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

3. 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

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

5. 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.

6. 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

7. 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.

8. Porter’s Value Chain Model

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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.

20. 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

21. 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.

22. 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

23. Value Chains in Service Industries

24. 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

25. Criteria for Competitive Advantage and Strategic Implications

26. 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

27. 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

28. 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

29. 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

30. 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