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Value Chain Analysis and


Week 7

Dr Surja Datta
Learning Outcomes

 Develop an understanding of Value Chain Analysis


 Understand the inter-linkages between VCA,

resource and capabilities and competitive strategies

 Understand how to bring together the different

analyses under one framework (SWOT) and develop
strategic implications out of it
Where are we now?

s and
Existin Threats Strategi Strategi Implementatio
g c c n
busines Position choice
s Internal : SWOT
model Analysis:
Strengths and Fee
Weaknesses dba
Value Chain Analysis
Recap: Generic Strategies
 We have learnt last week that according to Porter
(1985), there are only a few strategic choices
available to the firm- Differentiation and Cost
Leadership with Broad or Narrow focus

 Question: How to reconcile these static choices with

the dynamic nature of competition and the external

 Question: How can a firm maintain a particular

strategic choice (cost leadership or differentiation)
over a long period of time?
Activity System as the source of competitive
 Porter (1991) argues that the strategic choices of cost
leadership, differentiation and scope should be further
decomposed into ‘activities’

 To understand how firms achieve their strategic position, we

have to investigate their activity system

 A firm can be viewed as a collection of discrete, but interrelated

economic activities such as products being assembled,
salespeople making sales visits and orders being processed

 A firm’s strategy define its configuration of activities and how

they interrelate.

 Competitive advantage results from a firm’s ability to perform the

required activities at a collectively lower cost than its rivals or
perform some activities in unique ways that create buyer value
and thus command a premium price
Activity as a source of profits is not a
new idea- it dates back to Adam
(Porter 1991)

To take an example ..of the trade of pin-maker....(the profits

arise) from the way in which this business is carried on and
is divided into a number of branches, of which the greater part
are likewise peculiar trades. One man draws out the wire, another
straights it, a third cuts it, a fourth points it, a fifth grinds it at the
top for receiving, the head…..; the important business of making
a pin is, in this manner, divided into about eighteen distinct operations

(Adam Smith 1776)

The value chain within an
Firm infrastructure
Support Human resource management a
activities Technology development In


Inbound Operations Outbound Marketing Service

Primary In
logistics logistics and rg
activities a
sales M
The Value Chain:

Primary Activities


Research & Production Marketing Customer

Development & Sales Service

Company Information Human Finance

infrastructure systems resources

Support Activities
Do you recognise this?

Where is value added?

The Value Chain:

Primary Activities


Research & Production Marketing Customer

Development & Sales Service

Company Information Human Finance

infrastructure systems resources

Support Activities
Where is value added here?
The Value Chain:

Primary Activities


Research & Production Marketing Customer

Development & Sales Service

Company Information Human Finance

infrastructure systems resources

Support Activities
Now, what is this all about?
The Value Chain:

Primary Activities


Research & Production Marketing Customer

Development & Sales Service

Company Information Human Finance

infrastructure systems resources

Support Activities
Recognise this logo?
The Value Chain:

Primary Activities


Research & Production Marketing Customer

Development & Sales Service

Company Information Human Finance

infrastructure systems resources

Support Activities
Uses of Value Chain
 Provides a comprehensive template to enable better
understanding of component activities in complex value
adding processes.
 Facilitates detailed scrutiny of activities to ensure they are
as consistent as possible with the organisation’s strategic
 Facilitates scrutiny to maximise consistency between
different elements of the chain.
Class workshop
 Watch the video

 Identify the competitive strategy

 Develop a Value Chain Analysis of the company

 Identify the activities that form the basis of the competitive

strategy of the company

 Specify the resources that underpin these activities

SWOT Analysis
SWOT is about converting:

An analysis of the organisation,

the market(s) it operates within,
 and the external environment

into practical proposals for the future

Why do an external analysis?

 Understanding how changes in society, both nationally and

internationally, impact on the industry and the organisation
 Understanding how structure and competitive dynamics
of an industry affect performance and profitability
 Identify key drivers of change within the industry
 Identifying opportunities that can be taken advantage of
 Identifying threats that endanger integrity and profitability
 Identify possible actionable responses


Analysing the

Why do an internal analysis?
 Understanding the key resources that shape our business
 Understanding how these key resources are co-ordinated
and combined to form strategic capabilities
 Identifying the strategic capabilities that differentiate the firm
from its competitors and deliver economic advantage – Core
 Identifying how the core competences link to the key
drivers for change and the critical success factors
identified from the external analysis
 Identifying strengths that will enable the firm to take
advantage of environmental changes
 Identify weaknesses that need to be resolved
Internal Analysis:

Resource audit- Unique/ Threshold

Capability analysis- Core/ Threshold

Value chain analysis – separating the activities of the firm
and identifying the linkages where the most value is

Helps in

Identification of core competences

SWOT analysis
 SWOT stands for
 Strengths – internal characteristics favourable to our
meeting our goals
 Weaknesses – internal characteristics that will hinder
or limit our reaching our goals.
 Opportunities –features in the environment that
favour us if we can take advantage of them
 Threats – features in the environment that will cause
us to miss our goals if we cannot resist or avoid them
What SWOT is used for
 SWOT brings together all the key findings from the
environmental and organisational analyses
 SWOT analysis can be used to:
 Synthesise strategic review findings

 Diagnose key issues

 SWOT brings together all the key findings from the analysis.
 Aim is to understand the implications of the analysis for
future strategy
 The key issues is whether and how we can take advantage
of the opportunities and offset the threats using our strengths
and in the light of our weaknesses
SWOT Analysis
Strengths: Weaknesses:
shown here as bullets in shown here as bullets
priority order in priority order

Opportunities: Threats:
shown here as bullets shown here as bullets in
in priority order priority order
Using SWOT
 A powerful presentation of the position found through
external and internal analysis
 A tool for competitor comparison by constructing SWOTs of
key competitors and considering whether our strengths might
enable exploitation of their weaknesses (or vice versa!)
 A direct source of strategic ideas by considering e.g. how the
strengths we have might enable taking the opportunities
(being proactive) and whether weaknesses might worsen
threats and how we might respond to the latter (competitive
Further analysis of SWOT
Strengths Weaknesses
External listed here listed here

Opportunitie Good – build Optimise trade

s listed here on existing off – invest to
competitive strengthen or
advantage abdicate
In each and leverage opportunity to
box list to bolster competitors?
possible weaknesses
s Threats listed here Defensive Bad situation – if
showing strategy survival at stake
the allowing react proactively
factors to focus to fix weakness
which it elsewhere else maybe
refers divest to focus
Limitations of SWOT
 Can tend become the end in itself but it does not show how to
achieve a competitive advantage
 Apparent strengths may not lead to an advantage e.g. if they turn
out not to be appropriate to the needs of the market or the mission
or strategy of the firm
 Focus of SWOT on the external environment tends often to be too
narrow; missing the need or opportunity to redefine an industry
 It is a snapshot of a point in time – need to keep it up to date
 SWOT can overemphasise a single element of strategy without
identifying its downside e.g. excessive reliance on strength in low
cost production may result in poor press and labour problems.
SWOT - overview
 SWOT analysis has much to offer but is just a starting
 Crucially it must be kept up to date requiring that we
undertake environmental scanning
 This is a continuous process of conducting audits of
both our resources and our micro and macro
environments – keeping our eyes open, not resting on
our laurels!
A Critical Perspective on
 The charge of ‘hyper rationality’

 Mintzberg’s critique of ‘Strategic Positioning’

The Ultimatum Game- A
counterpoint to the assumption
 rationality
players bargain (anonymously) to divide
a fixed amount between them.
 P1 (proposer) offers a division of the “pie”
 P2 (responder) decides whether to accept it
 If accepted both player gets their agreed
upon shares
 If rejected players receive nothing.
Ultimatum Game (2)
 The ‘rational strategy’ is that proposer should offer the smallest possible
share and responder would accept it.

 Reality does not agree

 Güth, Schmittberger, Schwarze (1983)

 They did the first experimental study on this game.
 The mean offer was 37% of the “pie”

 Since then several other studies has been conducted to examine this gap
between experiment and theory.

 Almost all show that humans disregard the rational solution in favor of some
notion of fairness*.
 The average offers are in the region of 40-50% of the pie
 About half of the responders reject offers below 30%
Briefing for Week 8
 The session will be organised in the reverse order

 We will start with a presentation and discussion session. You will

present an internal analysis of GSK in your groups

 Each group will present for 10 mins followed by feedback and

Q&A by the seminar leader for 5 mins (1.5 hours)

 After the P&D session, I will recap the module and provide some
tips for you to excel in your individual coursework

 The session is going to be vital for your coursework- so do not

miss it!
Internal Analysis Presentation-
What it should cover
 An analysis of resources and capabilities of
GSK using appropriate framework(s)

 An analysis of the business strategy of GSK

using appropriate framework(s)

 An analysis of ‘Strategic Fit’ of GSK

You should take this an final opportunity to check whether your analyses are on
the right track and the feedback should be taken on board to sharpen your
Individual coursework
Seminar Activity

 Develop a Value Chain Analysis of GSK

 Develop a SWOT analysis of GSK