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Value Chain

Value Chain

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Published by salim1321
assignment on value chain
assignment on value chain

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Published by: salim1321 on May 22, 2010
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04/19/2013

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Assignment
on
Value chain in e-COMMERCEANDE-COMMERCE IN INDIA
Under the subject of 
E-BUSINESS Submitted to Submitted by
MS. SHAMPY MADAANMUHAMMAD SALIM(Faculty MBA, TIAS)07217003909MBA (2
nd
semester)
T
he Value Chain
 
The
value chain
, also known as
value chain analysis
, is a concept from businessmanagement that was first described and popularized by Michael Porter. A value chainis a chain of activities for a firm operating in a specific industry. The business unit is theappropriate level for construction of a value chain, not the divisional level or corporatelevel. Products pass through all activities of the chain in order, and at each activity theproduct gains some value. The chain of activities gives the products more added valuethan 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 mayhave a low cost, but the activity adds much of the value to the end product, since arough diamond is significantly less valuable than a cut diamond. Typically, the describedvalue chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of thebusiness, e.g. ISO 9001.
Historical context
Over the years, some businesses have controlled almost all factors of production anddistribution (Ford in its early days) whereas others have outsourced almost everything(Dell). In the early days of industry, large enterprises controlled and owned most factorsof production and businesses like Ford Motor Company in the USA had their ownfoundries, railroad, forestry and electricity generating plants, In the UK, Cadbury’s andLever Brothers went so far as to build villages and amenities for their workers. Themotivation for this vertical integration was varied but included cost and quality control,worker loyalty and protection of proprietary processes. As well as control of production,resources and employees, businesses like Ford also controlled the retail sales andservice network.Ford Motor Company developed its structure over many decades of steady growth but,even prior to the advent of e-Business; this kind of structure was being broken down, asa monolithic type of organization like this is less able to respond to changing marketrequirements. Furthermore, external specialized organizations may be able to offer ancillary services such as transport and power more cheaply than a business like FordMotor Company could do it for itself. Ford was an extreme case of internal control of allfactors of production and distribution, whereas most other businesses had longmaintained a mixture of some in-house capabilities together with services sourced fromother businesses
.
Porter’s Value Chain Model
 
One model to help understand this network of processes and services is what MichaelPorter (1985) calls the ‘Value Chain’. Porter’s work on competitive strategy suggeststhat organizations should re-evaluate their value chain and concentrate on theoperations that they can do best. Other processes should ‘out-sourced’ to specialists. E-Business has facilitated this by providing a set of standards for participants to work with.Evans & Wurster (2000) outline the progress of Dell from a business that in 1984offered a simplified product offering with orders taken by fax/telephone – a simplifiedservice with wide reach. In moving to Internet delivery, Dell then offered individualizedconfigurations, price combinations and technical support. These enhancements couldonly previously have been obtained from specialized dealers or direct agents at apremium price and Dell now offers these to a wide audience at a very competitive price.The customer wins as their needs are at the centre of the process.Porter distinguishes between primary activities and support activities. Primary activitiesare directly concerned with the creation or delivery of a product or service. They can begrouped into five main areas: inbound logistics, operations, outbound logistics,marketing and sales, and service. Each of these primary activities is linked to supportactivities, which help to improve their effectiveness or efficiency.There are four main areas of support activities: procurement, technology development(including R&D), human resource management, and infrastructure (systems foplanning, finance, quality, information management etc.). The chain consists of a seriesof activities that create and build value. They culminate in the total value delivered by anorganization. The ‘margin’ depicted in the diagram is the same as added value whichexpresses the way a business differentiates itself through configuration of its valuechain.The drivers for product differentiation and value creation are policy choices (whatactivities to perform and how), linkages (within the value chain or with suppliers andchannels), timing (of activities), location, sharing of activities amongst business units’learning, integration, scale and institutional factors. Porter and Millar (1985) argue thatinformation technology creates value by supporting differentiation strategies.To analyze the specific activities through which firms can create a competitiveadvantage, it is useful to model the firm as a chain of value-creating activities. MichaelPorter identified a set of interrelated generic activities common to a wide range of firms.The resulting model is known as the
value chain
and is depicted below:
Porter’s Value Chain

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