Value Chain Analysis

What can it do for you and your company?

Copyright

laney & associates Inc.November 2002

Table of Contents
   

Value Chain Analysis Competitive Intelligence what is it? Value of Competitive Intelligence Different tools and techniques of Competitive Intelligence

   

Value Chain Analysis Value Chain Components Developing your value chain How a firm can use value chain analysis

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Value Chain Analysis

Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.

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Value Chain Analysis

Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.

It can:  Increase your competitiveness

laney & associates Inc

Value Chain Analysis

Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.

It can:
 Increase your competitiveness

 Reduce your costs

laney & associates Inc

Value Chain Analysis

Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.

It can:
 Increase your competitiveness  Reduce your costs

 Improve your market share

laney & associates Inc

Value Chain Analysis

Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer. It can:  Increase your competitiveness  Reduce your costs  Improve your market share

Bottom Line - improve overall profitability!

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Competitive Intelligence what is it?

The best way to differentiate your company from the competition, the best way to put distance between you and the crowd is to do an outstanding job with information How you gather, manage and use information will determine whether you win or lose Bill Gates, 1999

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Competitive Intelligence what is it?

Competitive Intelligence is:
 Information about opportunities and threats

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Competitive Intelligence what is it?

Competitive Intelligence is:
 Information about opportunities and threats

 Leveraging information/knowledge to improve competitive position of companies and local industries

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Competitive Intelligence what is it?

Competitive Intelligence is:
 Information about opportunities and threats  Leveraging information/knowledge to improve competitive position of companies and local industries

 Forecasting of changes about the economic environment

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Competitive Intelligence what is it?

Competitive Intelligence is:
 Information about opportunities and threats  Information which makes companies and local industries more competitive  Forecasting of changes about the economic environment

 Actionable recommendations from analysis of the environment

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Competitive Intelligence what is it? It is the total knowledge a company or a local industry possesses about the environment in which it competes gathered in an ethical manner

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Market Intelligence vs Competitive Intelligence Market Intelligence:

 Tells a company about the marketplace

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Market Intelligence vs Competitive Intelligence Market Intelligence:

 Tells a company about its environment

Supply and demand for its products

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Market Intelligence vs Competitive Intelligence Market Intelligence:

 Tells a company about its environment Supply and demand for its products

Drivers that influence demand

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Market Intelligence vs Competitive Intelligence Market Intelligence:

 Tells a company about its environment Supply and demand for its products Drivers that influence demand

ho the buyers and suppliers are

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Market Intelligence vs Competitive Intelligence Market Intelligence:

 Tells a company about its environment Supply and demand for its products Drivers that influence demand Who the buyers and suppliers are

Overall economic outlook for the product

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Market Intelligence vs Competitive Intelligence

Market Intelligence:  Tells a company about its environment Supply and demand for its products Drivers that influence demand Who the buyers and suppliers are Overall economic outlook for the product

Competitive Intelligence:  Helps a company understand what its competitive position is in a specific market weaknesses and strengths

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Business Pyramid

Business Intelligence

Broad environmental scanning, market research and analysis

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Business Pyramid

Competitive Intelligence

Assimilates all Competitive Intelligence Broad environmental scanning, market research and analysis

Business Intelligence

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Business Pyramid

Competitor Analysis

Individual Competitor Profile

Competitive Intelligence

Assimilates all Competitive Intelligence Broad environmental scanning, market research and analysis

Business Intelligence

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Value of Competitive Intelligence

A study by the University of North Texas found that CI Companies outperformed other companies by all three key financial measures 1

 Sales  Market share  Earnings per share

1Steven

Miller, Editor Competitive Intelligence Magazine 1995 study

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Different tools and techniques Five basic tools :  Strategic Analysis

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Different tools and techniques Five basic tools :

 Strategic Analysis

 Product-oriented Analysis

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Different tools and techniques Five basic tools :

 Strategic Analysis  Product-oriented Analysis

 Behavioural Analysis

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Different tools and techniques Five basic tools :

 Strategic Analysis  Product-oriented Analysis  Behavioral Analysis

 Financial Analysis

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Different tools and techniques Five basic tools :

    Strategic Analysis Product-oriented Analysis Behavioral Analysis Financial Analysis

 Customer Oriented Analysis

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Different tools and techniques Five basic tools :

    Strategic Analysis Product-oriented Analysis Behavioral Analysis Financial Analysis

 Customer Oriented Analysis

Value Chain Analysis

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Value Chain Analysis

 It can be developed for individual competitors or an entire industry

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Value Chain Analysis

 It can be developed for individual competitors or an entire industry

 It can be for the product as it relates to end customers or customers within a chain

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Value Chain Analysis

 Cost Factors  Why costs differ?  Why swings in profitability?  Efficiencies and inefficiencies  Influence  Competitors costs  Nature and source of advantage

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The Three Tiers

There are three tiers of Value Chain Analysis

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The Three Tiers

There are three tiers of Value Chain Analysis

 Internal Cost Analysis

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The Three Tiers

There are three tiers of Value Chain Analysis

Internal Cost Analysis  A firm or a sector needs to understand its own value chain in order to compare to its competitors

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The Three Tiers

There are three tiers of Value Chain Analysis  Internal Cost Analysis

 Internal Differentiation Analysis

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The Three Tiers

There are three tiers of Value Chain Analysis  Internal Cost Analysis

Internal Differentiation Analysis  A firm or a sector then needs to identify the processes that distinguish its products or services from that of its competitors

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The Three Tiers

There are three tiers of Value Chain Analysis  Internal Cost Analysis  Internal Differentiation Analysis

 Vertical Linkage Analysis

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Vertical Linkage Analysis

gaining and sustaining a competitive advantage requires that a firm understand the entire value delivery system, not just the portion of the value chain in which it participates. Suppliers and customers and suppliers suppliers and customers customers have profit margins that are important to identify in understanding a firms cost/differentiation positioning, because the enduse customers ultimately pay for all the profit margins along the entire value chain. Shank and Govindarajan (1993)

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Value Chain Components

Primary Activities
End-Use Consumer Pays for Profit Margins Throughout the Value Chain
Supplier Value Chain R&D

Support Activities

Service Firm Z Value Chain Design

Service Production Distribution Value Chain Marketing Buyer Value Chain

Service

Distribution

Service

Disposal Value Chain

Service

Value Chain Analysis for Assessing Competitive Advantage CMA Handbook

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Developing Value Chains

Value Chain Analysis requires expertise in more than one area

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Developing Value Chains

Value Chain Analysis requires expertise in more than one area

Competitive intelligence is to be gathered ethically

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Developing Value Chains

Value Chain Analysis requires expertise in more than one area Competitive intelligence is to be gathered ethically

And then developing a systematic process for capturing, analyzing it and disseminating the intelligence and developing the appropriate strategies to enhance your competitiveness.

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How a firm can use Value Chain Analysis Three useful strategic frameworks have been identified for value chain analysis:

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How a firm can use Value Chain Analysis

Three useful strategic frameworks have been identified for value chain analysis:

 Industry Structure Analysis

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How a firm can use Value Chain Analysis

Three useful strategic frameworks have been identified for value chain analysis:  Industry Structure Analysis

 Core Competencies

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How a firm can use Value Chain Analysis

Three useful strategic frameworks have been identified for value chain analysis:\  Industry Structure Analysis  Core Competencies

 Segmentation Analysis

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Michael Porters Five Forces Model

Michael Porter (1980, 1985) developed the five forces model. Five factors influence the profitability of a firm  Bargaining power of suppliers  Bargaining power of buyers  Threat of substitute products or services  Threat of new entrants  Intensity of Competition

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Bargaining Power of Suppliers/Buyers

For Suppliers this includes:  Input differentiation  Supplier concentration  Volume  Cost relative to total dollars

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Bargaining Power of Suppliers/Buyers

For Buyers this includes:  Buyer concentration  Volume  Integration

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Entry Barriers
 Economies of scale  Product Differences  Brand Identity  Access to distribution  Cost advantages  Government policy

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Vertical Alliances
Value Chain analysis can show opportunities for participants within the chain that can have an immediate effect on your costs

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Real Life Examples

 SWATCH  IKEA  FedEx  AB originated Beef to L.A. retail stores  Agricultural chemicals sold in the US Midwest

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Bibliography
 CMA Value Chain Analysis for Assessing Competitive Advantage  Canadian Institute for Competitive Intelligence  SCIP Society of Competitive Intelligence Professionals
email address scipedm@telus.net

 Competitive Intelligence Magazine

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