Chapter 2 Literature Review

2.1 Introduction to Advertisement

As known for decades, advertisement is one of the main strategies in marketing

either a product or service. It can be defined as An Advert that does not create a

buying response, or at least produce a desire to want to know more is not an advert

(Quinn, 1985). The Table 2.1 holds the summary to the types of advertising being

exercised (Aaker and Mayers, 1975).

Table 2.1: Types of Advertisement Targeted on Customers

To Inform
a. Telling the market about the new product
b. Suggesting new user for the product
c. Informing the market of a price change
d. Explaining how the product works
e. Describing available service
f. Building company image
To Persuade
a. Building brand preference
b. Encouraging switching brand
c. Changing customers perception of a product attribute
d. Persuading customers to purchase
e. Persuading a customer to receive a sales call
To Remind
a. Reminding consumers that the product may be needed in near future
b. Reminding them where to buy it
c. Reminding how to check for quality (originality)
d. Keeping in their minds during off seasons
e. Maintaining its top-of-mind awareness

9
 According to a research concentrating on the advertisers viewpoint,

advertisement is an important tool which companies use to directly persuade buyers and

public (Kotler, 1994). Being a key element in the marketing process, advertisements

face many challenges in reaching the audience.

One of the main obstacles is the low audience involvement (Krugman, 1975). In

most forms of communication, the audience least make some effort to pay attention or

appear to be doing so. The adverts are meant for the audience to watch but

unfortunately the audience is likely to take active steps in avoiding them. The advertiser

therefore have problem of making loomed perhaps generally evasive audience pay

attention to what is going on or at least enough to get basic selling message (Krugman,

1975). The challenge gets more difficult in a multiracial country such as Malaysia.

The existence of the advertisement rooted in Malaysia dated back to the 1971 as

claimed by Bonnex (1975) in his thesis. His theory is even supported by the

Honourable Minister Tan Sri Gazalis speech in 1971(Bernama, 1971). Advertising

agencies fuel the basic needs of a company to plan, strategise and introduce their

product in the market. It is one of the basis of the supply chain and many advertising

agencies are involved in this business in Malaysia.

2.2 Industry Background

As a preparation to start this project, background of the agency was studied to

know and identify the operations involved and the key personals needed to be

interviewed. Before concentrating on the agencys background, reasonable amount of

time was spent studying and understanding the advertising industry in detail to have a

10
better understanding on how the business is being done nationwide. The five main

categories identified from the study are explained in the sections below.

1. Television

2. Radio

3. Print media

4. Web advertising

5. Other media

2.2.1 Television

Currently there are 7 television channels in Malaysia including ASTRO and

MiTV. The traditional television stations such as RTM1, RTM2 and TV3 are sharing

the advertising budget with the other channels. As in Malaysia the television have

towering percentage of penetration but it involves very high budget and suitable only

for big companies.

For example, it cost RM23340.00 (MediaBase, 2004) for just a single 60

seconds of film let (moving advertising which is not a still picture) advertisement

during prime time in TV3. However, these big companies normally have their own unit

for advertisement as done by Dunhill (Dunhill Tobacco). Nevertheless, most of the

time, the companies make use of the service of the advertising agencies rather than

having their own advertising unit since it is more cost effective.

As a conclusion, the television advertisement is far reachable as it involves a

high cost and is not affordable by the small and medium companies. However, it is still

the most effective and popular way of reaching the customers, especially with the

arrival of satellite televisions such as ATSRO. More people have tuned into the

television.

11
2.2.2 Radio

There are many radio channels available in Malaysia and there are even local

channels for some specific states. For example, Radio Manis in Kelantan and Radio KL

FM in Kuala Lumpur. This gives flexible choices for the companies to choose the

coverage level they desire. For example, a catering company based in Perlis, which is

situated in northern state of Malaysia, does not need to advertise in a media that can be

heard in Johor that is in the southern state of Malaysia.

Therefore, radio stations with different frequency and coverage level allows the

companies to choose a suitable station for them. Besides that, the cost to produce the

advertisement and to air-cast is lower compared to the TV channels. There are also

radio channels, which have nation coverage such as the Time Highway Radio and the

AI FM, which is a Chinese Network.

Other than that, the radio station also allows the companies to sponsor a

program from 15 minutes to 1 hour to talk freely about their product or services

(MediaBase, 2004). This has received a high demand from the companies where they

are able to provide more information about their products. Radio is the most widely

used advertising method in Malaysia where it involves a cost effective method besides

being flexible and far reaching advertising media.

2.2.3 Print Media

The print media involves both magazines and newspapers in Malaysia. There

are newspapers and magazines in all four major languages in Malaysia, which are

English, Malay, Mandarin and Tamil. There are about 18 daily newspapers in

peninsular Malaysia, 9 in Sabah and 10 in Sarawak in the year 2003 (MediaBase,

2004). This print media also involves a low budget and has a more specific target group

of customers.

12
 The companies can advertise in this print media when they have addressed their

target group of customers. The print media is also suitable when introducing a new

product because the budget is smaller and can be advertised much faster compared to

other advertising methods. The production is normally done in house, as there is not

much complication and rules involved as in the other medias where any health claims is

not allowed either in radio or television. This is due to the strict government policy to

control the radio and television advertisements. This is also done to protect the

consumers from manipulative advertisements.

On the other hand, the print media has a very high potential coverage where

more than 5.6 million Malaysian adults read daily newspaper at least once on an

average day representing 54% reach of adult population in the year of 2001 (Ministry

Of Information, 2002). This makes the print media one of the powerful methods of

advertising.

2.2.4 Web Advertising

Web advertising is a method that has been developed in the late 90s and has

been boomed with the development of the Dot.Com business. It is a wide industry with

big terminologies such as Internet Marketing Service, Banner Advertisement, Link

Exchange and Ezines. This huge advertising source is an industry by itself and

excluded in this research, since it will widen the scope of the research.

2.2.5 Other Media

This method of advertising involves the outdoor boards, transport advertising on

taxis and buses, shopping complexes such as Mega Mall and in petrol stations. This

method of advertising also involves having cutouts in theatres, airports and railway

stations where more people pass by. These methods are normally used to remind the

customers about an established product and the advertisement boards could not be

13
changed frequently. The advertisements on the boards beside the roads and highways

normally involve a 6 months contract (MediaBase, 2004).

2.3 Company Background

The company chosen is an advertising agency. The agency was established in

1994 February with the minimum staff of two people whom are the managing director

and the senior consultant. They have started the business in a small-scale and

concentrated only on Minnal FM booking which is the Tamil Language radio dedicated

for the Indian community in Malaysia.

Within the years, their business has evolved but their business activities

concentrate more on the radio-based advertisements. This is due to the main reason that

radio advertisement is the main method of advertisement in Malaysia and also has a

broad coverage station like Minnal FM, which has a full coverage from the northern

state of Perlis to the most southern state Johor.

2.4 Recent Change in Agency

There has been a dramatic change in the agency recently when they merged

with another advertising agency that has been in the business for quite some time. IJS

have taken over their business. Thus, they have to face some new challenges in the

business since the other agency has more customers whom advertise in other medias

than the radio. They are also involved in television advertisements and the printed

media, which are the newspapers and the magazines. This also makes the selected

14
agency a suitable candidate in this research implementing the VCA in developing a

new automated system for an advertisement agency.

In conjunction to this, the agency needs to have more new staff to oversee

bookings and running the business operations. Unfortunately the agency does not have

clear ideas about how the business is being done in the television and printed media

monopoly. There are also some additional staff, who have been recruited in the process

of maintaining their expended new business.

The agencys new organisational structure is explained in Figure 2.1. The chart

explains the employee structure in the agency after merging and the employment of the

new staff. The Managing Director (MD) who is also the owner of the agency leads the

management and finalises decision-making activities in the agency. MD and the

consultants represent the agency in the meetings held by the advertising medias. They

also spend most of the office time with customer relationship.

Consultants in the agency are normally involved in explaining available

advertising opportunities to the customers. They also help the customers to choose the

appropriate media and channel to place advertisements. Their involvement in customer

relation is significant.

The experienced senior administrative staff has been working in the agency for

a long period and understands the working procedures in the industry well. There are

specific administrative staff that will receive booking and send it to the particular media

to be air-cast. Before that, they need to confirm the booking in advance. The normal

15
administrative staffs refer to the senior administrative staff if they need any

clarification in their job.

These staff spends most of their time writing out booking and typing invoices.

They prepare the documentations involved in the administrative process and keep track

of the cartridge number for each booking. They are also involved in preparing the

payment for the artist in the advertisement production and manage the producer

payment for the programs.

Managing
Director

Consultant Consultant

Senior Admin
Staff

Admin Staff Admin Staff Admin Staff Admin Staff

Figure 2.1: The Organisation Chart in Iklan Jaya Sakti

2.5 Description of Current System

The advertising agency currently does not have any computerised system. They

have adopted the file-based system, which have many drawbacks. They record and file

up all the information needed manually in everyday working environment.

16
 When there is a new customer, he will be first asked whether he needs

consulting service on advertisement. Some customers know the industry well while

others have no idea about this advertising industry and the procedures involved. If the

customer requests for consulting service, a consultant will attend to them. The

customers are provided guidance on the customers target market and the advertising

options available for them.

The consultant will then pass on the booking to the agency and administrative

staff will note down the booking. Later the booking is written back in the appropriate

format in the booking form and the booking is faxed to the desired number (based on

the media). The staff need to include the cartridge number for both radio and television

segment booking.

However the program booking is much complicated. An earlier meeting will be

conducted to discuss the time and content of the program. An advertisement number

will be provided if both parties agree on the terms during the meeting. This meeting

will be conducted between the customers, officer from the particular channel with the

attendance of one of the consultants from the advertisement agency.

This similar situation also takes place in the magazine booking. The

advertisement number is important before confirming the magazine booking. This is to

avoid the desired page on the particular date to be booked by someone else.

As the final step in the booking process, the administrative staff then have to

type out the invoice for all the combination of booking. Invoices are solely dependent

17
on the bookings that have been faxed earlier. The administrative staff also need to

include the production cost for cartridge or the producer cost involved in the invoice.

2.6 Competitive Systems

These days, on shelf systems has emerged as the major business solution

parallel to the fast world where they are able to see, purchase and use the system the

next day. However choosing an appropriate system especially to an advertisement

agency is always a challenging task. Looking close at the on shelf programs, the

choices are variety, but mostly are created by foreign companies and they do not meet

the criteria and requirement of the local agencies. But studying through and comparing

the products gives basic guidelines for the development of the new product.

Subsequently, two widely used on shelf system and one locally developed (in

Malaysia) ageing system was compared with the selected agencys current file based

system.

2.5.1 Workzone

Table 2.2: Workzone Advertising System

Description a) Recently developed software using latest technology.

b) Shelf ware that developed originally by an American software company.
c) An ad agency extranet software.
Advantage a) Speeds up the review and approval process in the business. Not only
does the work move faster, it is better organised and fully documented.
b) Increases customer dependence. The benefit of customer extranet
solutions becomes one more reason why the customer would want to
continue working the same advertising agency. This works as a customer
locking mechanism.
c) Takes more control of the customer management.
d) Give everyone, or just someone, a view of the files. The software allows
choosing who has access to a file.

18
 e) Complete record of what everyone says, and when they say it.
f) Reduce non-billable time and increase agency income.
Drawback a) Concentrates more on the cable-TV advertisement where in Malaysia
ASTRO and MiTv are the only options.
b) Less online support for easier assessment from other places. The
customers always have to attend to the office for consultation
c) Always needs an experienced consultant to advise and guide the new
customers and to explain to them about the current trends and options
available.

2.5.2 Fuimus

Table 2.3: Fuimus Advertising System

Description a) Complete solution software.

b) The production company is in the business for a long time and they
understand the business well.
c) Developed by a European company for the local advertisement agencies
(in Europe).
d) It is widely being used in the advertising agencies.
Advantage a) Show prospective customers the work not presented at presentation.
b) Provide more online support. Can be accessed by the authorised person
from anywhere and booking can be done online.
c) It is through the time / cost accounting module and resulting reports.
d) Ease the process of calculating the percentage. Automatically generates
a cost accounting recap after the billing is completed.
e) Preparing the estimation for a production job sets the stage for total job
cost control as the job progresses.
f) Print media option. The Print Media Control Module is designed to be
used by the media department to control print media insertion deadlines,
camera-ready art deadlines and audit contract usage.
Drawback a) Allow the bookings to be done outside from the organisation, which is
not appropriate in Malaysia due to security reasons.
b) Have unnecessary functions that are not relevant for a growing
advertisement agency such as the Iklan JS.
c) Measurements for the printed media follow the Europe standard, which
is the effect of the international software.

19
2.5.3 Bluebplez

Table 2.4: Bluebplez Advertising System

Description a) Locally developed software that has been outsourced.

b) Used in a local advertisement agency for the past 7 years.
c) Proposed by one of the consultants to be adopted to reduce the cost and
save time in development.
Advantage a) Customised to meet the agency requirements.
b) The language and the jargons that are being locally used in the agency
have been adapted to the system.
c) Keyed to a date sensitive billing cycle, which can handle essentially
unlimited numbers of transactions per month.
d) The employees takes much shorter time to learn and they are more keen
to learn since they have been involved the in the development process.
e) Its works with the employees mindset and fulfil the local requirements
such as getting script approval problem.
Drawback a) The development process of the system takes up to 11 months to
compare to the promised 5 months where most of the employees have
lost interest.
b) Hard to maintain the software since it was developed with an old
programming language.
c) The database and the system interface were not well planned for the
future adoption of changes.

2.5.4 File Based

Table 2.4: File Based Advertising System

Description a) The system which is currently being used in Iklan JS is file based
b) The have been using the system since the early stage of the agency since
it started as a small business with minimal employee.
Advantage a) It is very flexible due to the file based.
b) There is no fix format so the data can be stored at the staffs preference.
c) Can be done manually and works much faster.
d) The language and the jargons that are being locally used in the agency
have been adapted to the system.
Drawback a) Highly prone to mistakes while conducting the businesses due to the
nature of the business where many sensitive datas and numbers are

20
 involved. A small mistake could cause the agency big loss
b) The critical information are often missed out
c) Searching across information is always difficult and time-consuming
process.

Besides that, few assessments and measures were identified after reading

through and discussing with the people in the industry. These measures should be given

heavier dosage of consideration while developing or choosing software for an

advertisement agency. Advertisement agency software should be developed with the

mindset that, the agency knows better how to service their customers and the software

is simply a tool that helps them do it even better.

Besides that, below are some basic requirements that software should meet

when it will be used in a real life advertisement field.

1. Does the system support the way business is done currently? The changes

introduced should be minimal.

2. Recording the customers all year advertising habit will be an advantage for

future consultation and planning.

3. Will the staff want to use it? If it takes more than an hour to learn, the software

is likely to have a bigger failure rate.

4. The software should use the language of advertising, the language of the

advertising agency.

It should represent a custom solution that supports the unique nature of each

relationship especially in advertisement booking.

2.7 System specification

21
 1. The system should provide a complete database to support the both

administrative and operational functions of the agency.

2. The system should contain functions that will be helpful increasing the agencys

competitive advantage.

2.8 Common Attribute of Value Chain Analysis

Serving the research motives, a detailed study was carried out to have a better

understanding about the value chain analysis (VCA) before continuing with this

research. Following are the few definitions that were explained by few authors in their

articles and in books about the VCA.

The value chain is a systematic approach in examining the development of

competitive advantage. It was introduced by one of the pioneer in the ICT and business

industry Porter (1980). Potter also explains the sources of cost reduction and

differentiation within a firm. Potter treats every firm as a collection of activities carried

out to develop, strategically market, deliver and maintain its products or services.

Potter stresses to collectively group these activities using VCA. Value chains

can be understood better from the business perspective (Potter, 1985). It is the impact

of transactions on value-chain activities that determines the longer-term economic

benefits and strategic advantages of firms. Transactions can either optimise the

collective actions of the firm or minimise its total costs in comparison to competitors.

22
 Other researchers have also supported this suggestion by Potter. They claim that

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 and

Morris, 2003).

Significant of VCA

Apart from the VCA primary focus on understanding the links between the

internal structure of an individual firms functions and activities to its company specific

advantages, it can also be used to study the benefits and costs of inter-firm relationships

(Porter and Fuller, 1986). Besides that, the definition of the VCA can also be discussed

as VCA facilitates the organisation opportunities to create a new value adding service

to the customers and help them to strategise ideas on how to maximise the value. It

concentrates on options whether through superb products, great services, or jobs well

done. Manktelow (2002).

This is followed by Owens (1998) explaining that Value chains have to do with

integration, collaboration and synchronisation. Internally to a company we talk about

integrating the supply chain functions across the enterprise. Externally we talk about

collaborating with both vendors and customers. More to the point, the recognition that a

firms competitive position is affected not only by the set of linkages within the

companys own value-chain activities, but also by the value-chain linkages between

buyers and suppliers (Mattson, 1997).

23
 It is important that relationships are rooted in broader networks to encourage

growth. In the network approach, markets are described as sets of interconnected

exchange relationships between actors controlling resources for production (Johanson

and Mattson, 1992). The inter-connections between firms and the emergent aspects of a

network have been demonstrated by much of the research in the IMP literature

(Anderson et al., 1994). Comprehensively, explains about synchronising the supply

chain functions across all parties involved. The core idea of the analysis is to break and

command. The strategy is to break up the chain of activities that runs from basic raw

materials to end-use customers into strategically relevant segments in order to

understand the behaviour of costs and the sources of differentiation (Shank and

Govindarajan, 1992).

But Jacinto (2004) claims in his research paper that in reality, value chains tend

to be extended to more activities within each links between different value chains,

regardless of difficulties. He also explained that VCA could deepen inquiry into the

disjuncture between high levels of economic integration into national and global

product markets. This can be extended to countries where people actually gain from

such integration (Jacinto, 2004). This makes VCA even suitable for the international

projects to project its strength.

After the solid background study about the VCA, the analysis continued

concentrating on more detailed study on the VCA model. Below are the VCAs two

main parts in the analysis process.

2.8.2 External Value Chain

24
 The external value chain concentrates on the overall value of the business and

its associates. To be specific it concentrates on the key roles information played

throughout the business process. The key roles in the business are evaluated based on

the organisations ability to maximise their profit while minimising their cost in both

production and supply (Warhoe, 2004). To have a better understanding on how the

business is being carried out, the organisation should be treated as black box (how

the business processes are carried out inside the organisation should be ignored at this

stage). More importance should be given to the end customers, the external factors like

suppliers, government policies and other procedures that can influence the business

(Ensign, 2001).

All the possibilities in each key of information should be identified clearly

before proceeding to the next step. The keys should be evaluated critically, to examine

how the process can be improved and how much effect they have on the business

process (Ward and Peppard, 2004). This will be vital in the business reengineering

process.

2.8.3 Internal Value Chain

The figure 2.2 is the VCA model that has been created by Potter {Porter &

Millar, 1985).

Support Activities

25
 General Administration Competitive
Advantage
Human Resource Management

Research, Technology and Systems Development

Procurement

Inbound Operations Outbound Marketing Service

Logistics Logistics And
Sales

Primary Activities

Figure 2.2: The Value Chain Analysis Model

This is the basic model of the VCA and it has evolved to more new specifically

aimed at the new media value chain models based on different industries (Loebbecke,

2001). The model in Figure 2.3 is developed specifically to serve the need of a

computerised system (Loebbecke, 2001).

Primary Activities

Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales

Information Technology Infrastructure

Figure 2.3: The Alternative Value Chain Analysis Model

26
 Analysing through the two available models, it is clear that the both models

have 5 same basic criterias, which are better known as the primary activities (such as

inbound logistics, operations, outbound logistics, marketing and sales, and service) and

secondary support activities (such as purchasing, technology development, human

resource management and firm infrastructure) (Clinton, 2004). These secondary

support activities typically represent the principal trading interface with external

partners in terms of the firms managerial, administrative and legal involvement with

each other. The secondary operations vary between value chains. Below are the

summary of primary activities and their traditional manufacturing industry explanation.

2.8.3.1 Primary Activities

a. Inbound Logistics

- Activities associated with receiving, storing and distributing inputs to the

product.

b. Operations

- All activities related with transforming inputs into the final product.

c. Outbound Logistics

- Activities correlated with collecting, storing, and physically distributing the

product or service to buyers.

d. Marketing& Sales

- The activities connected with purchases of products and services by end users

and the inducements used to get them to make purchases.

e. Service

- All activities related with providing service to enhance or maintain the value of

the product.

- Also includes the after sales service in providing customers assistance.

2.8.3.2 Support Activities

27
 Support activities in VCA models often verify with each other. This is due to

the nature of the industry in which the value chain is being carried on. As for the model

in the Figure 2.2, there are four main activities involved (QuickMBA, 2004). The

activities are:

a. General administration

- Contains major activities, costs and assets relating to general management and

other transparency functions in the organisation.

b. Human Resources Management

- Employees are an expensive but a vital resource. This topic concentrates on the

activities involved in recruiting, hiring, training, development and compensation

of all types of personnel; labour relations activities and development of skills.

c. Research, Technology, and Systems Development

- This sector deliberates the activities, calculates costs and assets relating to

product research and development (R&D) process

d. Procurement

- The function of purchasing inputs used in the firms value chain, not to the

purchased inputs themselves.

Next will be the support activities in the model in Figure 2.3 where it has a

single activity to replace all the 4 different activities in the earlier model. This activity

is identified as Information Technology Infrastructure where it contains the cost

details of the hardware, software and other utility bills.

Comparing the support activities in both models have revealed that the support

activities mainly constrain on the cost factor. It is also a tool to evaluate if the project

undertaking is financially beneficial. However the VCA model Figure 2.2 is more in

detail and defines the supporting activities clearly.

28
2.8.4 Value Chain Examples

As a conclusion, the VCA process is a very powerful solution to the problems

faced by current industries and software development companies. It is widely used in

all fields of studies. Below are two different scenarios where VCA has been carried out

successfully.

2.8.4.1. Small Scale Fishery (Jacinto, 2004)

This research concentrates on small-scale fisheries in Philippines. Fishing is one

of the primary resources in the country but it is always overwhelmed by the problems

of resource degradation and extensive poverty in coastal communities. Whilst state

guidelines and open access to the countries most of the main fishing spots are unable to

maintain the progress of a competent fishing industry, Community Based Coastal

Resources Management (CBCRM) approaches centred on property rights are popular

among the fisherman and non-government institutes as both tactical necessity and

strategic is vital. Even the CBCRM celebrates its second generation in the country, both

success and failure stories been equal.

The VCA was introduced in this situation to concentrate on the dynamic of

inter-linkages in the fishing industry. It is also commenced to describe the full range of

activities required to modernise fishery products from rural areas and old methods.

The researchs objective is to modernise the industry through the different phases of

production and delivery to final consumers. The research stress on both cultural and

logistic factors where it actually expands inquiry into the disjuncture between high

levels of economic integration into national and global product markets.

Implementation of VCA resulted in new value-added fishery products and

marketing systems to cultivate the fishermans involvement in both national and global

economy level. The success story of the VCA is also transparent since the research

29
results computed the optimal balance between production for local food security and

for the market (Jacinto, 2004).

2.8.4.2. Mobile Commerce (Barnes, 2001)

Mobile commerce, which is better known as m-commerce, is the latest revamp

competing with the internet facilities electronic commerce (e-commerce) Stimulated by

the increasing usage and advances of mobile technology, such as phones and personal

digital assistants (PDA), m-commerce gains its advantage over the e-commerce. It also

allows new strategy to the way business and certain activities are conducted. New

gadgets like micro-browsers and sophisticated mobile applications are the new era of

technologies that brings the internet to the customers pocket. This opens endless

possibilities including usage of m-commerce in activities such as banking, booking or

buying tickets, shopping and real-time news for a start.

This paper concentrates on creating a system to monitor the business-to-

consumer markets and to examine how value is added in the stream of activities

involved in providing m-commerce to the consumer. Besides identifying both internal

and external factors that influence the m-commerce value chain, the research also

develops a platform for the future strategic analysis for the industry. VCA also allows

the author to identify (Barnes, 2001) some of the key factors that may influence the

take-up of m-commerce, including technological issues. Adopting VCA into research to

create a system also allows the author to present his predictions regarding the future of

m-commerce based on the results.

2.8.5 Summary of Examples

Wrapping up the discussion, VCA is commonly used in a traditional good

manufacturing process. Nevertheless it is also a powerful tool that we can employ in

the service-based organisation, software development companies and other industries.

It is a flexible tool that has a high level of adoption to all challenges. It is also a very

30
powerful solution to the problems faced by the current industries. It is widely used from

a small-scale fishery (Jacinto, 2004) to the recent research on the emerging m-

commerce technology (Barnes, 2001).

31
2.9 Profit Factor

However, the main key that makes VCA not an industry based analysis is the

profit factor. The profit term adopted in the VCA also makes it suitable to a diversity of

sectors from small business to multinational corporations. The key calculation formula

(Ward & Peppered, 2004) used in the VCA to calculate is as in Figure 2.4.

Value added (V) - cost (C) = profit (P)

V- Is the value added by the improved methods

C- The total cost occur to develop or apply the better method
P- The measurable significant profit from the new methods

Figure 2.4: Profit Factor Formula

2.10 Natural and Contrived Value Chains

The value chain is also improved with the two new concepts called natural and

contrived value chains (Osullivan and Geringer, 1993). The business can be done more

strategically with having better understanding about the role and information flow

between both the internal and external value chains. New opportunities can be

identified with this both new introduced theories. This theory has been further

explained by Ward and Pepper (2004).

2.10.1 Natural Value Chains

32
 The key factor in this is what. It represents what have to be done to increase

the value added service in the business. It is used to analyse the value chain analysis in

term of the information complexity. It helps to understand the difficulties in the

business process and the information flow in within and with the external factors

associated with the company.

2.10.2 Contrived Value Chain

The key factor in this is how. It examines how the business process is being

carried out in the organisation. This concept concentrates on identifying new and

accelerated ways to improve the information flow and business opportunities.

Identifying this new value adding requirements also would allow the business

reengineering process.

33