VALUE CHAIN ANALYSIS

Value Chain Analysis helped identify a firm's core competencies and distinguish those activities that drive competitive advantage. The cost structure of an organization can be subdivided into separate processes or functions assuming that the cost drivers for each of these activities behave differently. .

The nine activity groups are: .Porter's strength was to condense this activity based cost analysis into a generic template consisting of five primary activities and four support activities.

The Value Chain Firm Infrastructure Supporting Activities Human Resource Management Technological Development Procurement I RG MA N Primary Activities Relationship with Suppliers Elapsed Time .Value added time cost Relationship with Buyers MA RG I N Inbound Operations Logistics Outbound Marketing Service Logistics & Sales .

packaging. inventory control. transportation. assembly. Inbound logistics: materials handling.Primary activities:   . . Take inputs from inbound logistics and convert to . warehousing. testing and maintenance. operations: machine operating. store and disseminate inputs to a product   2. inventory control used to receive.

promotion. marketing and sales: advertising. channel management. Activities designed to enhance or maintain a product’s value    . 4. Provide means through which customers can purchase products and to induce them to do so 5. service: installation. pricing. spare part management. selling. servicing.

planning.Support activities: 6. reward systems. lease properties. product and process development. 9.   . technology development: research & development. finance. education. supplier contract negotiations. investor relations. procurement: purchasing raw materials. 8. firm infrastructure: general management. promotion. legal. IT. 7. human resource management: recruitment.

The size of the individual activity boxes represents the cost of performing those particular activities. This is depicted as the size of the overall pentagon. the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay. the greater the MARGIN will be for the firm. Thus. .The Result of the Value Chain Margins  Capture the value from performing value- creating activities as cheaply as possible The basic idea is that the consumer is willing to pay a certain amount for the value you create.

market. to think about relationships between activities and to link the value chain to the understanding of an organization's competitive position.   Porter emphasized the importance of (re)grouping functions into activities to produce.Pro’s Value Chain Analysis provides a generic framework to analyze both the behavior of costs as well as the existing and potential sources of differentiation. . deliver and support products.

Porter used his Value Chain Analysis to identify synergies or shared activities between Strategic Business Units and to provide a tool to focus on the whole rather than on the parts. An organization's strengths and weaknesses can only be identified in relation to the profiles of its direct competitors.The value chain made clear that an organisation is multifaceted and that its underlying activities need to be analyzed to understand its overall competitive position.  . The concept of Strategic Business Units stated that businesses within a conglomerate should act independently while headquarters should be responsible only for budgetary decisions to be based on a business unit's position in the overall portfolio.

The Value Chain Analysis should be accompanied with a customer segmentation analysis to mix the internal and external view. Customer value chains need to be analyses to determine where value is created. A feature or product provides the firm with a differentiating competitive advantage only if customers are willing to pay for it.Con’s The quantitative analysis is time consuming since it often requires recalibrating the accounting system to allocate costs to individual activities. .

.The Value Chain is used to analyze a firm's position in relation to its direct competitors with the assumption that rivalry drives profitability.

a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities. For example.Analysis to Competitive Advantage What activities a business undertakes is directly linked to achieving competitive advantage. By contrast. or a reduction in the total amount of resources used . a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition.

Thank you .