Professional Documents
Culture Documents
Value Chain
Value Chain
Value Chain
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Key Corporate Strategy Questions
What key industry factors deliver
the objectives of the organisation?
How do resources add value to the
organisation?
How can value added be improved?
What are the main ways resources
deliver competitive advantage?
How can competitive advantage be
enhanced?
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Key Learning Outcomes
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CORPORATE STRATEGY Third edition
Richard Lynch
When you have worked through this chapter, you will be able to:
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Analyse the role of resources
Options
Environment
Purpose Options
Choice Implement
Resources
Options
This session
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Analysing resources – 2 routes
Industry key
factors for
success
Value
chain
Value
Value added:
added:
Route 1 How?
How? Where?
Where? Value
Hierarchy
Value added system
of resources
Value added can contribute to
SCA and vice versa
Individual
Individual
organisation’s
organisation’s
Route 2 The
resources:
resources:
SCA - Concept Sustainable seven
make
make or or buy?
buy? Sustainable
Of economic Competitive main
Competitive concepts
rent
Advantage
Advantage of SCA
(SCA)
(SCA)
Figure 6.1
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Prescriptive v Emergent Approach
Prescriptive Approach:
Use resources efficiently and focus on
resource strength.
E.g. GSK merger – lead to Economic gains of
US$750m p.a.
Emergent Approach:
Question certainties of prescriptive
approach – E.g. the human resource
impact of GSK merger, could job cuts cause
bad feeling? Is this a hindrance to the
implementation of the strategic change?
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Prescriptive v Emergent Approach
Emergent Approach:
Question certainties of prescriptive approach
– E.g. How valuable are patents as part of a
SCA in the fast changing drug market?
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Key Factors for Success – Academic support
Ohmae, K (1983)
Three “Cs”: Customers, Competitors & Corporation.
Porter, M E (1985)
There are factors that determine the relative
competitive position of a firm within an industry,
such as the firm’s strategy
Kay, J (1993)
It is important to concentrate resources on the
specific areas of the business which are most likely to
be successful
All agree that identifying these key factors is
not an easy task.
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Key factors for success in an industry – 2
Skills
Competitive advantage
Competitive resources of an organisation in the
industry
Special technologies
Customer contacts.
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“The 3 C’s”
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Key Factors for Success
Customers: Wants? Segments? Strategy directed
to segments?
Look at
1. Price: high/medium/economy pricing? Airline tickets
2. Service: do customers want service? Aldi v M&S
3. Product or service reliability: how important is
reliability? Heart pacemaker v pharmaceuticals
4. Quality: perceived or actual quality? Organic veg.
5. Technical specifications: specialist financial bonds
6. Branding: how important is it? Coca-Cola v Pepsi
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Key Factors for Success
1. Identification - difficult
2. Causality of relationships –
identified but can’t identify
relationship between factors
3. Dangers of generalising – to find
one company’s SCA, we need more
than industry wide KFS
4. Disregard of emergent
perspective – change may lead to
SCA
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Analysing the resources
of an individual organisation
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To Make or Buy?
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To Make or Buy? Reappraise regularly
Benefits
1. Outside supplier can access Economies
of Scale
2. Outside supplier must be competitive,
innovative and efficient
Costs
1. May compromise production flows
2. Intellectual property rights and SCA may
be threatened
3. Extra costs which could be avoided
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Value added
Consider 3 main costs
1. Labour – see a/c’s
2. Materials – see a/c’s
3. Capital – must look at:
Value of land and machinery,
stocks and WIPs
Replacement costs
Costs of capital
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Value added
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Value added by a pharmaceutical
company such as Glaxo plc
Inputs
Inputs to
to Organisation’s
Organisation’s Outputs
Outputs
organisation
organisation resources
resources
Raw materials • Invents and Range of drugs
delivered to the patents new drugs sent to distributors
factory gate, e.g. • Manufactures its for onward
basic chemicals, products and packs distribution
electricity, water, them. to customers
steel piping, plastic • Markets them to
packaging, doctors and health
advertising agency, authorities
accountancy audit
Organisation adds
Figure 6.3 its value here
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Value added
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Resource analysis and adding value – 3
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Value Chain
Value according to Porter is that which is left
after all the costs involved in undertaking to
develop and market a product/service are
deducted from the revenue it generates
He also states that competitive advantage
cannot be understood by looking at a
company as a whole.
It stems from the many discrete activities
that a firm performs in designing, producing,
marketing, delivering and supporting its
product.
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The Value Chain is used for
1. Identification & diagnoses of value
creating activities and the integration
of these activities
2. Identification of cost drivers which
contribute to differentiation or cost
leadership.
3. By knowing the value chain of suppliers
and buyers it becomes possible to
outsource to cost leaders
4. Identification of competitive
advantage potentials which will
contribute to sustainability
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Value Chain – where does value added
come from?
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Value Chain
Primary Activities
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Value Chain - Five generic categories
of primary activities
2. Warehousing,
3. Inventory control,
4. Vehicle scheduling,
5. Returns to suppliers
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Value Chain - Five generic categories
of primary activities
2. Operations:
Transforming inputs into the final
product form, such as:
1. Machining,
2. Packaging,
3. Assembly,
4. Maintenance, etc
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Value Chain - Five generic categories
of primary activities
3. Outbound Logistics:
1. Storing,
2. Distribution and
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Value Chain - Five generic categories
of primary activities
2. Sales promotion,
3. Quoting,
4. Channel selection,
5. Pricing etc
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Value Chain - Five generic categories
of primary activities
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Value Chain – Four Support Activities
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Value Chain – Four Support Activities
2. Technology Development: All technological
developments in a firm such as technologies
used in
1. administration (MIS)
2. transportation
3. in the product or process.
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Value Chain – Four Support Activities
2. Training,
3. Compensation.
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Value Chain – Four Support Activities
2. Planning finance,
3. Accounting,
4. Legal,
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Value System - Porter
Value system. The wider routes in
an industry that add value to
incoming supplies and outgoing
distributors and customers.
It links the industry value chain to
that of other industries.
Real competitive advantage can
be developed by using the best
suppliers and distributors.
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Competitive advantage through linkages between the
value chain and value system
Company
Figure 6.6
Low-
Own
Own company
company
cost supply
supply
source source
source A
A
Low- Own
Own company
company
cost supply
supply Strong
Outside COMPETITOR
COMPETITOR
Outside Distributor
Distributor
VALUE
VALUE
supplier
supplier C
C CHAIN D
D
CHAIN
Three
High- Outside
Outside weaker Distributor
Distributor
quality supplier
supplier D
D distributors E
E
products
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Analysis of value chain and system
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Comments on value chains
and the value system
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Resource-based view
of strategy development
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Identifying the resources that deliver SCA
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Improving competitive advantage
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Case web links for chapter 6
Case 6.1 Resource strategy at GSK: negotiating a merger and making it work.
GlaxoSmithKline
(http://www.gsk.com/index.htm)
Case 6.2 How three European companies attempt to utilise their resources
GlaxoSmithKline
(http://www.gsk.com/index.htm)
Nederlandse Spoorwegen
http://www.ns.nl/domestic/index.cgi
Bouygues Group
http://www.bouygues.fr/english/index.html
Case 6.3 Xbox – the strategic battle for the home entertainment market has just begun
Xbox Official web site
http://www.xbox.com
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Related web links for chapter 6
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Further Reading
Ohmae, K (1983), The Mind of the Strategist,
Penguin, Harmondsworth, chapter 3.
Porter, M E (1985), Competitive Advantage, The New
Press, NY, chapter 7.
Kay, J (1993), Foundations of Corporate Success,
Oxford University Press, Oxford, Chapter 5 to 8.
Banerjee, Parthasarathi, (2003), “Resources, capability
and coordination: strategic management of information
in Indian information sector firms.” International Journal
of Information Management; Aug2003, Vol. 23 Issue 4,
p303,
Lieberman, Marvin B “Assessing the Resource Base of
Japanese and U.S. Auto Producers: A Stochastic Frontier
Production Function Approach.” Management Science;
Jul2005, Vol. 51 Issue 7, p1060-1075 49