who will handle product recycling at retirement.By understanding the key customers and their relationsto each other and the product, design teams are effec-tively able to define the product relative to their com-panys market and product objectives, and flow-downcustomer needs (or, VOC: Voice of the Customer).1

1.1 Example of a simple Customer Chain

The best way to illustrate the Customer Chain and itsutility to design teams during the product definitionphase is to consider a simple example, such as the one

(shown in Fig. 1). In this case, a design team has beentasked to develop a coin-operated soft drinking vendingmachine for a vending machine manufacturer (shown ina box in Fig. 1). The initial business model is that thevending machine will be proximate to the front entranceof a convenience store where the end user, the soft drinkconsumer, will be able to buy the beverages individually.A vending operator, who purchases soft drinks directlyfrom a soft drink bottler, will restock and providemaintenance to the vending machine as required. Thevending machine manufacturer, in this example, em-ploys the design team.

Customer Chain analysis assists the vending machine

design team in delineating all pertinent VOCs, not sim-ply those of the end user, by mapping out the interac-tions of the customers. For example, the vendingmachine has additional design requirements than those

K. M. Donaldson (&) S. D. SheppardCenter for Design Research, Stanford University,Stanford, CA, USAE-mail: [email protected].: +1-650-725-0217

K. IshiiManufacturing Modeling Laboratory,Stanford University, Stanford, CA, USA

1Urban and Hauser (1993) characterize the voice of the customer asA list of customer needs, a hierarchical structure for those needs, aset of importances to prioritize those needs, and evaluations ofcompetitors on those needs. They add that the voice of thecustomer must be heard accurately and interpreted accurately ifhigh quality products are to be designed and marketed success-fully.

Research in Engineering Design (2006) 16: 174183DOI 10.1007/s00163-006-0012-8


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involved with the delivery of a consumer-selected bev-erage at the optimum temperature, speed and price. Thevending operator may require that the vending machinebe simple and quick to restock and repair. The bottlerwill have functional and aesthetic requirements: themachine must handle and appropriately present itsproduct (a soft drink) because the quality of the endusers interaction with the machine affects the softdrinks name brand value. Finally, the convenience storewhere the vending machine is located may have specific

requirements regarding space, energy consumption andnoise levels.The arrows connecting various stakeholders repre-

sent the proposed interactions in the initial businessmodel: the vending machine manufacturer sells thevending machine to the vending operator, who places itat the convenience store; the end user purchases the softdrinks from the machine at the convenience store. Byanalyzing the vending machines business model with theCustomer Chain, the design team is able to compre-hensively identify the important customers necessary togenerate detailed VOCs.

1.2 Product definition phase

Wilson (1993) describes product definition as:

...the first phase of the product development cycle,(which) encompasses researching what to develop fora successful product and planning appropriate actionsfor the project team to develop and successfully re-lease their products to market. This phase culminatesin a business review in which the product concept, therequired investment, and the projected returns arescrutinized to determine whether proceeding to thedevelopment phase is the best alternative for the

organization.

Understanding customer needs and values is funda-mental to the definition of a product, particularly a newproduct. Wilson (1990) notes that deficiencies inunderstanding customer needs are the most prevalentfailure mode of product development. When productsare poorly defined, design teams have been observed toget stuck in redefinition activities, so much so that theproject cannot progress to detailed design because toomany issues are unresolved (Wilson 1993). It is now

widely recognized that an inadequately defined productresults in less revenue for the design organization be-cause the product is late to market or the market de-mands have changed from projections (Patterson andLightman 1993). While Ullman (1992) estimates that30% of the product development costs are locked infollowing product definition, Barken (1995) estimatesthe costs can be as high as 70%.

The Customer Chain is what Herrmann et al. ( 2004)refer to as a decision support tool, which is part of the

Design for X (DfX) set of methodologies. Whereas theproduct definition phase is key to providing high valueto of the customers of any new product (Ishii 2001;Wilson 1993), support tools for identifying customersand defining their needs in this phase are negligible(Herrmann et al.). In todays fast-paced world of glob-ally distributed corporate partnerships, design teamsand concurrent development of advanced technology,engineers and managers require an effective tool tocapture and analyze the customer structure, the cus-tomers relationships and each ones stake in the product(Ishii 2001).

2 Previous work

Wilsons early work (1990) on product definition high-lighted the need for a methodological design tool toassist with the definition of customer needs prior to thegathering of detailed VOC information. For a designteam to be able to establish how the product will bepositioned and what the design project priorities are, theteam must first be able to identify the customers andtheir associated needs. Understanding customer valuesrequires addressing compliance issues, user needs, com-petitive analysis, and localization considerations (Wil-

son). If the design team is not clear on the strategicobjectives of the product, including the target market forthe product and the customer requirements, otherproduct definition issues such as risk, availability of corecompetencies and needed resources cannot be addressed.

The Customer Chain was originally developed as partof Stanford Universitys ME 317 Design for Manufac-turability (dfM) course as a means to explain the marketfailure of a specific product, which was traced to thedesign teams poor approach to customer identification(Ishii 2001). Since then, the tool has evolved with input

Vending

Machine

Manufacturer

Vending

Operator

Soft drink

Consumer

ConvenienceStore

Soft drink

Bottler

Fig. 1 Example of a CustomerChain used in the design of acoin-operated soft drinkvending machine (Ishii 2001)

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from researchers and design teams in industry from avisual representation relating customers, the CustomerChain, to an analysis process, the Customer Value ChainAnalysis (CVCA), where the customer structure isexamined in detail and results are utilized as inputs tothe Product Definition Assessment Checklist2 (PDAC)and downstream DfX tools.

Rose and Stevels (2000) and Rose et al. (2000) ap-plied CVCA to Design for Environment to develop theEnvironmental Value Chain Analysis (EVCA). EVCAlinks businesses and end-of-life product managementinternal and external to a company by illustrating rela-tionships between groups implementing environmentalimprovement programs. Use of the EVCA by designerswas found to increase product recycling collection rateswhile decreasing recycling costs (Rose et al. 2000).

The Customer Chain, CVCA and the EVCA areconceptually related to Supply Chain Management,which seeks to optimize the supply and flow of productsand services to customers (Rose et al. 2000). Whereassupply chain analysis normally focuses on the flow ofmaterials, funds and related information with the goal of

obtaining an optimally efficient model, CVCA andEVCA are employed in the earliest stages of the productdevelopment process to identify pertinent customers andtheir related VOCs based on their stake in the product.

Using graph theory to represent relationships be-tween critical parties or techniques to identify pertinentstakeholders is not novel. However, to the authorsknowledge, the integration of a visual means to sys-tematically and comprehensively identify customers andcapture their relationships into the design process hasnot yet been published.

3 Extension of the Customer Chain to Customer ValueChain Analysis (CVCA)

Customer Value Chain Analysis extends the function-ality and utility of the Customer Chain by requiringdesigners to investigate the value relationships, or valuepropositions, between the various customers and thenevaluate customer needs relative to the design teamscorporate strategy using Product Definition Assessment.CVCA enables the design team to better evaluate theinitial business model and isolate the value propositionsof individual customers for flow-down to later DfXmethodological tools, such as Quality Function

Deployment (QFD) and Failure Modes and EffectsAnalysis (FMEA).3 By systematically carrying outCVCA, the design team ensures clarification of the valuepropositions to develop and better recognize the priorityof the products customer needs. Similar to the deter-

mination of the Customer Chain, CVCA should be amulti-functional team effort with the active involvementof top-level management.

3.1 Step-by-step guide to CVCA

To illustrate the steps involved with CVCA, we will re-turn to the example of the soft drink vending machine.

3.1.1 Step 1. Define the initial business modeland assumptions

For new products, it is necessary to have well-formu-lated knowledge of the strategic objectives of the prod-uct. It is often the case that the business models for newproducts are inadequately defined by the design orga-nization, and hence are poorly understood by the designteam (Wilson 1993). The design team must determine:what is the business model for this product? How willthe product be profitable? By answering these and re-

lated questions, the first step of CVCA provides thenecessary information to address the first item of PDAC,strategic alignment, where the design team must establishthe strategic objectives for the design process, theboundary conditions within which the team needs tooperate, and the target market for the product.

Establishing the business model for the vending ma-chine (Fig. 2a), for example, requires answers to thequestions: Who uses the vending machine? Who inter-acts with the vending machine? Where would the ma-chine best be located to serve the end user? To whomwould the end customer complain if there was a prob-lem? Who provides the soft drinks? Who collects the

money from the vending machine? Who services thevending machine? And so on.We are already familiar with the vending machines

business plan to some extent from the first example inSect. 1.1. The vending machine will be situated outsideof a convenience store where it will provide beverages tothe soft drink consumer. A vending operator will restockthe soft drinks, collect the money (consumers payments)and provide maintenance to the machine. The vendingoperator will rent the space for the vending machinefrom the convenience store. A soft drink bottler willprovide the beverages to the vending operator. If the softdrink consumer has a complaint, he or she would likely

go to the convenience store clerk or, in egregious cases,to the bottler.

3.1.2 Step 2. Delineate the pertinent parties involvedwith the product

In addition to the end user, important customers mayinclude less obvious stakeholders such as businesspartners, regulatory bodies and specific departmentswithin the design teams organization. All these stake-holders become customers in the Customer Value Chain.

2See http://www.me217.stanford.edu for the Product DefinitionAssessment Checklist3For QFD references, see Hauser and Clausing (1988), and Akao(1990). For FMEA references, see Ormsby et al. (1991), McDer-mott et al. (1996) and Stamatis (2003).

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Fig.

2

a

CVCAStep1:Determinethebusinessmodelforthevendin

gmachine.

b

CVCAStep2:Delineatepertinentpartiesinvolvedwiththevending

machineslifecycle.

c

CVCA

Step3:Determine

how

thevendingmachinescustomers

arerelatedtoeachother.d

CVCAStep

4:Identifythevaluepropositionsofth

evendingmachines

customersanddefinethefl

owsbetween

them.e

CVCA

Step5:A

nalyzetheCustomerChaintodeterminethevendingmachinescriticalcustomersandtheirvalue

propositions.Thevendingo

peratorandthesoftdrinkbottler(circle

d)weredeterminedtobethecriticalcustomerstothevendingmachinemanufacturer

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As shown in Fig. 2b, the main customers of thevending machine determined from the business plan arethe vending operator, the convenience store, the softdrink bottler and the end user, the soft drink consumer.The design team should also consider stakeholders withimportant design requirements who are outside thebusiness model; for example, approval by a federalregulatory agency may be required in the developmentof specific products.

3.1.3 Step 3. Determine how the parties are relatedto each other

Based on information from the initial business model,how are customers related to each other and the prod-uct? Use arrows to link customers. At this stage thediagram looks similar to the Customer Chain in Fig. 1as the value propositions have not yet been added tocreate the Customer Value Chain. The directions of thearrows at this stage in the analysis are not as importantas the lines connecting the customers.

The lines connecting the vending machine customersin Fig. 2c reflect their relationships based on the initialbusiness model. For example, the soft drink consumer islinked to the convenience store because that is where heor she would go to purchase the soft drink from thevending machine. This arrow is shown as two-way be-cause it is to the clerk at the convenience store that theconsumer may complain about the vending machine.The consumer is connected to the vending operator be-cause it is the operator who collects the consumerspayment directly from the vending machine. Finally, itmay be recalled that the designers believed that the softdrink consumer may infrequently complain directly to

the bottler.

3.1.4 Step 4. Identify the relationships amongthe parties by defining the flows between them

The direction of the relationship arrows now becomesimportant with the mapping of the value relationships orflows between the customers. The flow items representthe value propositions to each of the individual cus-tomers. To determine which types of flows are impor-tant, the design team should ask: What is eachcustomers main role(s) in the product life cycle? Whatbearing does this customer have on the success or failure

of the project? By analyzing these flows the design teamwill be able to focus on specific consumers to delineatetheir needs and better recognize their relative priority.

Typical value propositions are: money or payments,complaints, regulatory influences, and tangibles such ashardware, materials, services or necessary information.The arrows show the direction of the flow accompaniedby the appropriate icon or icons. For example, a dollarsign ($) may indicate money whereas an exclamationmark (!) may indicate complaints. Money and com-plaints often come in pairs in exchange for tangibles, but

this is not always the case. Such exceptions createinteresting implications to the customer structure andmay signify a leak in the chain. A leak occurs when thereis a flow into or out of a customer without a balancingflow in the opposite direction; this is a potential problemif it suggests a lack of return in investment for a memberof the chain. A leak in the chain may also simply indi-cate to the design team that the identification of thecustomers and/or value propositions is not complete,and customer needs and stakeholder relationships mustbe more comprehensively examined.

Four value propositions are defined for the vendingmachine example: money, complaints, soft drinks andthe vending machine (see the bottom left corner ofFig. 2d). The arrows have been redrawn from Fig. 2c toreflect the directional flow of the value propositions (seeFig. 2d). We will now walk through the construction ofthe completed vending machine Customer Value Chain.

First, we will determine the flow of tangibles based onthe business model. The tangibles of importance toproduct definition are the vending machine and the softdrinks which the machine will dispense. The vending

machine manufacturer sells the vending machine to thevending operator, thus we draw an arrow with thevending machine icon from the manufacturer to theoperator denoting the vending machine transfer. In re-turn, the vending operator pays the manufacturer; thistransaction is represented by a return arrow with adollar sign ($) from the vending operator to the manu-facturer. Since the vending operator then places themachine at a convenience store and stocks the machinewith soft drinks, there is an arrow with the vendingmachine and soft drink icons from the vending operatorto the convenience store. Two other soft drink arrowsare drawn in the Customer Value Chain to represent

that the soft drinks are provided to the vending operatorby the bottler and the purchase of a soft drink from thevending machine at the convenience store by the softdrink consumer.

Next, consider the flow of money starting with theend user of the vending machine, the soft drink con-sumer. He or she puts money in the vending machine topurchase a soft drink. This payment goes to the vendingoperator, who collects the money from the machine. Thestore benefits financially through the rent made fromthe vending operator who is happy to pay for thehighly visible access to convenience store shoppers. Thevending operator pays the bottler for the soft drinks and

the vending machine manufacturer for the machine it-self. While the soft drink consumer is a pertinent cus-tomer, from the perspective of the vending machinemanufacturer, it is clear that the needs of the vendingmachine operator are vital for the success of the product.

Finally, complaints are particularly important to thedesign team because they indicate negative VOCs orcustomer dissatisfaction modes (Kmenta and Ishii 2000).What concerns each of the customers? What attributesof the vending machine would be undesirable? The enduser, unaware of the arrangement between the various

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stakeholders, likely complains to the convenience storeclerk if, for example, his or her soft drink is warm or thevending machine malfunctions. In more serious situa-tions, where the soft drink may be defective, the end usermight complain directly to the soft drink bottler. Theconvenience store will report problems with the vendingmachine, such as it operates too loudly, to the vendingoperator who would pass the complaints onto themanufacturer. Complaints the store receives about thesoft drink itself are relayed to the bottler through theoperator. The bottler, in turn, may determine that acomplaint it received, such as packaging was defective, isan issue for the manufacturer to address. (For example,the vending machine needs to deliver the soft drinkswithout damage to the packaging.)

Following the completion of this step the CustomerValue Chain is complete. The remaining three steps in-volve the analysis of the chain.

3.1.5 Step 5. Analyze the resulting Customer ValueChain to determine critical customers and their value

propositions

To determine who the customers critical to the success ofthe design project are, trace the payments ($) and com-plaints (!) from the design teams position in the chain.The needs of these critical customers must be included inthe design teams QFD analysis. To determine the valuepropositions of the critical customers, look at eachcustomers input and output flows and consider howthey will make profit and receive a return on theirinvestments. The pertinent customers flows can be usedto generate the products VOCs.

Based on the flows into and out of the vending ma-

chine manufacturer, the critical customers for thevending machine design team to consider are the vend-ing machine operator and the soft drink bottler (circledin Fig. 2e). Both have significant requirements that mustbe addressed in the design of the vending machine. Forexample, the vending operator may be insistent that thevending machines be restocked and serviced quicklywith minimal effort. The bottler has requirementsregarding the vending machines interface with both thesoft drinks and the end consumer. The conveniencestore, while not critical, is certainly an important cus-tomer if one follows the trail of money. Without havingdone CVCA, it is unlikely that the vending machine

design team would fully recognize the unique needs ofthis particular customer.

3.1.6 Step 6. Input the information into ProductDefinition Assessment

The information gained from the Customer Value Chainnow facilitates the completion of PDAC, which shouldbe used in conjunction with the Customer Value Chain.The Customer Value Chain directly addresses half of the14 PDAC items: strategic alignment, understanding

customer needs, localization issues, compliance issues,product positioning, project priorities and businessmodel. The remaining seven items of the PDAC areeasily navigated by the design team by considering theCustomer Value Chains results relative to the designteams resources and support structure within theirorganization. It is not unusual for a design project to becancelled at this step if the needs of the various cus-tomers cannot be met within the defined business model.

Returning to our example, the vending machine de-sign team has now comprehensively clarified the valuepropositions to be embedded in their product. They areable to refine and confirm their initial product definitionand business model. At the design teams first fundingreview with management, the project is given a go ahead.

3.1.7 Step 7. Use the CVCA results downstreamin the product design process

The CVCA process has thus far captured valuableinformation about the customers and their needs which

can be used in downstream DfX tools. For example,these needs can be examined in greater detail andmapped using Affinity Diagrams.4 Customer needs canbe directly inputted into QFD analysis, and negativeVOCs can provide input for FMEA to generate robustand error-proofed designs.

The vending machine design team now focuses oncollecting detailed VOCs to better define the productand to provide as input to downstream DfX tools.Utilizing the information gained from CVCA, thevending machine design team concentrates on the needsof the vending operator, the soft drink bottler, theconvenience store, and the end user.

4 Three case studies using CVCA

Three case studies from separate design processes wereselected to give a broad indication of the functionalityand applicability of CVCA: retrospective analysis of themarket failure of an electrocardiogram machine, thereframing of design specifications for a pacemaker alertsystem, and the consideration of Customer Value Chainleaks and unaligned customer goals in the design of amicro-irrigation pump.

4.1 Case study 1: electrocardiogram (EKG) machine

A computer peripheries company had acquired a medi-cal devices firm and, having core competencies in bothdomains, aimed to develop a revolutionary EKG ma-chine. An EKG is an electrical recording of the hearts

4Affinity Diagrams, also called the KJ Method, are a graphicalmeans to distinguish themes from a list of customer needs. See Jiro(1975).

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behavior typically used by cardiologists to detect cardiacanomalies. The new EKG machine the design team wasto develop would not only monitor a patients heart andrecognize irregularities, but it would also provide amedical assessment.

The business model for the EKG machine was that itwould be sold to the doctors and hospitals where pa-tients would come for their checkups. The design team,therefore, believed their primary customers to be thedoctors with private heart clinics or in charge of cardi-ology units at hospitals. The product was developed, butfailed to have any significant sales. Among other prob-lems, insurance companies refused to pay for the ma-chines use.

The Customer Value Chain shown in Fig. 3 was usedin retrospect by Wilson (unpublished data) to determinethe reasons for the failure of the EKG machine project.CVCA revealed that the design team did not have acomprehensive understanding of all of the pertinentcustomers or their requirements and, as a result, missedcritical value propositions. The design team did not ac-count for two critical customers for the new EKG ma-

chine: the insurance company and the regulators.Insurance companies were unwilling to pay for the ma-chines use with patients without formal approval byfederal regulators. Further, the team did not realize thelack of value proposition to the doctors. The new EKGmachine was essentially performing the doctors spe-

cialized role by providing a medical diagnosis (the neg-ative value proposition is shown as the medical diagnosiscrossed out in Fig. 3). Doctors were understandablyunwilling to commit to a medical device that could notguarantee consistent accuracy and threatened to displacetheir profession. If the design team had performedCVCA, they would have recognized the key roles ofinsurance company and regulatory agencies and the lackof value proposition to the doctors.

4.2 Case study 2: pacemaker alert system

A large medical device company challenged their designteam to develop and integrate a patient alert system intothe companys implantable cardioverter defibrillators(pacemakers), which were currently on the market.A pacemaker is connected to leads positioned insidethe heart or on the hearts surface. The leads deliverelectrical shocks, monitor the cardiac rhythm andsometimes pace the heart as needed. According to thecompanys initial business plan, the new system would

alert the patient when the device required service, thebattery was running low, or it was about to deliverelectronic shock therapy (Cobb et al. 2003).

The Customer Value Chain for the pacemaker alertsystem is shown in Fig. 4. The most important valuepropositions in this product definition, besides the hard-

Fig. 3 Customer Value Chainfor Case study 1, a failed EKGmachine project

Fig. 4 Customer Value Chainfor Case study 2, a pacemakeralert system (Cobb et al. 2003)

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ware, were the flows of money and information. As can beseen in Fig. 4, the hardware (the pacemaker and itsperipherals) are sold to the doctor who provided thepacemaker to the patient. This design team, learningfrom the mistakes of other medical device companies,recognized several other customers involved: the insur-ance companies who would pay for the alert system,regulators who would approve the technology for use, andthe patent office which would provide intellectual propertyprotection in a competitive market (Cobb et al. 2003).

In performing CVCA, the design team gained severalkey insights. First, approval by government regulatorsand insurers would be crucial to the viability of theproduct on the market. Second, although it would be thepatient who wears the pacemaker and the alert system, itis the doctor who is the key decision-maker regardingselection of a device for the patient. By focusing both ondoctors and patients for VOCs, the design team dis-covered that both groups preferred the alert system tonotify the doctor, not the patient. One doctor com-mented during their research: The problem with these(alerts) is that the patient lives in fear of (hearing) it. Itcan cause major anxiety problems which in these pa-tients can be extremely harmful (Cobb et al. 2003).Recognition of this need through CVCA required thedesign team to appropriately adjust their business modeland reframe their original design statement from alertingthe patient to notifying the doctor.

4.3 Case study 3: donor-funded micro-irrigation pump

This case study represents a non-traditional applicationof CVCA to a micro-irrigation treadle pump developedby a Kenyan non-governmental organization (NGO) forsmall-scale farmers. The NGO is funded by a bilateraldonor organization to develop technology to supportmicro-enterprise development and income growth in

Kenya as a form of foreign aid. The Customer ValueChain shown in Fig. 5 was performed and analyzedduring the later stages of the products development tobetter understand customer goals to ensure appropriatepriority trade-offs were made.

Since the business model in this case study has manymore customers than the others reviewed so far, we willreview it, the resulting Customer Value Chain, and therelated analysis in some detail. The design team recog-nized while defining the business model that the NGOhas two distinct customer sets: those related to the donorand those related to the end user. When identifying thepertinent stakeholders, the design team also realized thatthe two sets do not interact with each other exceptthrough the NGO. This resulted in the Customer Chainhaving two distinct branches, or chain segments withunique end customers.

In developing the Customer Value Chain, we willstart with the customer set related to the end user.5 TheNGO receives money from the donor organization toresearch and design a product to assist small-scalefarmers in Central and Western Kenya access shallow(


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facturer and the farmer is extremely important to theproject as it demonstrates that the NGO does not needto continue its involvement once the product marketmatures, a feature called a sustainable exit strategy,upon which donor organizations look favorably.Extension workers are individuals paid by the NGO on acasual basis to support pump usage in the field. Farmerscan request a visit from an extension worker at theretailer. The extension worker visits the farmer and givespersonalized input as to effective crop irrigation usingthe pump and advice on its maintenance. Farmerscomplaints about the product are transmitted throughthe extension worker or through the retailer directly tothe NGO monitoring staff who periodically visit retailersto pick up the guarantee forms filled out by the farmersat the time of purchase. Any functional problems withthe pump are reported to the manufacturer by the NGOso that appropriate changes can be made. The NGO willalso likely have to contend with one or more corruptgovernment officials, a common unwelcome entity in allbusiness transactions in most less industrialized econo-mies, who extract payments from any or all of the

businesses involved in the pump sales.The relationships within the Customer Value Chains

other customer set, those customers related to the donorfunding of the NGO, will result in a fairly linear branch,in that most customers are linked to only two (or less)other customers. External evaluators are hired by thedonor organization to ensure that the funds given to theNGO are used appropriately. The donor organizationmust answer to its countrys government who allocatesits money to address the governments mission regardinginternational development. The donor government, inturn, must be able to defend its policy and expenditure oftax money to the citizens who elect its members. The

citizens, donor government and the donor organizationitself, in exchange for money and votes want results,that is, these customers want to know if the donor moneyis being spent appropriately and that it is contributing toraising incomes in Kenya. For this branch, the citizens ofthe donor country are end customers. By understandingthe value propositions of the donor branch of the chain,the NGO confirmed that appropriate monitoring andevaluation of the pumps impacts on Kenyan farmerswas vitally needed to meet those customers needs.

This case study is particularly informative as ithighlighted two functionalities of CVCA not obvious incommon use. First, the presence of the corrupt official

represents a leak in the chain. Because the value addedby the official is unknownor negativethis customeris a financial drain to the pumps business model. Justhow much of a drain, will need to be considered by thedesign team as the project may ultimately prove to notbe viable. Second, the structure of this chain with its twofairly separate branches (NGO-Farmer and NGO-Citi-zens) is markedly different from the more interlinkedstructures seen with the previously discussed CustomerValue Chains. From analyzing the needs of the NGOscustomers, it was found that customer requirements of

the two branches did not necessarily align and that aseparate priority matrix should be done for each branch(as part of step 6 Product Definition Assessment). Thematrices for this case studys branches showed that forthe farmer, the pump cost should be constrained and thetime to market accepted, whereas the donor organiza-tion was constrained by time and willing to accept pumpcost. The NGO faced a quandaryif the donor was notsatisfied, future funding would be lost and the projectmay never get off the ground, and if the farmerspriorities were not addressed, the pumps would beunaffordable and the project would be a failure. The lackof customer goal alignment was suggested by structureof the Customer Value Chain, and can be generalized toCVCA: the more interlinked the customers are in thechain, the more likely the goals of the different customerswill coincide. (The NGO ultimately gave priority to thefarmer and the product is now extremely successful inthe East Africa, although the NGO continues to facefunding problems.)

5 CVCAbasic rules of thumb

From the vending machine example, case studies, andother applications of CVCA, we have generated somerules of thumb to assist design teams in creating andanalyzing Customer Value Chains:

Pick an appropriate resolution. If we return to thevending machine example (see Fig. 2d), the vendingmachine manufacturer has four customers. It may beappropriate to have a higher resolution when mappingthe customersfor example, include the manufactur-ing department and shippers of the vending machine

manufacturer if the needs of both are mandated by thebusiness plan. Capturing all the customers. The initial business model

should guide the determination of pertinent custom-ers. What is the flow of money from the design team tothe end customer(s)? What are the other value prop-ositions and how do they compare to the businessmodel? The design team should then consider if thereare additional parties, not included in the businessmodel, which will affect the success of the product.

Market segmentation can be represented in onelarge Customer Value Chain or multiple CustomerValue Chains, depending on the business model. Therelative weights of the market segments should beconsidered accordingly in downstream tools.

Value-in unbalanced with value-out suggests a leak. Aleak may indicate that not all pertinent parties havebeen consideredor it may demonstrate a lack ofreturn in investment by a stakeholder. In the latter case,the design team will need to determine the impact of thenegative value proposition to the business model.

Shape matters. Our experience with CVCA suggeststhat the more interlinked the customers are in thechain, the more likely the goals of the different

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customers will coincide. As was shown in Case Study3, lack of customer goal alignment may alert thedesign team to competing prioritizations of designrequirements.

Flow CVCA output into downstream DfX tools.Knowledge gained about customers and their needscan be inputted directly into tools such as AffinityDiagrams, QFD and FMEA.

6 Conclusions and future extensions

Customer Value Chain Analysis is an original Designfor X methodological tool used as a first step in theproduct definition phase to identify pertinent customers,their relationships with each other, and their valuepropositions. Use of CVCA requires business andorganizational models to be established early andonfidently in the design process. This ensures thatknowledgeable decisions regarding product developmentcan be consistently and systematically made based oncustomer needs and that weaknesses can be addressed

prior to the commitment of significant project funding.This paper presents a step-by-step guide for applying

CVCA to a new product or process. Three case studieshighlight the utility and value of undertaking CVCA toidentify customers and their value propositions. In thefirst case study, the EKG machine, retrospective use ofCVCA shows that the market failure of a product wasdue to inadequate customer identification and that keystakeholders could have been overlooked without fullyconsidering the value propositions. In the second casestudy, the pacemaker alert system, the use of CVCAuncovered significant and unanticipated customer needsthat resulted in the reframing of the design teams initial

business model and design statement. The final casestudy, a micro-irrigation pump, discusses consequencesand considerations when there is a leak in the CustomerValue Chain. The last case study also demonstrates howthe chain structure relates to customer priority align-ment. Distinct branches in the Customer Value Chainrequire separate consideration when setting project pri-orities. In this case, the more interlinked the customersare in the chain, the more likely customer goals willcoincide.

The CVCA methodology has grown to be one of themost significant tools used in the Stanford ME317 De-sign for Manufacturability course. The method has

served over 100 projects at more than 12 companiesspanning 3 continents, and it has consistently been votedas one of the most useful DfX tools in the last 8 years byover 1,500 students, 80% of whom are practicing engi-neers (Manufacturing Modeling Laboratory 2004). Theauthors see further development of the CVCA method-ology in the following fronts:

(1) Utilization of CVCA in business model synthesis.(2) Application of CVCA in system design including

service products.

(3) Platform development for products that require di-verse variety and rapid changes.

(4) Improvement of domestic and international regula-tory procedures.

(5) Quantification of the customers value propositions.

Acknowledgments The authors gratefully acknowledge Edith Wil-son, the students and partner companies of the ME217/317 Designfor Manufacturability (dfM) course at Stanford University and the

staff of KickStart for their invaluable contributions to the devel-opment of the CVCA. This research was in part funded by theUnited States Department of Energy Manufacturing and Process-ing Fellowship.

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