VALUE CHAIN ANALYSIS
A) Discussion of the core elements of a value chain. (8 marks)
B) Explanation of why an understanding of these elements is so important in managing costs and gaining or sustaining competitive advantage. Establish all important linkages in your answer. (12 marks)
The value chain analysis is a useful tool for defining a firm’s core competencies and the activities in which it can pursue a competitive advantage. The core elements of a value chain analysis are the primary and secondary activities and cost. Companies use these primary and support activities as "building blocks" to create a valuable product or service.
The Primary activities relate directly to the ...view middle of the document...
These activities include the advertising, channel selection, product promotion, selling, product pricing and retail management. The activities are performed to make sure that the products are transferred to the targeted customer groups. Marketing mix can be an instrument to take the competitive advantage to the target customers.
Services: Organization offers the services after the products and/or services have been sold. These service activities enhance the product’s value in the form of after sales guarantees, warranties, spare parts management, repair services, installation, updating, trainings, etc.
Secondary activities are cost that are undertaken to aid the individuals and groups engaged in doing the primary activities. They are also the activities that the organization performs to assist the primary activities to gain the competitive advantage. The secondary activities support the primary functions which consist of procurement, Human resources, technological development and infrastructure.
Procurement: This is the purchasing activity of the inputs to transform these into finished products or services. Procurement adds value by the acquisition of appropriate goods or services at the best price, at the right time, and in the desired place with the desired quality and quantity.
Technology development: Technological development relates to managing and processing information, as well as protecting a company's knowledge base. Technology can be used in production to reduce cost, to develop new products, increase customer service facility and to build up a cost effective process. It supports the value chain activities such as research and development, process automation and process design.
Human Resource Management: The key roles of HR are to support the attainment of the overall strategic business plan and the objectives. As a strategic business partner HR designs the work positions by hiring, recognition, reward, appraisal systems, carrier planning, and employee development. They act as an advocate of the employees to motivate them and create a happy working environment. For the organizational changing situation, HR executes the strategic needs of the organization with minimum employee dissatisfaction and resistance to change.
Infrastructure: This includes the planning management, legal framework, financing, accounting, public affairs, quality management, general management, etc. These are required to perform the value added activities efficiently to drive the organization forward to meet the strategic plan and the objectives.
It is important for a company to understand these elements in order to manage cost and gain or sustain competitive advantage. The firm’s margin or profit depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm...