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11/12/2012

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Department of Management Studies, NIT Durgapur Strategic Managementsukantamaji@gmail.com Class Notes/PPM/B.Tech
Value Chain
The value chain helps an organization identify how it creates value for customers and locatewhere its sources of competitive advantage lie.Value chain models can be created in both qualitative and quantitative forms.Many organizations do not consciously make decisions to optimize the sources of advantageresident in their value chain and in so doing, risk losing competitive advantage.
Main Thoughts:
Most mangers know that their organization‘s value chain represents the sequence of activities
necessary to create a product or service, produce or deliver it, market and sell it to customers,distribute or provide it to those customers while ensuring necessary post sales service iscompleted. They also know that internal firm infrastructure activities such as human capitaldevelopment or procurement support the main stages in the value chain. What managers
sometimes aren‘t as knowledgeable of is the fact that the value chain within a firm or industry
is actually comprised of a very specific model of performance that depicts the discrete stages of 
organizational value creation. Further, they don‘t always use the model to compare and
contract activities across firms for the purpose of determining where competitive advantageslie.Developed in the early 1980s by Harvard Business School Professor Michael Porter in his book
Competitive Advantage 
, the value chain consists of two main components: primary activitiesand secondary activities. A generic, firm specific value chain is shown in figure 1.
 
 
2
 
Support Activities 
These consist of activities that do not directly produce goods or services.Infrastructure activities such as administration, human resource management, informationtechnology management, purchasing and procurement, and research and development areincluded in the support area of the model.
Primary Activities: 
 
These activities are the direct, value creating activities of the firm.Bringing raw materials into an organization, manufacturing a product or service, distributing itas well as marketing, selling and servicing the product are considered primary activities. Themodel can and should be reconfigured to account for activities specific to the industry in whichthe firm competes. For example, in a service industry
 
such as professional services
 
inboundlogistics might be replaced with methodology development or client acquisition. Regardless of industry however, the value chain is a powerful framework for analyzing both industry andfirm specific activities.
Ansoff Matrix
To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focusedon the firm's present and potential products and markets (customers). By considering ways togrow via existing products and new products, and in existing markets and new markets, thereare four possible product-market combinations. Ansoff's matrix is shown below:Ansoff's matrix provides four different growth strategies:
Market Penetration
- the firm seeks to achieve growth with existing products in theircurrent market segments, aiming to increase its market share.
Market Development
- the firm seeks growth by targeting its existing products to newmarket segments.
Product Development
- the firms develops new products targeted to its existing marketsegments.
Diversification
- the firm grows by diversifying into new businesses by developing newproducts for new markets.
 
 
3
 
Existing Products
 
New Products
 
ExistingMarkets
 
Market Penetration
 
Product Development
 
NewMarkets
 
Market Development
 
Diversification
 
Selecting a Product-Market Growth Strategy
The
market penetration
strategy is the least risky since it leverages many of the firm's existingresources and capabilities. In a growing market, simply maintaining market share will result ingrowth, and there may exist opportunities to increase market share if competitors reachcapacity limits. However, market penetration has limits, and once the market approachessaturation another strategy must be pursued if the firm is to continue to grow.
Market development
options include the pursuit of additional market segments orgeographical regions. The development of new markets for the product may be a good strategyif the firm's core competencies are related more to the specific product than to its experiencewith a specific market segment. Because the firm is expanding into a new market, a marketdevelopment strategy typically has more risk than a market penetration strategy.A
product development
strategy may be appropriate if the firm's strengths are related to itsspecific customers rather than to the specific product itself. In this situation, it can leverage itsstrengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attemptingto increase market share.
Diversification
is the most risky of the four growth strategies since it requires both productand market development and may be outside the core competencies of the firm. In fact, thisquadrant of the matrix has been referred to by some as the "suicide cell". However,diversification may be a reasonable choice if the high risk is compensated by the chance of ahigh rate of return. Other advantages of diversification include the potential to gain a footholdin an attractive industry and the reduction of overall business portfolio risk.Business portfolio is the right mix of businesses that company operates and products thatoffers to customers. Portfolio analysis is the process by which company analyze its productsand businesses.
Company develops their business portfolio in two steps
a. Analyze the existing business portfolio and decide which business should receive more, lessor no investment.b. Developing the new business portfolio for future to meet growth opportunities andeliminating the unprofitable portfolios.

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