COM333 – IKBS3 Value Chain Analysis

Porter’s five forces model of a competitive structure Bargaining Power of Suppliers Threat of new Entrance Bargaining Power of buyer Rivalry among existing competitors Threat of substitute producs or services

Value chain analysis –“Every firm is a collection of activities that are performed to design, produce, market, deliver and support its product. All of these activities can be represented using a value chain” Michael Porter (1984)

A decomposition model with major elements:- –Separates the primary and secondary activities of the business –Concentrates on how the business adds value to satisfy customer requirements –Follows business unit approach –Is independent of organisational structures

VCA helps to gain an understanding of the internal nature of the organisation Organisation can use this model to allocate the resources efficiently (how well the resources are used) and effectively (how well the resources are allocated) Main focus of VCA is on the link between the activities in order to highlight areas of strategic strength or weakness and competitive opportunity threat.

Value chain enables further analysis of some or all of the following –The information that flow through and how critical it is to the functioning of the industry –The information that is or could be exchanged with customers and suppliers to improve performance, or share benefits –How effectively information flows through the primary processes and is used. To optimise performance To link activities together To enable support activities to contribute to the value adding processes

VCA can be used to analyse –How effectively the information flows through the primary processes abd is used by them Within each activity to optimise performance To link the activities together and avoid unnecessary costs and missed opportunities To enable support activities to contribute to the value-adding process, not hinder them

IS and value chain –Business performance is dependent on the process that gather and disseminate information –The over all performance of the industry is primarily depends on how well the demand and supply information are matched at all stages of the industry –It is not always the least efficient that suffer, often those with poorest information

Value System –All businesses form one part of industry’s value system –By modelling value systems for the entire industry an organisation is able to assess how significant IS is to the linkages in the system Their Suppliers Our Suppliers Us Them Our Distributors Their Distributors

Entering a new stage of evolution in terms of how IS/IT affecting the organisation –In the past organisations achieved improved performance by integrating its activities and processes Supplier and customer interactions through IS –ERP, CRM New stage enabling the integration of value chain in an entire industry as an end-to-end applications involving customers, channels and suppliers –Industry resource planning? –Linking every one’s ERP

Customer resource life cycle analysis –Analyse the relationship with customers –By examining the customer relationship via a model, companies can determine When opportunities and threats exists for improved or new information exchange Which specific applications should be developed IS/IT helps gathering the information from customer –Through online –Much easier, more economic Many firms use the e-commerce to help customers to establish and specify their needs by providing more extensive information

Another technique for generating information systems ideas during value chain analysis is “strategic option generator” –Described by Rackoff explored by Wiseman Considers the impact of IS/IT in relation to –Suppliers – any one supplying essential resources –Customers – consumers and direct customers (distributors) –Competitors – obvious competitors who sell similar products or services, actual or potential new entrants into market and threats from substitute products

Suppliers – can we use IS/IT to –Gain leverage over our suppliers (improving our bargaining power, or reducing theirs)? –Reduce buying costs? –Reduce the suppliers’ costs? –Be a better customer and obtain better service? –Identify alternative sources of supply? –Improve the quality of products and services purchased?

Customers – can we use IS/IT to: –Reduce customer costs and/or increase their revenue? –Increase our customers switching costs? –Increase our customers knowledge of our product and services? –Improve the support/service to customers and their needs? –Identify new potential customers?

Competitors – can we use IS/IT to: –Raise the entry cost of potential competitors? –Differentiate products/services? –Reduce our costs/Increase their costs? –Alter the channel of distribution? –Identify/Establish new market place? –Form joint ventures to enter new market?

Internet and Value Chain SUPPORT ACTIVITIES –Infrastructure Web-based, distributed financial and ERP systems. On-line investor relations (for example, information dissemination, broadcast conference calls). –Human resource management Self-service personnel and benefits administration. Web-based training. Internet-based sharing and dissemination of company information. Electronic time and expense reporting. –Technology development Collaborative product design across locations and among multiple value-system participants. Knowledge directories accessible from all parts of the organisation. Real-time access by R&D to on-line sales and service information. –Procurement Internet-enabled demand planning; real-time available-to-promise/capable-to-promise and fulfilment. Other linkage of purchase, inventory, and forecasting systems with suppliers. Automated “requisition to pay”. Direct and indirect procurement via marketplaces, exchanges, auctions, and buyer- seller matching

PRIMARY ACTIVITIES –Inbound logistics Real-time integrated scheduling, shipping, warehouse management, demand management and planning, and advanced planning and scheduling across the company and its suppliers. Dissemination throughout the company of real-time inbound and in-progress inventory data. –Operations Integrated information exchange, scheduling, and decision-making in in-house plants, contract assemblers, and components suppliers. Real-time available-to-promise and capable-to-promise information available to the sales force and channels. –Outbound logistics Real-time transaction of orders whether initiated by the end consumer, a sales person, or a channel partner. Automated customer-specific agreements and contract terms. Customer and channel access to product development and delivery status. Collaborative integration with customer forecasting systems. Integrated channel management including information exchange, warranty claims, and contract management (versioning, process control). –Marketing and sales Online sales channels including websites and marketplaces. Real-time inside and outside access to customer information, product catalogues, dynamic pricing, inventory availability, online submission of quotes, and order entry. Online product configurators Customer-tailored marketing via customer profiling. Push advertising. tailored online access. Real-time customer feedback through web surveys, opt-in/opt-out marketing, and promotion response tracking. –After-sales service Online support of customer service representatives through response management, billing integration, co-browse, chat, “call me now”, voice-over IP, and other uses of video streaming. Customer service via websites and intelligent service request processing including updates to billing and shipping profiles. Real-time field service access to customer account review, schematic review, parts availability and ordering, work-order update, and service parts management.