STRATEGIC MANAGEMENT

Session 9
Value Chain Analysis

Exec-MBA II SEM V 2019-22

September 12, 2021

“He will win who knows how to handle both superior and inferior forces”
- Sun Tzu in “The Art of War”
Course Structure: a quick recap of last session
• Session 8: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analysing strategic capabilities, resources, core competence
o VRIO framework study
o Introduction to Value Chains
Why are some firms more
profitable than others?
Why are some firms more profitable than others?

Two possible explanations

• It’s something to do with the industry in which they operate
o External analysis – Porter’s five forces

• It’s something to do with the firm itself

o Internal analysis, the RBV*

*While there are several variants associated with RBV, we will use the framework
advocated by Jay Barney.
Resource Based View: some definitions

• Resources are defined as “… all assets, capabilities,

competencies, organizational processes, firm attributes,
information, knowledge, and so forth, that are controlled by a
firm that enable the firm to conceive of and implement
strategies designed to improve its efficiency and effectiveness.”
- Jay Barney
Why are some firms more profitable than others?

Internal Analysis, three sources of competitive advantage

Active Competences/ Dynamic

Capabilities Capabilities

Passive Resources

Static Dynamic

Source: Whittington, R., Johnson, G., Scholes, K., “Exploring Corporate Strategy”
RBV and Core Competence

Competence

Distinctive
competence
Knowledge Resources
Tangible
or Capabilities
Resources
Core
Competence
Resource Based View Framework

• Jay Barneys’ VRIO framework

o Resources are assessed to determine if they are:

✓ [V]aluable

✓ [R]are

✓ [I]nimitable and Non-substitutable

✓ [O]rganizationallyExploitable
Course Structure: Where are we in the course
Strategy Formulation Strategy Execution

‘Scope’ Environmnt Corporate Business MNC Strategy Managing Experiential Innovation

of a firm Analysis Strategy Strategy Strategies Execution Change Learning KM

External Change
Diversification

env Strategy
Mgmnt
Introduction scanning &
Globalisat’n Framework
to Low-cost Structure
strategy Wy&Whr
Experiential Competitive
McKinsey Learning Advantage:
BOS Culture
7S Model exercise
Differen-
tiation Innovation
Internal env Experience &
Setting the analysis
vision, Knowledge
VRIO
mission, Portfolio Niche/ Globalisat’n Ethics and Strategic Evaluation Mgmnt
goals, Planning Focus Wn&Hw Gov’nance Leadership
& Value chain
objectives analysis
Course Structure: Plan for this session
• Session 8: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analyzing strategic capabilities, resources, core competence
o VRIO framework study
o VRIO framework exercise
o Strategy Experiential game
o Insights discussion
• Session 9: Value-Chain Analysis
o Introduction to value-chain analysis
o Porter’s Value-chain and its analysis
o Primary and Secondary activities
o Beyond Meat case study
A quick recap
• Why Strategy or Strategic Management?
• Why Sustainable Competitive Advantage?
• Why some firms are more profitable than others?
• What is VALUE?
• When is VALUE, and by extension a firm’s profitability, high?
• So, what results in high values (or prices) and lower costs?

Ultimately, all price and cost differences among competing

companies result from the numerous activities they perform.
What is Value Chain?

The sequence of activities your company performs

to construct value for the end customer is called
the Value Chain.
What is the value chain?
• Porter’s definition includes all activities to design, produce,
market, deliver, and support the product/service.
• The value chain is concentrating on the activities starting with
raw materials till the conversion into final goods or services.
• Two categories:
• Primary Activities (operations, distribution, sales)
• Support Activities (R&D, Human Resources)
Porter’s Generic Value Chain

What is Value Chain?

Source: Michael Porter, “Competitive Advantage”

Porter’s Generic Value Chain: Sources of
Competitive Advantage
Where in your value chain do you either save costs Actual Price
Average
or add value, relative to competitors? Price
Costs Profit
Infrastructure

HRM
R&D
Procurement

Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales Differentiation
Value
Source: Michael Porter, “Competitive Advantage”
The Value Chain
Porter’s Value Chain: Primary Activities

Source: Michael Porter, “Competitive Advantage”

Primary Activities: Inbound Logistics

Source: Business Line

Primary Activities: Operations

Source: Fortune
Primary Activities:Outbound Logistics

Source: Foxconn
Primary Activities: Marketing & Sales

Source: Kurtkomaromi.com

Source: Time
Primary Activities: Service

Source: YouTube
Porter’s Value Chain: Secondary Activities

What is Value Chain?

Source: Michael Porter, “Competitive Advantage” (1985)

Support Activities: Procurement

Source: commsbusiness.co.uk
Support Activities: Technology Dev

Source: thedrum.com
Support Activities: Human Resource
Management

Source: Pinterest
Support Activities: Firm Infrastructure
• Includes general and planning management, legal, finance,
accounting, public affairs, and quality management

• Ex. A firm’s legal team consisting of lawyers to aid in lawsuits

• Accounting department to keep track of financial figures

The Value Chain Analysis: Why it matters!
• Profits depend on how well firms execute these activities in the
value chain
• The sources of the competitive advantage of a firm can be seen
from its discrete activities and how they interact with one another.
• The value chain is a tool for systematically examining the
activities of a firm and how they interact with one another and
affect each other’s cost and performance.
• Firms that excel in a value chain activity is said to have a
competitive advantage
• Cost Advantage: A firm gains a competitive advantage by
performing these activities better or at lower cost than
competitors.
The Value Chain Analysis: Key Steps

Identify • How far upstream do industry’s value extends

industry • Lay our major value creating activities specific to your industry
value
chain

Compare • Capture every major step in value-creating process

your value • Look at competing value-chain side-by-side highlights differences
chain

• Price drivers are activities that have a high current or potential impact on
Zero-in on differentiation
Price • Can you create superior value for your customers by performing activities in a
drivers distinctive way or by performing activities that competitors don’t perform

Zero-in on • Pay special attention to activities that represent a large or growing

Cost percentage of costs
Drivers • Are there actual or potential differences between your cost structure and
those of your rivals?
The Value Chain: Cost Advantage
• Reducing cost of individual value chain activities

• As typically each of the primary and support activities have a distinct

cost structure which have different underlying cost drivers, Robert Grant,
suggests the following steps for assessing a cost leader’s cost position.

• Disaggregating the firm into the various primary and support activities

• Discerning the relative importance and benchmarking of the various

activities with regard to the total cost of the product or service: This step
facilitates a cost-breakup which enables one to determine which
activities in the firm appear to be undertaken relatively efficiently or
inefficiently vis-à-vis industry-benchmarks / firm leaders.

• Reconfiguring the value chain

Source: Robert Grant
The Value Chain: RBV
• Each of the various primary and support activities of the firm
are assessed on whether they can provide
• Competitive Parity
• Temporary Competitive Advantage
• Sustained Competitive Advantage.

• By considering the underlying resource behind each of these

activities and whether the concerned underlying resource would
satisfy the VRIO conditions.

Source: Jay Barney

The Value Chain: 10 cost drivers of each value
chain activity
• Economies of Scale
• Learning
• Capacity Utilization
• Linkages among activities
• Interrelationships among business units
• Degree of vertical integration
• Timing of market entry
• Firm’s policy of cost or differentiation
• Geographic location
• Institutional Factors (regulation, union activity, taxes, etc.)
The Value Chain: The Bigger Picture
• Reducing cost of individual value chain activities

• Reconfiguring the value chain

 Case:
Beyond Meat
A look inside Beyond Meat
 Intuitively speaking, do you
think the plant based food
industry in which Beyond Meat
is competing in, is an attractive
industry?
Competitors
• Impossible Foods
• MorningStart (Kellogg)
• Plantever (Cargill)
• Planterra (JBS)
• Gardein Protein
• Boca Foods
• LightLife
• Maple Leaf foods
• Pinnable
• Quorn foods
• Sunfed
• Field Roast… and more
Explain whether Beyond Meat
entered an attractive industry.
If not, what can the company
do to make it attractive?
How can Beyond Meat break
even and become profitable
while keeping competitors at
bay?
Explain using value chain
analysis.
Beyond Burger RnD and
innovation capabilities
 Can Beyond Meat disrupt the
meat industry? Does the
company have the potential to
form a strategic group within
the meat industry?
Do you think Beyond Meat is
overvalued?
Porter’s Generic Value Chain: Sources of
Competitive Advantage
Where in your value chain do you either save costs Actual Price
Average
or add value, relative to competitors? Price
Costs Profit
Infrastructure

HRM
R&D
Procurement

Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales Differentiation
Value
Source: Michael Porter, “Competitive Advantage”
Course Structure: What we covered this week
• Session 8: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analyzing strategic capabilities, resources, core competence
o VRIO framework study
o VRIO framework exercise
o Strategy Experiential game
o Insights discussion
• Session 9: Value-Chain Analysis
o Introduction to value-chain analysis
o Porter’s Value-chain and its analysis
o Primary and Secondary activities
o Beyond Meat case study
Course Structure: Plan for the Next Session
• Session 10-11: Corporate Level Strategy
o Introduction to corporate level strategy
o Decisions relating to Product diversity, international diversity, and
globalization
o Corporate policies
o Diversification decisions
o AmazonGo case study

• Session 12: Corporate Level Strategy (contd...)

o Portfolio Planning
o BCG growth-share matrix
o Strategy Experiential game (IDL)