Lesson 3 Flashcards
illustrate the internal value chain, as well as primary and support activities.
Porter describes the value chain as the internal processes or activities a company performs to design, produce, market, deliver and support its product.
Primary activities
- directly involved in transforming inputs into outputs, and in delivery and after sales support.
- include inbound logistics such as material handling and warehousing
- Operations. Transforming inputs into final product
- outbound logistics. Order processing and distribution
- Marketing & sales. Communication, pricing and channel mgmt.
- service - installatation, repairs and parts
Support Activities
- support primary and other activities
- procurement. purchasing of raw materials, supplies and other consumable items as well as assets
- technology development. know-how, procedures and tech inputs needed in each value chain activity
- hr mgmt.. Selection, promotion, placement, appraisal rewards, management development and LR.
- firm infrastructure - general mgmt., planning, finance, accounting, legal gov’t affairs and quality mgmt.
describe two methods to obtain competitive advantage, namely differentiation advantage and low-cost advantage.
Differentiation advantage
- occurs when clients perceive product offering is of a higher quality, incurs fewer risks, and outperforms competing product offerings.
- Eg. timeliness, better quality, wider range of goods and other factors that provide unique customer value.
- Once successfully differentiated, mgmt. can exploit this advantage by increasing price until it offsets improvement in customer benefits so market share is maintained. Or, by lowering price in order to build market share.
Low-cost advantage - if total costs are lower than market average.
- enable business to either price product or service lower than competition to gain market share, OR match price of competing products and services in order to increase profitability.
- many sources of cost advantage exist, such as access to low-cost raw materials, innovative process technology, low-cost access to distribution channels or customers, and superior operating mgmt.
The most superior is differentiation with cost advantage. The most inferior is ‘stuck in the middle’
explain why competitive advantage is more difficult to replicate if it is achieved through linkages.
linkages between activities in a firm or between stakeholders in an industry value chain create competitive advantage that is less easy for competitiors to duplicate. These linkages can be complex systems across multiple departments, stores, suppliers and manufacturers
describe the types of linkages within the value chain, including individual activities, interlinked primary activities, interlinked secondary activities, and industry linkages
Individual activities - havin superior technology in supporting customer service. Creates advantage, but can be easily recreated.
Interlinked primary activities - when 2 + primary activities are linked in a manner that creates competitive advantage. Eg. A firm can create an advantage by sourcing quality materials which can then reduce customer service and warrantee costs
Interlinked secondary activities - overarching activities that support the overall company and provide a foundation for competitive advantage. Eg. the google environment which supports innovation has enabled them to sustain advantage.
Industry linkages - can create the strongest degree of competitive advantage as they are most difficult to emulate. Eg Walmart supply chain tech - very difficult to imitate as it is a complex system across multiple departments, stores, suppliers and manufacturers.
illustrate the industry value chain.
Porter’s Industry Value Chain
Supplier value chains (all upstream activities) ->
Company value chain (All company activities) ->
Distribution value chains (all activities between company and final customer ->
Customer value chains (all activities relating to final customer.
explain the importance of supply chain management within organizations and describe how it relates to the industry value chain.
Supply chain mgmt. involves coordinating people, resources, and information across businesses including
Suppliers
Manufacturers
Distributors
Retailors
in order to provide customer value to an end user.
Supply chain mgmt. involves all elements of industry value chain mgmt. except those that deal with customer related activitites
5 main decision areas which impact a company's supply chains: Production Inventory location transportation information
explain and apply the three approaches to using value chain analysis to help assess competitive advantage within the organization, namely internal cost analysis, internal differentiation analysis, and vertical linkage analysis
Internal Cost Analysis
- Define org strategic business processes
- Id value creating activities within the business process and the costs for performing each activity
- Conduct internal cost analysis
- Identify links between processes
- Evaluate opportunities to achieve cost advantages over competition
Internal Differentiation Analysis
- Identify customer value creating processes
- Evaluate differentiation strategies for enhancing customer value
- Determine the best sustainable differentiation strategies
Vertical linkage Analysis
- Identify the industrial value chain
- Assign costs, revenues, and assets to value-creating processes
- Diagnose the cost drivers for each value creating process and evaluate opportunities for sustainable competitive advantage
explain how core competency analysis is important in creating an effective value chain within a firm
- Organizations need to be viewed not only as a portfolio of prodcuts or services but as a portfolio of core competencies
- core competencies are created by superior integration of tech, physical and human resources. They represent distinctive skills as well as intangible, invisible, intellectual assets and cultural capabilities.
- they are the connective tissue that hold together a portfolio of seemingly diverse businesses
- core-competency based diversification reduces risk and investment and increases the opportunities for transferring learning and best practices across business units.
Core competencies can be identified by the following tests:
- can they be leveraged?
- Do they enhance customer value?
- Can it be imitated?
describe how segmentation analysis can be used along with the industry value chain to identify the segments that are most profitable and that lead to competitive advantage.
Using the value chain approach to segmentation analysis, 5 steps are recommended:
- identify segmentation variables and categories
- Construct a segmentations matrix
- Analyze segment attractiveness
- Identify key success factors for each segment
- Analyze attractiveness of broad vs narrow segment scopes
discuss the limitations and challenges of value chain analysis
limitations & challenges
- the internal data on costs, revenues and assets are derived from 1 period’s financial info
- limited by the ability to locate at least one firm that participates in a specific stage
- isolating cost drivers, identifying value-chain linkages, computing supplier and customer profit margins present serious challenges
