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VALUE CHAIN - STRATEGY AND ANALYSIS

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  • 1. VALUE CHAIN
  • 2. PORTERS VALUE CHAIN MODEL
    • [[#2. PORTERS VALUE CHAIN MODEL#Primary activities:|Primary activities:]]
      • [[#Primary activities:#1. Inbound logistics:|1. Inbound logistics:]]
      • [[#Primary activities:#2. Operations:|2. Operations:]]
      • [[#Primary activities:#3. Outbound logistics:|3. Outbound logistics:]]
      • [[#Primary activities:#4. Marketing and sales:|4. Marketing and sales:]]
      • [[#Primary activities:#5. After-sales services:|5. After-sales services:]]
    • [[#2. PORTERS VALUE CHAIN MODEL#Secondary activities:|Secondary activities:]]
      • [[#Secondary activities:#1. Procurement:|1. Procurement:]]
      • [[#Secondary activities:#2. Technological development:|2. Technological development:]]
      • [[#Secondary activities:#3. Human resources management:|3. Human resources management:]]
      • [[#Secondary activities:#4. Infrastructure:|4. Infrastructure:]]
  • 3. VALUE CHAIN - STRATEGIC MANAGEMENT
  • 4. VALUE CHAIN ANALYSIS
    • [[#4. VALUE CHAIN ANALYSIS#HOW TO CONDUCT VALUE CHAIN ANALYSIS|HOW TO CONDUCT VALUE CHAIN ANALYSIS]]

1. VALUE CHAIN

  1. *M. Porter introduced the generic value chain model in 1985.
  2. Value chain represents all the internal activities a firm engages in to produce goods and services.
  3. VC is formed of
    1. primary activities that add value to the final product directly
    2. support activities that add value indirectly.

2. PORTERS VALUE CHAIN MODEL

Primary activities:

are those that go directly into the creation of a product or the execution of a service, including:

1. Inbound logistics:

Activities related to receiving, warehousing, and inventory management of source materials and components

2. Operations:

Activities related to turning raw materials and components into a finished product

3. Outbound logistics:

Activities related to distribution, including packaging, sorting, and shipping

4. Marketing and sales:

Activities related to the marketing and sale of a product or service, including promotion, advertising, and pricing strategy

5. After-sales services:

Activities that take place after a sale has been finalized, including installation, training, quality assurance, repair, and customer service

Secondary activities:

help primary activities become more efficient—effectively creating a competitive advantage—and are broken down into:

1. Procurement:

Activities related to the sourcing of raw materials, components, equipment, and services

2. Technological development:

Activities related to research and development, including product design, market research, and process development

3. Human resources management:

Activities related to the recruitment, hiring, training, development, retention, and compensation of employees

4. Infrastructure:

Activities related to the company’s .overhead and management, including financing and planning.

3. VALUE CHAIN - STRATEGIC MANAGEMENT

  1. The value chain concept is based on the process view of organizations.
  2. It is an idea of considering a manufacturing (or service) organization as a dynamic system.
  3. A Dynamic system made up of various subsystems, each with inputs, transformation processes and outputs.
  4. The inputs, transformations, and outputs require the acquisition and consumption of company resources, such as money, equipment, materials, labor, buildings, land, administration and management.
  5. The management process of carrying out value chain activities determines the costs and affects the profitability of organizations.
  6. Most organizations engage in hundreds of activities while converting its inputs to outputs.
  7. These activities are classified as either primary or support activities

4. VALUE CHAIN ANALYSIS

DEFINITION   1. A process when an organization identifies its primary and support activities that add value to its final product   2. then analyze these activities to reduce costs or increase differentiation.

UNDERSTANDING THE TOOL

  1. Value chain analysis is a strategy tool used to analyze internal firm activities.

  2. Its goal is to recognize, which activities are the most valuable (i.e. provide, cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage.

  3. By looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are.

  4. The firm that competes through differentiation advantage will try to perform its activities better than competitors .

  5. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors .

  6. Thus, When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits.

  7. Value chain analysis is a means of evaluating each of the activities in a company’s value chain to understand where opportunities for improvement lie.

  8. Conducting a value chain analysis prompts you to consider how each step adds or subtracts value from your final product or service.

  9. This, in turn, can help you realize some form of competitive advantage, such as:

    1. Cost reduction, by making each activity in the value chain more efficient and, therefore, less expensive.
    2. Product differentiation, by investing more time and resources into activities like research and development, design, or marketing that can help your product stand out

  10. Typically, increasing the performance of one of the four secondary activities can benefit at least one of the primary activities.

HOW TO CONDUCT VALUE CHAIN ANALYSIS

  1. Identify Value Chain Activities
    1. understand all of the primary and secondary activities that go into your product or service’s creation.
    2. If your company sells multiple products or services, it’s important to perform this process for each one.

2. Determine the Cost and Value of Activities :

  1. Once the primary and secondary activities have been identified, the next step is to determine the value that each activity adds to the process, along with the costs involved.
  2. When thinking about the value created by activities, ask yourself:
    1. How does each increase the end user’s satisfaction or enjoyment?
    2. How does it create value for my firm?
    3. For example, does constructing the product out of certain materials make it more durable or luxurious for the user?
    4. Does including a certain feature make it more likely your firm will benefit from network effects and increased business?
  3. Similarly, it’s important to understand the costs associated with each step in the process. Depending on your situation, you may find that lowering expenses is an easy way to improve the value each transaction provides.

3. Identify Opportunities for Competitive Advantage

  1. Once you’ve compiled your value chain and understand the cost and value associated with each step, you can analyze it through the lens of whatever competitive advantage you’re trying to achieve.
  2. For example, if your primary goal is to reduce your firm’s costs, you should evaluate each piece of your value chain through the lens of reducing expenses.
    1. Which steps could be more efficient?
    2. Are there any that don’t create significant value and could be outsourced or eliminated to substantially reduce costs?
  3. Similarly, if your primary goal is to achieve product differentiation,
    1. which parts of your value chain offer the best opportunity to realize that goal?
    2. Would the value created justify the investment of additional resources?

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