Value Chain Analysis Of Spotify Technology S A

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Posted by Taylor Byrne on Sep-23-2018

1.1 Advantages of conducting Value Chain Analysis of Spotify Technology

SA

Value Chain Analysis of Spotify Technology S A can offer various advantages:

1.1.1 Identify competitive advantage sources

By conducting the Value Chain Analysis of Spotify Technology S A during the planning
process, possible sources of competitive advantage can be identified. The firm/company is
a collection of different activities that share relatedness to some extent. Spotify
Technology S A cannot trade all activities in the external market. The Value Chain
approach suggests that a company can consider these activities as economic rent sources.
These activities can also act as barriers to new entrants or cause cost disadvantages to
competitors.

1.1.2 Identify complex inter-relationships and interdependencies

Spotify Technology S A can identify various internal and external linkages among
activities through the value chain lens. The internal linkages are- interrelationships
between activities within same organisational units and external linkages are between
business units of same or different firms. Studying these interrelationships can help a
company take benefit from coordination and joint optimisation.

1.1.3 Improved flow of materials, information and finances

The use of Value Chain Analysis can optimise the finances, products and information
flow.

The improved information flow can help the company identify and exploit new
opportunities and reduce external threats. The continuous Value Chain evaluation
can result in timely filling important gaps that may affect a firm's productivity.
The effective implementation of the Value Chain Analysis of Spotify Technology S A
can improve the material and product flow due to improved demand and sales
forecasting. The inventory management also improves as Spotify Technology S A
can minimise the delays by tracking activities throughout the supply chain.
Modern customers place high importance to the quick response and convenient
access to the important product related information. The unexpected interruption in
the information flow can affect the customer-supplier relationship. Spotify
Technology S A Value Chain Analysis and its implementation can highlight and
remove the bottlenecks to the information flow.

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1.1.4 Formulate effective firm-specific strategies

Spotify Technology S A Value Chain Analysis can be used in the competitive strategic
decision-making process. However, choosing the right competitive strategy (cost
leadership, differentiation or focus) requires knowledge of own and rivals’ cost structure.

1.2 Challenges associated with Value Chain Analysis of Spotify

Technology S A

The company may lose its vision and overall strategy by dividing operations into
different activities.
Dividing the operations into primary and support activities may not be separable
due to increased complexity.
The division process can be time consuming and finding the required information
can also be difficult.
Effective value chain implementation does not only require familiarity but detailed
expertise.
Spotify Technology S A may find it difficult to get required information if its
Business Information System is not structured accordingly.

2. Porter’s Value Chain Analysis of Spotify Technology S A

Porter's value chain model is highly popular in the business world. However, Spotify
Technology S A must not take it as a rigid, standalone framework by assigning the equal
importance to all activities. The effective Value Chain Analysis requires Spotify

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Technology S A to realise that all activities or functions do not require same scrutiny level.
Hence, the first step of adapting the Porter Value Chain framework is to identify the
importance of activities according to their role in product/service delivery process.

Here is the list of primary value chain activities as proposed by Porter:

2.1 Primary Activities

The primary value chain activities of Spotify Technology S A are directly involved in
producing and selling the product to targeted customers. Analysis of primary value chain
activities can improve the performance of Spotify Technology S A as explained below.

2.1.1 Inbound Logistics

It is important to develop strong relationships with suppliers as their support is necessary

to receive, store and distribute the product. Without analysing the in-bound logistics,
Spotify Technology S A can face various challenges in product development phases.
Analysis of in-bound logistics requires a company to focus on every aspect of
transformation from raw material to finished product. Some examples of inbound
logistics are retrieving raw material, storing the inputs and internally distributing the raw
material and components to start production.

2.1.2 Operations

The importance of analysing operational activities raises when raw material arrives, and
Spotify Technology S A is ready to process the raw material into the end product and
launch it in the market. Some examples of operational activities are machining, packing,
assembling and testing. Equipment repair and maintenance also falls into this category.

It includes both- manufacturing and service operations. Analysis of operational activities

is important for improving productivity, maximising the efficiency and ensuring the
competitive success of Spotify Technology S A. The increased productivity can help
Spotify Technology S A to achieve consistent economic growth, increase profitability and
set a powerful basis for competitive advantage.

2.1.3 Outbound Logistics

Outbound logistics include the activities that deliver the product to the customer by
passing through different intermediaries. Some outbound logistics activities are material
handling, warehousing, scheduling, order processing, transporting and delivering to the
destination. Spotify Technology S A can analyse and optimise the outbound logistics to
explore competitive advantage sources and achieve its business growth objectives.

Because, when outbound activities are timely managed with optimal costs and product
delivery processes put a minimum negative effect on the quality, it maximises the
customer satisfaction and increases growth opportunities for the firm. Spotify Technology
S A should pay specific importance to its outbound value chain activities when its offered
products are perishable and require quick delivery to the end customer.

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2.1.4 Marketing and Sales

At this stage, Spotify Technology S A will highlight the benefits and differentiation points
of offered products to persuade the customers that its offering is better than competitors.
Only producing a high quality product at affordable costs and distinctive features cannot
create value until Spotify Technology S A invests on the marketing and sales activities.
The sales agents and marketers play an important role here.

Some examples of Spotify Technology S A's marketing and sales activities are- sales force,
advertising, promotional activities, pricing, channel selection, quoting and building
relations with channel members. The company can use the marketing funnel approach to
structure its marketing and sales activities. The marketing strategies can either be push or
pull in nature, depending on the Spotify Technology S A’s business objectives, brand
image, competitive dynamics and current standing in the market.

Effective and wisely integrated marketing activities can develop the brand equity of
Spotify Technology S A and help it stand out from the competition. However, Spotify
Technology S A must avoid making false commitments about product features that cannot
be fulfilled by the production department. It indicates the need to ensure coordination
between different value chain activities.

2.1.5 Services

The pre-sale and post-sale services offered by the Spotify Technology S A will play an
important role in developing customer loyalty. The modern customers consider post-sale
services as important as marketing and promotional activities. The power of negative e-
WOM due to poor support service cannot be undermined in the current technologically
advanced era. The company must analyse its support activities to avoid damaging brand
reputation, and instead use it as a tool to spread positive word of mouth due to quick,
timely and efficient support services.

2.2 Secondary Activities

The support activities play an important role in coordinating and facilitating the primary
value chain activities. Spotify Technology S A can also benefit from analysis of its support
activities as explained below.

2.2.1 Firm infrastructure

The firm infrastructure denotes a range of activities, such as- quality management, legal
matters handling, accounting, financing, planning and strategic management. Effective
infrastructure management can allow Spotify Technology S A to optimise the value of the
whole value chain. Spotify Technology S A can control the infrastructure activities (or
commonly called overhead costs) to strengthen the competitive positioning in the market.

2.2.2 Human resource management

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Spotify Technology S A can analyse human resource management by evaluating different
HR aspects, including- recruiting, selecting, training, rewarding, performance
management and other personnel management activities. The effective HR management
can allow Spotify Technology S A to reduce competitive pressure based on motivation,
commitment and skills of its workforce. The company can also achieve its cost
minimisation objectives by analysing hiring and training costs with their relative return.
The heavy dependence of Spotify Technology S A on employees' talent will increase the
importance of this value chain support activity.

2.2.3 Technology development

In a modern, technological advanced era, almost all value chain activities depend on
technological support. The technological integration in production, distribution,
marketing and human resource activities requires Spotify Technology S A to realise the
importance of technology development. It can be divided into product and process
technological development activities. Some examples are- automation software,
technology-supported customer service, product design research and data analytics. The
research and development department of Spotify Technology S A is classified in this
category.

2.2.4 Procurement

The procurement in value chain denotes the processes involved in purchasing the inputs
that may range from equipment, machinery, raw material, supplies, raw material and
other items necessary for producing the finished product. Due to its linkage with multiple
value chain activities, Spotify Technology S A should carefully consider its procurement
activities to optimise the inbound, operational and outbound value chain.

As mentioned above, the application of Porter Value Chain model depends on

understanding the importance of all activities. After understanding the relative
importance of identified value chain activities, Spotify Technology S A should highlight
areas where value can be added, cost efficiency can be achieved, differentiation basis can
be set, or processes can be optimised.

Here is a pictorial presentation of Porter Value Chain model:

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3. Competitive Advantages through Value Chain Analysis of

Spotify Technology S A

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It is important for Spotify Technology S A to base its competitive advantage on activities
in which it has access to the rare or scare resources. It may include- intellectual capital,
assets, skills or distribution network. The Value Chain Analysis can help Spotify
Technology S A identify those activities and develop those areas to get a strong
competitive edge over rivals. There are many examples (like Toshiba and Sharp) that
consider Value Chain Analysis as a tool to get a competitive advantage and invest heavily
in research and development activities within their value chain network. Porter’s generic
strategies for achieving the competitive advantage and value chain model can be used
together to set strong competitive advantage basis.

Following diagram shows Porter's competitive advantage model:

The analysis of the value chain activities can be done to understand the competitive
advantage sources. Spotify Technology S A can either use the operations, marketing and
other relevant value chain activities to avail the cost advantages or it can use the human
resource, technology, infrastructure, service or other relevant activities to set the strong
differentiation basis. Broadly, the competitive advantage sources can be grouped into two
types- cost and differentiation. Spotify Technology S A can obtain a competitive advantage
from one or both sources, depending on the depth and breadth of its Value Chain
Analysis. Next parts of the article present in detail how Spotify Technology S A can
configure primary and/or secondary value chain activities to achieve the desired cost and
differentiation objectives.

4. Cost Advantage of Spotify Technology S A

4.1 Cost advantage through Value Chain Analysis of Spotify Technology S

A
Spotify Technology S A can avail the cost advantages by reducing the costs associated with
the value chain activities. However, it requires the company to firstly map the activities
and then associate costs to make necessary adjustments. The connection between the
value chain and cost leadership strategy reflects a parallel focus on the low cost
operational activities. If Spotify Technology S A aims to obtain cost advantage, it needs to
identify each element within the value chain can be optimised to get the whole effect

A Value Chain Analysis Example for Spotify Technology S A is that it can use the
analysis as a tool to negotiate the best prices and maximise the in-bound and out-
bound transportation processes.
Another Value Chain Analysis Example is using the value chain information to make
modest advertising budget that can reduce marketing costs and offer the product at
an affordable cost.

If Spotify Technology S A aims for the low-cost, the Value Chain Analysis can optimise the
profitability. If product differentiation is the aim of Spotify Technology S A, Value Chain
Analysis will help the company in maximising the efficiency and enhancing the product
quality by improving processes.

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4.2 Cost drivers of Spotify Technology S A Value Chain Analysis

Spotify Technology S A can control following drivers to add value, set differentiation basis
and enhance efficiency.

Organisational policies
Integration
Timing
Economies of scale
Linkages
Interrelationships
Capacity utilisation
Learning and Spillover

However, it is important to note that costs can be reduced only to some extent. Spotify
Technology S A Value Chain Analysis must also consider the customers’ perceived value
that may justify the higher price charged by the company compared to competitors.

5. Company Differentiation Advantage

Spotify Technology S A can obtain the differentiation advantage by analysing different
value chain activities. For instance, a company can procure the unique and valuable
inputs that are not easily available to competitors. Spotify Technology S A can either
reconfigure the whole value chain or change individual entities to set the differentiation
basis. The cost drivers (such as timing, interrelationships, linkages, scaling and
integration) can also be altered to develop uniqueness.

Some examples of differentiation through analysis of value chain are:

Forward integration or backward integration to exercise better control over inputs

Utilisation of new channels of distribution
Implementation of innovative process technologies.

5.1 Differentiation through primary value chain activities

Spotify Technology S A can individually analyse the primary activities from all aspects and
create differentiation basis by identifying the following sources:

Inbound logistics: possible differentiation basis for Spotify Technology S A are:

Procure high quality inputs to offer high quality finished product
Effective incoming input handling to reduce damage

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 Operations: possible differentiation basis for Spotify Technology S A are:
Flexible manufacturing system
Wide product range
Improved product appearance
Prevention of product pre-mature failure
Quick response to unique specifications
Improved customer satisfaction through lower defect rate
Improved product performance due to conformance to technical specifications
Outbound logistics: possible differentiation basis for Spotify Technology S A are:
Effective handling and better shipping to reduce product damage
Timely product delivery
Flexible delivery capabilities
Effective order processing procedure
Marketing and sales: possible differentiation basis for Spotify Technology S A are:
Improved relationships with suppliers and customers
Enhanced communication with customers by offering high quality
information.
Brand awareness, reputation and image development due to extensive and
effective advertising.
Effective coordination among product, research and marketing departments.
Wider sales force coverage.
Services: possible differentiation basis for Spotify Technology S A are:
Superior service quality
High quality technical assistance
Reliable and quick repair/maintenance service

5.2 Differentiation through secondary value chain activities

Spotify Technology S A can also analyse the secondary value chain activities to set
differentiation basis:

Firm Infrastructure: Spotify Technology S A can set differentiation basis through:

Extensive database development for effective marketing
Advanced information system to get deeper customer insights.
Human Resource Management- Spotify Technology S A can set differentiation basis
through:
Attractive rewards to encourage creativity and maximise productivity
Personnel training for effective interaction and superior customer service
Technological development- Spotify Technology S A can set differentiation basis
through:
Quick new product development
Innovation integration in product designing
Innovative product features with patented technology

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 Procurement- Spotify Technology S A can set differentiation basis through:
Reliable transportation to ensure quick delivery
Procure high quality raw material and replacement parts.

6. Value Chain Analysis Example

Value Chain Analysis of the Spotify Technology S A can be better understood with the
help of some examples.

By using Value Chain Analysis, Spotify Technology S A can select and source
premium quality raw material and develop customer loyalty on the basis of it. It can
also use Value Chain Analysis to develop brand identity.
Starbucks provides a good Value Chain Analysis Example. The organisation
created a strong brand identity and set a strong competitive advantage basis
through aggressive marketing and strengthening coordination between
marketing and product development department.
Spotify Technology S A can also achieve competitive differentiation by speeding up
the delivery of offered products to the final customers.
Pizza Hut provides another successful Value Chain Analysis Example where
organisation outpaced competitors by re-configuring value chain activities to
ensure quick delivery.
The Value Chain Analysis can also be used by Spotify Technology S A to improve its
human resource practices.
FedEx is a good Value Chain Analysis Example to understand how Spotify
Technology S A can achieve competitive advantage through analysis of its
human resource activities.
FedEx emphasised over its value chain support activities, invested heavily on
employee development, took excellent human resource initiatives and made
visible infrastructure improvements, resulting into visible increase in brand
loyalty and market share.
Spotify Technology S A can analyse value chain activities to reduce the costs, find
better deals with suppliers and offer high quality products at affordable prices.
A relevant Value Chain Analysis Example is provided by Walmart that
continuously analyses its value chain activities to remain innovative, minimise
operational costs and offer low-cost yet reliable services.
Spotify Technology S A can analyse the support value chain activities to offer
superior customer support. It can also analyse the operational activities to expand
the presence in geographically dispersed areas.
It can be understood with the help of another Value Chain Analysis Example.
Starbucks places high importance to analysing value chain activities and has
successfully opened direct stores in more than 50 countries.

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 Spotify Technology S A can also use the Value Chain Analysis as a tool to do
backward integration. It can be done by merging or purchasing the suppliers to
ensure timely raw material availability.
Apple provides a relevant Value Chain Analysis Example in this regard. The
company is known for its efficient value chain and successfully controls the
product and parts.
The Value Chain Analysis can also be done by Spotify Technology S A to maximise
the operational efficiency, reduce waste and integrate sustainability in business
operations.
Intel is a good Value Chain Analysis Example that has reduced the waste and
negative impact on the environment by analysing its value chain operational
activities. The company has received appreciation for its waste reduction
efforts.
Spotify Technology S A can learn from value chain practices of Dow AgroSciences.
Dow has used Value Chain Analysis to explore the unique marketing opportunities
and extracted value from generic commodity market. The company has also used
Value Chain to manage the risks at different product lifecycle phases.

The above-stated examples show how Spotify Technology S A can benefit from conducting
a detailed Value Chain Analysis. However, it is also important to note that the Porter
Value Chain model application depends on the unique contextual variables that must be
considered when assigning the weightage to primary and secondary value chain activities.

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