Value Chain Analysis Chapter 5

Learning Objectives Differences between internal and external analysis. SWOT analysis – benefits & drawbacks. How value is created through internal sets of activities. How the value chain perspective provides insight on sources of competitive advantage. How to perform a value chain analysis.

Internal versus External Analysis Industry analysis does not explain most of the variations in performance Industry Average

Internal Analysis – 2 Types SWOT what a static Analysis company is snapshot Value Chain what a dynamic Analysis company does view

SWOT Analysis Very common strategic planning exercise Easy to understand and use Helps to identify alignment or misalignment Strengths with emerging Opportunities Weaknesses with emerging Threats Suggestive of overall direction Enables competitive comparison on strength dimensions

SWOT Analysis – Drawbacks Results in "laundry list" of items Items descriptions can over-simplify Definitions can vary in present / over time Size can be strength, also an inhibitor Strong CEO can be great, also a risk New technology can threaten, also present platform for growth Unclear if strengths are relevant to KSFs Static view – at a point in time

Value Chain "Sets of activities combined to form a successful business system." Products and services are outcomes of activities performed by businesses. Business is the organization of activities! Activities Tested Practiced Learned Value Creating Patterns of Behavior

Competitors: Different Activity Sets Streaming Video Computers Steel

Value Chain

Starbucks Value Chain Profits Support Activities Primary Activities Debt free, Strong margins, Cash Benefits for all, Community involvement, Living wage Consumer research, Brewing technology, New beverages, Music Socially responsible purchasing, Post-recyclable cup No commodity exchange, Direct to farm to buy beans Hand-crafted order, New foods, Credit cards Stylish café, Baristas, 100% company owned, Location close, License to sell coffee to stores Store presence, Social community, Innovation, Atmosphere Baristas know customers, Personalization Profits Financial, IS, Legal Human Resources Support Activities Research & Dvmt Procurement Inputs Opers Distrib Mrktg Service Primary Activities

Internal Value Chain Dimensions Activities in every cell Both primary and support activities Identify specific activities, not general categories "Brewing technology" versus "R&D" Identify how coordination across value chain cells supports and amplifies activities Identify how connections with suppliers and customers create value

External Value Chain Dimensions Customers Firm Suppliers What unique suppliers are you working with? What unique relationship are you creating? What unique internal activities make you distinctive? What unique relationship are you creating? What unique customers are you working with?

Competitive Advantage Entire set of value chain activities Learning new best practices Support activities consistent with strategy Coordination across the company Opportunity recognition activities Connections upstream and downstream These are Intangible Unobservable by competition

Conducting Value Chain Analysis Identify value chain activities Different from competitors' activities Potential to create strategic differences Evaluate value-creation characteristics & costs Executional drivers Structural drivers Identify improvements to capture greater value

Value Chain Activity Drivers