...Value chain analysis Value chain From Wikipedia, the free encyclopedia Jump to: navigation, search Popular Visualization The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.[1] Contents[hide] * 1 Concept * 1.1 Activities * 2 Significance * 3 SCOR * 4 Value Reference Model * 5 References * 6 See also | [edit] Concept A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business...
Words: 1126 - Pages: 5
...IT and the Executive: Value Chain Analysis Question: What is a Strategy(1) ? The Oxford English Dictionary defines a strategy as follows: 1: The art of war. 2a: The management of an army or armies in a campaign. 2b: the art of moving troops, ships, aircraft, etc into favourable positions 3: A plan of action or policy in business or politics So let us now ask this question again, and this time attempt to answer it using a more information systems and business oriented language. “Strategy is a rule for making decisions under conditions of partial ignorance, whereas policy is a contingent decision. Business strategy is the broad collection of decision rules and guidelines that define a business’s scope and growth direction.” [1] “Strategy is the pattern of objectives, purposes or goals and major policies and plans for achieving those goals stated in such a way as to define what business the company is in or to be in and what kind of company it is or is to be.” [2] “Strategy formulation involves the interpretation of the environment and the development of consistent patterns in streams of organisational decisions.” [3] “Strategy is a broad based formula for how business is going to compete, what its goals should be, and what policies will be needed to carry out those goals. The essence of formulating competitive strategy is relating a company to its environment.” [4] “ Strategic decisions are concerned...
Words: 1554 - Pages: 7
...27708-0088, USA E-mail: ggere@soc.duke.edu Abstract: This paper lays out the main features of the global automotive industry and identifies several important trends. A boom in developing country sales and production has not yet overshadowed the importance of existing markets in developed regions. Regional integration is very strong at an operational level, yet the industry has recently developed a set of global-scale value chain linkages, and retains national and local elements as well. The paper highlights how global, regional, national and local value chains are nested to create a pattern of global integration that is distinctive to the industry. We use global value chain analysis to help explain the limits of build-to-order in the industry, the role of regional and global suppliers, the shifting geography of production and how the characteristics of value chain linkages in the industry favour tight integration and regional production. We describe how industry concentration focuses power in the hands of a few large lead firms and discuss the implications of this for value chain governance and the geography of production. Keywords: globalisation; automotive industry;...
Words: 7992 - Pages: 32
...Highlights cost advantages and distinctive capabilities--the value processes But note that there is no one template. STRATEGIC COST MANAGEMENT - BA122B - Fall 2006 4-1 Value Chain and the QCT Triangle VC allows alignment of processes with customers. This generates a quality advantage. VC focuses cost management efforts. VC provides for efficient processes which improves the timeliness of operations. STRATEGIC COST MANAGEMENT - BA122B - Fall 2006 4-2 Value Chain Benefits Identifies value processes Identifies areas for cost improvement STRATEGIC COST MANAGEMENT - BA122B - Fall 2006 4-3 from Michael E. Porter’s Competitive Advantage SUPPORT ACTIVITIES Firm Infrastructure (General Management) Human Resource Management Technology Development Procurement Inbound Logistics Ops. Outbound Logistics Sales & Marketing Service and Support Value Chain Model PRIMARY ACTIVITIES STRATEGIC COST MANAGEMENT - BA122B - Fall 2006 4-4 Value Chain Elements Customer value added Margin orientation Primary activities Support Activities Inbound logistics Operations Outbound logistics Sales and marketing Service and support Human resources (general and admin.) Tech. development Procurement STRATEGIC COST MANAGEMENT - BA122B - Fall 2006 4-5 Goal of Value Chain Driven by customer perceptions Increase margins Focus on value processess Distinctive capabilities Cost advantages...
Words: 431 - Pages: 2
...Value-Chain Analysis Value-Chain Analysis is identifying and exploiting internal and external linkage with the objective of strengthening a firm’s strategic position. The exploitation of linkages relies on analysing how costs and other non-financial factors vary as different bundles of activities are considered. Also, managing organizational and operational cost drivers to create long term cost reduction outcomes is an important input in value-chain analysis when cost leadership is emphasized. Why value chains? Value chain analysis provides researchers with a tool to ask important questions about the distribution of power and value across the chain and is therefore eminently capable of addressing the agency of workers and small producers. This analysis can identify the scope for improving incorporation into the market- increasing returns and reducing risks. The value chain is supported by four activities as follows: 1. Procurement: This is the function of acquiring the inputs used in the value chain and applies to inputs used at any stage. In other words, procurement is not only connected with the inbound raw materials or components, it is also concerned with anything used in the course of providing marketing inputs, sercicing inputs, or materials used for outbound logistics. 2. Human resource management: This is the function of recruiting, training and rewarding staff members in the organization. 3. Technology development: This includes know-how, research...
Words: 263 - Pages: 2
...concept in their businesses. In order to remain at the fore front in the current dynamic world, then an organization should adopt the various application of information technology. This will put the organization at the forefront in terms of innovation as well as give the organization a competitive advantage (Hitt & Robert, 2011, p.10). Value chain analysis is a model that was developed by Michael Porter to help an organization develop a strategy for its organization. Michael porter suggested that organization activities can be grouped into two major categories which include the following; primary and support activities. Primary activities are those activities that are geared towards the creation and delivering of a product. Examples of primary activities include component assembly (Schmitz, 2005, p.20). Support activities on the other hand are not directly related to the production of a product or service. Such activities are those activities that can increase the efficiency or effectiveness within a business. For example, human resource management is an example of support activities. This essay is going to evaluate the process of value chain analysis and its application in the following two companies; Netflix and Redbox companies. 2.0 Background information. Netflix is an online movie streaming and email DVD Company. The company offers consumers a chance to stream live various movies over the internet. In order to use Netflix, consumers are required to register on the...
Words: 1651 - Pages: 7
...FINANCE IN VALUE CHAIN ANALYSIS—A SYNTHESIS PAPER microREPORT #132 OCTOBER 2008 This publication was produced for review by the United States Agency for International Development. It was prepared by DAI. FINANCE IN VALUE CHAIN ANALYSIS—A SYNTHESIS PAPER microREPORT #132 The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. CONTENTS INTRODUCTION ................................................................................. 1 OBJECTIVE ................................................................................ 1 DEFINITION ................................................................................ 1 IMPORTANCE ............................................................................. 1 REPORT STRUCTURE ................................................................. 1 THE VALUE CHAIN ANALYSIS (VCA) FRAMEWORK ..................... 3 ANALYTICAL VCF FRAMEWORK WITH CASE-STUDY ILLUSTRATIONS ................................................................................ 7 UNDERSTANDING THE CURRENT CASH FLOW AND CREDIT STRUCTURE (ANALYTICAL PHASE) ............................................ 7 Intra-firm Finance ......................................................... 8 Finance Services Provision .......................................... 9 Inter-firm Finance (Governance) ................................ 10 UNDERSTANDING...
Words: 7800 - Pages: 32
...1. “Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.” 2. “Value chain represents the internal activities a firm engages in when transforming inputs into outputs.” Understanding the tool VCA is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits. M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly. Below you can see the Porter’s VC model. Primary Activities | ...
Words: 5031 - Pages: 21
...Value Chain Analysis M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly. Michael Porter published the Value Chain Analysis in 1985 as a response to criticism that his Five Forces framework lacked an implementation methodology that bridged the gap between internal capabilities and opportunities in the competitive landscape. This framework focused on industry attractiveness as a determinant of the profit potential of all companies within that particular industry. However, significant differences in performance exist between companies operating within the same industry that can be explained either by the company's participation in a successful strategic group or by a firm's specific competitive advantages. THE VALUE CHAIN DEFINED The idea of a value chain was first suggested by Michael Porter (1985) to depict how customer value accumulates along a chain of activities that lead to an end product or service. Porter describes the value chain as the internal processes or activities a company performs “to design, produce, market, deliver and support its product.” He further states that “a firm’s value chain and the way it performs individual activities are a reflection of its history, its strategy, its approach to implementing its strategy, and the underlying...
Words: 1997 - Pages: 8
...The Value Chain of Expedia HMGT 5580 He Huang Value chain analysis is a useful tool for working out how you can create the greatest possible value for your customers. The value chain program design consists of selecting and analysis an entire value chain, identifying and assessing appropriate market-based solutions and determining and prioritize suitable facilitation activities (or interventions) for the development organization to undertake to ultimately increase economic benefits for the target population. ‘The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use’ (Kaplinsky & Morris 2004). Also, value chain integration in services, which is in the form of low prices, convenience, and access to special time-sensitive deals and travel packages. For example, Expedia is an online travel company, and is the third-party integrators for the leisure and travel industry that uses value chains. Nearly six out of 10 Americans now shop online and more than four out of 10 use online bank. Twenty hours of video are uploaded to YouTube every minute, while 5 percent of all time online is spent on the social networking site, Facebook (Christophe 2010). Consumers use the Internet for an increasing range of everyday activities...
Words: 951 - Pages: 4
...Value Chain & Strategy: Reading Material D.M.Ravi Dissanayake Senior Lecturer, Department of Marketing Mgt University of Kelaniya Introduction Michael Porter introduced the value chain analysis concept in his 1985 book ‘ The Competitive Advantage’ . Porter suggested that activities within an organization add value to the service and products that the organization produces, and all these activities should be run at optimum level if the organization is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organization and transact freely and willingly. Michael Porter suggested that the organization is split into ‘primary activities’ and ‘support activities’. Why it needs for strategists: * To analyze internal performance of SBUs or corporate as holistic * To understand how industry goes on KPIs and to keep SBU consistent * To organize activities to support for the generic strategy * As a base line for resource allocation * Performance review guide Understanding How Value is created within Organizations How does your organization create value? How do you change business inputs into business outputs in such a way that they have a greater value than the original cost of creating those outputs? This isn't just a dry question: it's a matter of fundamental importance to companies, because it addresses the economic logic of why the...
Words: 1226 - Pages: 5
...Using the value chain model, describe how information technology might be used to provide a winning position for each of these businesses: A global airline: Information technology is used in more and more airline corporations throughout the world by adding value to their core corporate offerings through services. Modern corporations are increasingly offering fuller market packages of consumer focused combinations of goods, services, support, self-service, and knowledge. Airlines make every effort to deliver superior service and value to its customers and to become the world’s most admired airline. Another innovative service is the comprehensive Online Check-in Service, which allows passenger to check in for flights and reserve their favorite seat by using the Internet. Travelers can have the latest flight information sent directly to them via mobile phone or email account A local dry cleaner: A local dry cleaner can benefit from IT by delivering projects that transformed the customer experience, implementing a broad set of mobile, social, cloud, and data capabilities to empower the company to deliver great service leading to increased customer retention. Creating a successful marketing plan that involves researching the cleaning industry, the business' potential competition and the needs of the customer. An appliance service firm (provides services to fix and maintain appliances) Appliances are hard to handle for most householders, who lack specialized equipment and transport...
Words: 465 - Pages: 2
...The Value Chain Analysis – Support activities and Value Chain System The Value Chain System The firm's value chain links to the value chains of upstream suppliers and downstream buyers. The result is a larger stream of activities known as the value system. The development of a competitive advantage depends not only on the firm-specific value chain, but also on the value system of which the firm is a part. A firm's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. Porter calls this series of value chains the value system, shown conceptually below: The Value System ... | > | Supplier Value Chain | > | Firm Value Chain | > | Channel Value Chain | > | Buyer Value Chain | Linkages exist not only in a firm's value chain, but also between value chains. While a firm exhibiting a high degree of vertical integration is poised to better coordinate upstream and downstream activities, a firm having a lesser degree of vertical integration nonetheless can forge agreements with suppliers and channel partners to achieve better coordination. For example, an auto manufacturer may have its suppliers set up facilities in close proximity in order to minimize transport costs and reduce parts inventories. Clearly, a firm's success in developing and sustaining a competitive advantage depends not only on its own value chain, but on its ability to manage the value system of which it is a...
Words: 1037 - Pages: 5
...-1- The Value Chain The term ‘Value Chain’ was used by Michael Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). The value chain analysis describes the activities the organization performs and links them to the organizations competitive position. Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price. Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage. Porter distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. They can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency. There are four main areas of support activities: procurement...
Words: 811 - Pages: 4
...VALUE CHAIN ANALYSIS A) Discussion of the core elements of a value chain. (8 marks) B) Explanation of why an understanding of these elements is so important in managing costs and gaining or sustaining competitive advantage. Establish all important linkages in your answer. (12 marks) The value chain analysis is a useful tool for defining a firm’s core competencies and the activities in which it can pursue a competitive advantage. The core elements of a value chain analysis are the primary and secondary activities and cost. Companies use these primary and support activities as "building blocks" to create a valuable product or service. The Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. The primary activity and cost is where the value for customers and their purchasing decisions are directly influence and created by these functions. These activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. Inbound logistics: For the production and development activities, organizations need inputs as goods which are received from the suppliers. Inbound logistics refer to all the activities related to receive goods from the suppliers, decision about the transportation scheduling, storing the goods as inventory, managing the inventory, and make the inputs ready to use for the production of end products. Operations: Operation is the process of transforming input activities...
Words: 1846 - Pages: 8
