Value Chain - Critique/Firm Level Analysis · Length: A written report of approximately 2,500 words Requirements You are to undertake a literature review of the Value Chain framework, assessing its...

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VALUE CHAIN AND COMPETITIVE ADVANTAGE 14
Value Chain - Critique/Firm Level Analysis
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Value Chain - Critique/Firm Level Analysis
The concept of Value chain was first introduced by Michael Porter in his book “The competitive Advantage” (1985). According to Porter, every firm has a set of primary and secondary activities which are performed to produce, market, deliver and support the end product. These activities when performed in a sequential and optimal manner help the organization to have competitive advantage. So the fundamental role of value chain is to create value to the customers and develop sources of competitive advantage.
Value Chain Analysis
Value chain analysis of an organization or business unit is done by disaggregating the process into strategically relevant activities which help in understanding the linkages of these activities and behavior of cost and the existing and potential sources of differentiation. Though two or more firms in an industry may have similar collection of activities however the value chain of each individual firm differs. The difference may be a reflection of its history, strategy, its approach to the implementation of strategy or economics of the activities themselves. These differences among competitors value chain are the key sources of competitive advantage.
Value chain Composition
Value chain consists of value activities and margin. As described by Porter, “Value activities are the physically and technologically distinct activities a firm performs. These are the building blocks by which the firm creates a product valuable to its customers. Margin is the difference between total value and the collective cost of performing the value activities.” Value activities can be classified into two types, primary and support.
Porter’s Value chain diagram
Primary activities
As shown in the figure above there are five generic categories of primary activities. Depending on the type of industry each of these activities have a different value proposition and significance in the value chain.
Inbound Logistic. Activities related to intake, storage, quality control, inventory management, warehousing and transportation of raw-material or inputs for further processing are included in this category.
Operations. Activities which transform the inputs into final packed product are termed as operations. This includes actual machining, packaging and assembling task along with its maintenance and quality control during production.
Outbound Logistic. Activities involving collection, storage and distribution of final end products to warehouses and distribution centers are categorized as outbound logistic. These involve scheduling, order processing finished goods inventory management and transportation.
Marketing and Sales. These activities include sales, promotion, quoting, distribution channel selection and pricing decision .These activities provide a medium for the customer to understand and get interested in the product and also serve as a medium to transfer the customer requirements and perception of value to the product design and research team.
Service. Activities related to providing support to customer post sales to maintain or enhance the value of the product which in-turn is a subset of customer satisfaction and loyalty. Repair, spare part supply and training related activities and periodic maintenance services are a few examples of these activities.
Secondary Activities
As shown in the value chain diagram the secondary items can be divided in too four generic categories. All these categories are not directly linked to the production; however they are essential components in achieving the final product and can be source of competitive advantage for the organization.
Procurement. This support department is involved in purchase of raw-materials, supplies and other consumable items. It is also involved in purchase decision of assets like machinery, laboratory equipment’s, warehouses, buildings etc. Improved and well defined procurement policies and decisions can be major differentiator in-terms of overall cost to the organization.
Technology Development. This department actually incorporates the customer requirements into product design. It’s also termed as the R&D department and its takes care of the basic research and product design, process equipment design and servicing procedures. It can be summarized as activities involved in improving the product and the process. Technology development is vital for competitive advantage in most industries and infect is the major differentiator among competitors. The decision related to selection of a process technology and product configuration has huge impact on the overall cost to the firm and its sustainability in the market.
Human Resource Management. This department is involved in recruiting, training, development and compensation package fixing of all employees. This is a support department for primary as well as secondary departments like R&D and procurement. Human resource management is an intrinsic part...