Learning Objectives LO1 Value chain LO2 Competitive advantage LO3 Value chain model. LO4 RBV. 2

Value-Chain Analysis Value-chain analysis a strategic analysis of an organization that uses value creating activities. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue Creating value for buyers that exceeds the costs of production is a key concept used in analyzing a firm’s competitive position. Analyzes the cross-functional flow of products or services within an organization that add value to customers 3

The Value Chain System a means of broadening the effective scope of the firm’s chain.- joint ventures, coalition, licences, supply agreements

Competitive Advantage A set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition. The edge gained by an organization when it can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value through differentiation. Competitive advantage results from matching core competencies to the opportunities.

Value-Chain Analysis Primary activities contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. inbound logistics, operations, outbound logistics, marketing and sales, and service

Value-Chain Analysis Support activities activities of the value chain that either add value by themselves or add value through important relationships with both primary activities and other support activities procurement, technology development, human resource management, and general administration.

Porter’s Value Chain Model

QUESTION In assessing its primary activities, an airline would examine:  A. Employee training programs B. Baggage handling C. Criteria for lease versus purchase decisions D. The effectiveness of its lobbying activities B – baggage handling

Primary Activity: Inbound Logistics Associated with receiving, storing and distributing inputs to the product Location of distribution facilities Warehouse layout and designs Associated with receiving, storing and distributing inputs to the product Location of distribution facilities Material and inventory control systems Systems to reduce time to send “returns” to suppliers Warehouse layout and designs 10

Primary Activity: Operations Associated with transforming inputs into the final product form Efficient plant operations Incorporation of appropriate process technology Efficient plant layout and workflow design Associated with transforming inputs into the final product form Efficient plant operations Incorporation of appropriate process technology Quality production control systems Efficient plant layout and workflow design 11

Primary Activity: Outbound Logistics Associated with collecting, storing, and distributing the product or service to buyers Effective shipping processes to provide quick delivery and minimize damages Shipping of goods in large lot sizes to minimize transportation costs. Associated with collecting, storing, and distributing the product or service to buyers Effective shipping processes to provide quick delivery and minimize damages Efficient finished goods warehousing processes Shipping of goods in large lot sizes to minimize transportation costs. Quality material handling equipment 12

Primary Activity: Marketing and Sales Associated with purchases of products and services by end users and the inducements used to get them to make purchases Innovative approaches to promotion and advertising Proper identification of customer segments and needs Associated with purchases of products and services by end users and the inducements used to get them to make purchases Highly motivated and competent sales force Innovative approaches to promotion and advertising Selection of most appropriate distribution channels Proper identification of customer segments and needs Effective pricing strategies 13

Primary Activity: Service Associated with providing service to enhance or maintain the value of the product Quick response to customer needs and emergencies Quality of service personnel and ongoing training Associated with providing service to enhance or maintain the value of the product Effective use of procedures to solicit customer feedback and to act on information Quick response to customer needs and emergencies Ability to furnish replacement parts Effective management of parts and equipment inventory Quality of service personnel and ongoing training Warranty and guarantee policies 14

Support Activity: Procurement Function of purchasing inputs used in the firm’s value chain Procurement of raw material inputs Development of collaborative “win-win” relationships with suppliers Analysis and selection of alternate sources of inputs to minimize dependence on one supplier Function of purchasing inputs used in the firm’s value chain Procurement of raw material inputs Development of collaborative “win-win” relationships with suppliers Effective procedures to purchase advertising and media services Analysis and selection of alternate sources of inputs to minimize dependence on one supplier Ability to make proper lease versus buy decisions 15

Support Activity: Human Resource Management Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel Effective recruiting, development, and retention mechanisms for employees Quality relations with trade unions Reward and incentive programs to motivate all employees Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel Effective recruiting, development, and retention mechanisms for employees Quality relations with trade unions Quality work environment to maximize overall employee performance and minimize absenteeism Reward and incentive programs to motivate all employees 16

Support Activity: Technology Development Related to a wide range of activities and those embodied in processes and equipment and the product itself Effective R&D activities for process and product initiatives Positive collaborative relationships between R&D and other departments Excellent professional qualifications of personnel Related to a wide range of activities and those embodied in processes and equipment and the product itself Effective R&D activities for process and product initiatives Positive collaborative relationships between R&D and other departments State-of-the art facilities and equipment Culture to enhance creativity and innovation Excellent professional qualifications of personnel Ability to meet critical deadlines 17

Support Activity: General Administration/ Infrastructure Typically supports the entire value chain and not individual activities Effective planning systems Excellent relationships with diverse stakeholder groups Effective information technology to integrate value-creating activities Typically supports the entire value chain and not individual activities Effective planning systems Ability of top management to anticipate and act on key environmental trends and events Ability to obtain low-cost funds for capital expenditures and working capital Excellent relationships with diverse stakeholder groups Ability to coordinate and integrate activities across the value chain Highly visible to inculcate organizational culture, reputation, and values 18

Activity Types Direct- Create value Indirect- support Quality assurance- inspecting, testing  Direct: These are the activities which deal with the creation of the value of the buyer. For example sales force operation, advertising, etc.  Indirect: These are activities which make it possible to perform direct activities. This is an on-going process and It includes activities such as scheduling, sales force administration, etc.  Quality InsuranceAssurance: These are activities that are necessary for ensuring the quality of other activities. They include activities such as inspecting, testing, etc.

Interrelationships among Value-Chain Activities Two levels Interrelationships among activities within the firm Relationships among activities within the firm and with other organization (e.g., customers and suppliers) within and across Organizations

Margin Implies that organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. Organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain.

Strategic Options Primary Strategies 1. Differentiation 2. Least Cost Supporting Strategies 1. Innovation 2. Growth 3. Alliance Niche market is an option Blue ocean strategy

Value Chains in Service Industries

Resource-Based View of the Firm perspective that firms’ competitive advantages are due to their endowment of strategic resources that are; valuable rare costly to imitate, and costly to substitute

Criteria for Competitive Advantage and Strategic Implications

Resource-Based View of the Firm Two perspectives The internal analysis of phenomena within a company An external analysis of the industry and its competitive environment

Types of Resources Tangible resources organizational assets that are relatively easy to identify, including physical assets, financial resources, organizational resources, and technological resources. Tangible Resources Financial • Firm’s cash account and cash equivalents. • Firm’s capacity to raise equity. • Firm’s borrowing capacity. Physical • Modern plant and facilities. • Favorable manufacturing locations. • State-of-the-art machinery and equipment. Technological • Trade secrets. • Innovative production processes. • Patents, copyrights, trademarks. Organizational • Effective strategic planning processes. • Excellent evaluation and control systems. 27

Types of Resources Intangible resources organizational assets that are difficult to identify and account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources. Intangible Resources Human • Experience and capabilities of employees. • Trust. • Managerial skills. • Firm-specific practices and procedures. Innovation and creativity • Technical and scientific skills. • Innovation capacities. Reputation • Brand name. • Reputation with customers for quality and reliability. • Reputation with suppliers for fairness, non–zero-sum relationships. 28

Types of Resources Organizational capabilities The competencies and skills that a firm employs to transform inputs into outputs. Organizational Capabilities • Firm competencies or skills the firm employs to transfer inputs to outputs. • Capacity to combine tangible and intangible resources, using organizational processes to attain desired end. EXAMPLES: • Outstanding customer service. • Excellent product development capabilities. • Innovativeness of products and services. • Ability to hire, motivate, and retain human capital. 29

QUESTION Gillette combines several technologies to attain unparalleled success in the wet shaving industry. This is an example of their  A. Tangible resources B. Intangible resources C. Organizational capabilities D. Strong primary activities C – organizational capabilities