Business Framework Value Chain Analysis
PORTER’S VALUE CHAIN ANALYSIS
Firm Infrastructure
Support Human Resource Management Developed by Michael Porter, Value Chain Activities Technology Development Analysis is business management framework Procurement
Inbound Operations Outbound Marketing / Service / After used to analyze the processes and key Logistics Logistics Sales Sales Support activities performed by a business or industry. This framework illustrates where Primary Activities value is created within an industry or company.
Find our other documents at http://flevy.com/seller/learnppt The Value Chain approach has evolved from an “internal” to an “external” perspective
The traditional view of the Value Chain was developed by Michael Porter:
PORTER’S VALUE CHAIN ANALYSIS
Firm Infrastructure
Support Human Resource Management Activities Technology Development Procurement
Inbound Operations Outbound Marketing / Service / After Logistics Logistics Sales Sales Support
Primary Activities
Shank and Govindarajan propose a more externally focused, or holistic view of Value Chain Analysis This document– Focus ison a thepartial industry preview. Value Full Chain document (i.e. “value download delivery can system”) be found on Flevy: http://flevy.com/browse/document/value-chain-analysis-262 – Identifies the activities performed by a firm and how those activities impact, and are impacted by, other players in the end- customer’s “value delivery system” – Cost drivers are compared at each stage of the industry value chain to identify potential competitive advantages or opportunities
4 An Industry Value Chain should include all competitors
Industry Value Chain Example – Paper Products Industry
Value Activities Silvaculture and Timber Farming
Logging and Chipping
Competitor B Pulp Manufacturing Competitor C Paper Manufacturing Competitor A Competitor D Converting Operations
Distribution Competitor G Competitor E End-Use This document is a partial preview. Full document download canCustomer be found on Flevy: Competitor F http://flevy.com/browse/document/value-chain-analysis-262 Your company will face different competitors, with different cost structures, at each stage of the Value Chain.
Source: Shank and Govindarajan, 1993, Exhibit 4-2
7 The cost drivers critical to success in the Industry Value Chain must be identified
1 Identify the industry value chain and map the linkages between the industry value activities 2 STEP 3 : Determine the relevant cost drivers for each value activity Assign costs, revenues and assets to value activities
3 The cost drivers that are critical to success in the IndustryValue Chain must be Determine the relevant cost drivers for each value activity 4 identified Identify potential competitive advantages by either controlling cost drivers better than competitors or reconfiguring the value chain to better leverage the firm’s strengths – Identify cost drivers that have a significant impact on the cost structure of firms in the industry – Identify cost drivers where structural differences exist among competitors It is necessary to understand the basic technologies driving costs at each stage of the Value Chain
This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/value-chain-analysis-262 NOTE: Only the costs associated with the business activities requiredto produce and deliver the product or service under analysis should be included in this analysis. This might require a high-level activity-based costing exercise to assign overhead costs to the appropriate business activity. Additionally, the analyst should aware that cost data might require some manipulation (inflation/deflation, replacement cost adjustments) to arrive at economically relevant costs.
10 There are three levels of detail for conducting and presenting Value Chain analysis
Level 1: Qualitative Summary of Competitive Trends Example
VALUE CHAIN STRATEGIC DIFFERENCES ELEMENTS AT&T NYNEX IBM Procurement Owns manufacturing branch Free to use any supplier it wants Owns Rolm, CPE manufacturer (Western Electric) Technology Technological leadership through Focus on software products Strong R&D in computer hardware Development Bell Labs and software technologies
Operations National presence Regional monopoly Global presence High quality of equipment through Innovative equipment from outside Leading computer technology heavy capital expenditures suppliers Partnership with MCI Similar communications standards High quality regional network nationwide through heavy capital investment Strongest national telecommunications network
Sales & New emphasis on marketing (still Use Bell logo Strong reputation for marketing weak) excellence Marketing Focus on 1K coprorate customers This document is a partial Strong preview. name and Full brand document recognition download can be found on Flevy: Already sells to most major Sales and distribution centers close http://flevy.com/browse/document/value-chain-analysis-262 corporations Long-term relationships with clients to customers Experience sales force Recruits computer executives
Source: Hax and Majluf, 1991.
13 Value Chain – top tips, data sources, case examples, and related analytics
Potential Insight Analytic helps determine: –Key shifts within an industry (backwards or forwards along the Value Chain) –Why competitors may be targeting specific sections of the Value Chain –Whether the Industry Value Chain is changing
Hints and Pitfalls Do: – Quantify the cost at each stage in an industry or company value chain – Understand the dynamics of a value chain—what’s changed?why? – Read Porter’s book on the roles of the value chain analytic in assessing competitive position
Data Sources Questioning industry experts Piecing together the activities via secondary data sources: – Annual reports – Broker reports – Industry reports – Database searches
Related Analytics Developing an industry and company value chain is typically a critical step in defining your business: This document is a partial preview.– One Fullof several document of analytical download steps can in be defining found ona business Flevy: http://flevy.com/browse/document/value-chain-analysis-262 Used to map out a customer’s experience of your company
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