strategy - value chain analysis
Introduction
Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:
(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.
Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.
Primary Activities
Primary value chain activities include:
| Primary Activity | Description |
Inbound
logistics |
All those activities
concerned with receiving and storing externally sourced materials |
Operations |
The manufacture
of products and services - the way in which resource inputs
(e.g. materials) are converted to outputs (e.g. products) |
Outbound
logistics |
All those activities
associated with getting finished goods and services to buyers |
Marketing
and sales |
Essentially an
information activity - informing buyers and consumers about products
and services (benefits, use, price etc.) |
Service |
All those activities associated
with maintaining product performance after the product has been sold |
Support Activities
Support activities include:
Secondary Activity |
Description |
Procurement
|
This concerns how
resources are acquired for a business (e.g. sourcing and negotiating
with materials suppliers) |
Human
Resource Management |
Those activities
concerned with recruiting, developing, motivating and rewarding the
workforce of a business |
Technology
Development |
Activities concerned
with managing information processing and the development and protection
of "knowledge" in a business |
Infrastructure
|
Concerned with
a wide range of support systems and functions such as finance, planning,
quality control and general senior management |
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps:
(1) Break down a market/organisation into its key activities under each of the major headings in the model;
(2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;
(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
tutor2u is the leading global publisher of e-learning resources for Economics, Business, Politics, Enterprise, Law, Sociology, Religious Studies and related subjects. Our materials are used by over 3,500 schools and colleges in the UK and in educational institutions in over 85 other countries. tutor2u offers a range of free and subscription-based materials - designed to support teachers and inspire students. The business also runs a popular series of student revision workshops and teacher conferences. tutor2u was named Online Learning Resource of the Year at the prestigious BETT Show - the World's leading educational show.
|
Privacy & terms of Use |
Contact us |
Teacher Newsletters & Subject Blogs |
