Value Chain Analysis: Unlocking Competitive Advantage in Organizations

2. Learning Objectives LO1 Value chain LO2 Competitive advantage LO3 Value chain model. LO4 RBV.

3. Value-Chain Analysis • Value-chain analysis • a strategic analysis of an organization that uses value creating activities. • Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue

4. The Value Chain System

5. Competitive Advantage • A set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.

6. Value-Chain Analysis • Primary activities • contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. • inbound logistics, operations, outbound logistics, marketing and sales, and service

7. Value-Chain Analysis • Support activities • activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities • procurement, technology development, human resource management, and general administration.

8. Porter’s Value Chain Model

9. QUESTION In assessing its primary activities, an airline would examine: A. Employee training programsB. Baggage handlingC. Criteria for lease versus purchase decisionsD. The effectiveness of its lobbying activities

10. Primary Activity: Inbound Logistics • Associated with receiving, storing and distributing inputs to the product • Location of distribution facilities • Warehouse layout and designs

11. Primary Activity: Operations • Associated with transforming inputs into the final product form • Efficient plant operations • Incorporation of appropriate process technology • Efficient plant layout and workflow design

12. Primary Activity: Outbound Logistics • Associated with collecting, storing, and distributing the product or service to buyers • Effective shipping processes to provide quick delivery and minimize damages • Shipping of goods in large lot sizes to minimize transportation costs.

13. Primary Activity: Marketing and Sales • Associated with purchases of products and services by end users and the inducements used to get them to make purchases • Innovative approaches to promotion and advertising • Proper identification of customer segments and needs

14. Primary Activity: Service • Associated with providing service to enhance or maintain the value of the product • Quick response to customer needs and emergencies • Quality of service personnel and ongoing training

15. Support Activity: Procurement • Function of purchasing inputs used in the firm’s value chain • Procurement of raw material inputs • Development of collaborative “win-win” relationships with suppliers • Analysis and selection of alternate sources of inputs to minimize dependence on one supplier

16. Support Activity: Human Resource Management • Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel • Effective recruiting, development, and retention mechanisms for employees • Quality relations with trade unions • Reward and incentive programs to motivate all employees

17. Support Activity: Technology Development • Related to a wide range of activities and those embodied in processes and equipment and the product itself • Effective R&D activities for process and product initiatives • Positive collaborative relationships between R&D and other departments • Excellent professional qualifications of personnel

18. Support Activity: General Administration/ Infrastructure • Typically supports the entire value chain and not individual activities • Effective planning systems • Excellent relationships with diverse stakeholder groups • Effective information technology to integrate value-creating activities

19. Activity Types • Direct- Create value • Indirect- support • Quality assurance- inspecting, testing

20. Two levels Interrelationships among Value-Chain Activities • Interrelationships among activities within the firm • Relationships among activities within the firm and with other organization (e.g., customers and suppliers)

21. Margin • Implies that organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. • Organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain.

22. Strategic Options • Primary Strategies 1. Differentiation 2. Least Cost • Supporting Strategies 1. Innovation 2. Growth 3. Alliance

23. Value Chains in Service Industries

24. Resource-Based View of the Firm • Resource-based view of the firm perspective that firms’ competitive advantages are due to their endowment of strategic resources that are; • valuable • rare • costly to imitate, and • costly to substitute

25. Criteria for Competitive Advantage and Strategic Implications

26. Resource-Based View of the Firm • Two perspectives • The internal analysis of phenomena within a company • An external analysis of the industry and its competitive environment

27. Types of Resources • Tangible resources • organizational assets that are relatively easy to identify, including physical assets, financial resources, organizational resources, and technological resources.

28. Types of Resources • Intangible resources organizational • assets that are difficult to identify and account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources.

29. Types of Resources • Organizational capabilities • The competencies and skills that a firm employs to transform inputs into outputs.

30. QUESTION Gillette combines several technologies to attain unparalleled success in the wet shaving industry. This is an example of their A. Tangible resourcesB. Intangible resourcesC. Organizational capabilitiesD. Strong primary activities