Value chain analysis

Question 1

What is a value chain?

Answer 1

Identifies the relationships between the company’s

resources, activities and processes that link the business together and create a profit margin.

Question 2

What is the purpose of a value chain analysis?

Answer 2

Used to analyse the sequence of business activities which add value to the products or services produced by a company.

Question 3

What are the possible generic strategies a company can take?

Answer 3

Cost leadership - Seeking to be the lowest cost
producer in the industry

Differentiation - Creating tangible and intangible product features that the customer is willing to pay more for

Question 4

How should the generic strategy affect a company’s value chain?

Answer 4

• value chain should be consistent with generic strategy
• cost leader should seek cost efficiencies throughout
• differentiator should seek quality advantages throughout

Question 5

What are the primary activities in the value chain?

Answer 5

 Inbound logistics - activities concerned with receiving, storing and distributing the inputs to the product.
 Operations - transform inputs into the final product.
 Outbound logistics - collecting, storing and distributing the final product.
 Marketing and sales - informing customers about the product, persuading them to buy it, and enabling them to do so.
 Service - after sales services such as installation, repair, training and customer service.

Question 6

What are the supporting activities of the value chain?

Answer 6

 Procurement - processes for acquiring the various resource inputs to the primary activities – not the resources themselves.
 Technology development – All value activities have a technological content, even if it is just ‘know how’.
 Human resource management - involves all areas of the business and is involved in recruiting, managing, training, developing and rewarding people within the organisation.
 Infrastructure - systems of planning, finance, quality control, information management etc. and is crucially important to an organisation’s performance in primary activities. It also consists of the structures and routines
that sustain the culture of the organisation.

Question 7

What do the primary activities do?

Answer 7

Create value and are directly concerned with providing the product or service.

Question 8

What do the secondary activities do?

Answer 8

Do not create value by themselves, but enable the primary activities to take place with maximum efficiency.

Question 9

What is the importance of linkages in the chain?

Answer 9

Source of sustainable competitive advantage. As it may be easy for competitors to identify and copy a single activity, but a linkage (a number of activities working together) is much harder to identify and copy.

Question 10

What are internal linkages?

Answer 10

Two or more activities in the chain impact each other. There are two key types of linkage:
 Co-ordination - Activities should be consistent with each other and work together to support the generic strategy.
 Optimisation - Strength in one area may enable the firm to commit fewer resources to another area e.g. high quality product design may enable fewer resources to be spent on after sales service as the likelihood of
product faults is lower.

Question 11

What are external linkages?

Answer 11

A business’s internal value chain will link to, and should be consistent with:
 the customer’s chain
 and the supplier’s chain.

Question 12

What should you do for each activity?

Answer 12

Make it clear how that activity has helped the organisation to achieve its competitive advantage, commenting on any linkages/consistency between the activities.