1. Value Chain Analysis
Chapter 5

2. 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.

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

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

5. 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

6. 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

7. 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

8. Competitors: Different Activity Sets
Streaming Video
Computers
Steel

9. Value Chain

10. 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

11. 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

12. 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?

13. 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

14. 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

15. Value Chain Activity Drivers