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Syllabus C. Strategy C3. Competitive Forces

C3c. Value Chain Analysis

Value Chain Analysis

Looks at the activities of a firm to see those which form a competitive strength

Primary Activities

  1. Inbound

    This is the receiving and storage of goods

  2. Operations

    This transforms the goods or service

  3. Outbound

    The distribution of the product to the customer

  4. Marketing and Sales

  5. Customer Service

Area Function Example
Inbound Logistics Receiving, storing and taking it to the product Stock control, Transport, Materials handling
Operations Transform inputs into the product or service Packaging, machining, assembly, testing
Outbound Logistics Collection, storage and distribution of product to customer Warehousing, transport
Marketing and Sales How users are made aware of product and able to purchase it Sales admin, advertising
Service Enhances or maintains value of the product Installation, repair, training

Support Activities

These support the primary activities above..

  • Procurement

    The purchasing of goods

  • Human Resources

    Recruitment, training and rewarding of staff

  • Infrastructure

    Systems and routines including Quality control

Area Function Example
Procurement Acquiring inputs into primary activities Buying raw materials
Technology Deployment Key technologies (including ‘know how’) for the product / process / resource R&D, product design, process development, raw material improvements
Human Resource Management Across all primary acts. Determines whether firm is rigid or innovative Recruiting, training, developing and rewarding staff
Infrastructure Structures, routines, systems (again determines rigid or innovative) Quality control

It is rare for 1 company to do all the value activities itself. Normally specialisation occurs and the company is just a part of a wider value system

In fact much of the value is created in the supply and distribution channels

Management should look at adding more value at each stage of the value chain

How to Add Value

  1. More features

  2. Less features but more user friendly

  3. Making a purchase easier

  4. Promotion of brand

  5. Speed of delivery

  6. Reliable service

  7. Innovation

Using Value Chain Analysis

Creating value for customers ultimately leads to creating value for shareholders

In your exam the model is used to provide a strategic assessment of performance

  • Assess each link in the chain by asking yourself the following:

    • How (if any) is value added here?

    • Is the value greater than those created by the competition?

    • Have added value techniques failed?

      If there are no core competencies in the one area then consider outsourcing

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