What is Value Chain Analysis Focuses on how

What is Value Chain Analysis? • Focuses on how a business creates customer value by examining contributions of different internal activities to that value • Divides a business into a set of activities within the business – Starts with inputs a firm receives – Finishes with firm’s products or services and after-sales service to customers • Allows for better identification of a firm’s strengths and weaknesses since the business is viewed as a process

SWOT Analysis Based on assumption an effective strategy derives from a sound “fit” between a firm’s internal resources and its external situation Numerous environmental opportunities A major favorable situation in a firm’s environment Major environmental threats A major unfavorable situation in a firm’s environment Substantial internal strengths Critical internal weaknesses A resource advantage relative to competitors and the needs of markets firm serves A limitation or deficiency in one or more resources or competencies relative to competitors

Internal Analysis: Making Meaningful Comparisons 1. Comparison with past performance 2. Stages of industry evolution Perspectives to use 3. Benchmarking – comparison with competitors 4. Comparison with success factors in industry

Sources of Distinctive Competence at Different Stages of Industry Evolution Functional Area Marketing Introduction Growth Maturity Decline Resources/skills to create widespread awareness and find acceptance from customers ; advantageous access to distribution Skills in aggressively promoting products to new markets and holding existing markets; pricing flexibility; skills in differentiating products and holding customer loyalty Cost effective means of efficient access to selected channels and markets; strong customer loyalty or dependence; strong company image Ability to establish brand recognition, find niche, reduce price, solidify strong distribution relations, and develop new channels

(contd. ) Functional Area Production operations Introduction Growth Maturity Decline Ability to expand capacity effectively, limit number of designs, develop standards Ability to add product variants, centralize production, or otherwise lower costs; ability to improve product quality; seasonal subcontracting capacity Ability to improve product and reduce costs; ability to share or reduce capacity; advantageous supplier relationships; subcontracting Ability to prune product line; cost advantage in production, location or distribution; simplified inventory control; subcontracting or long production runs

(contd. ) Functional Area Finance Introduction Growth Maturity Decline Resources to support high net cash overflow and initial losses; ability to use leverage effectively Ability to finance rapid expansion, to have net cash outflows but increasing profits; resources to support product improvements Ability to generate and redistribute increasing net cash inflows; effective cost control systems Ability to reuse or liquidate unneeded equipment; advantage in cost of facilities; control system accuracy; streamlined management control

(contd. ) Functional Area Personnel Introduction Growth Maturity Decline Flexibility in staffing and training new management; existence of employees with key skills in new products or markets Existence of an ability to add skilled personnel; motivated and loyal workforce Ability to cost effectively, reduce workforce, increase efficiency Capacity to reduce and reallocate personnel

(contd. ) Functional Area Introduction Growth Maturity Decline Engineering and R&D Ability to make engineering changes, have technical bugs in product and process resolved Skill in quality and new feature development; ability to start developing successor product Ability to reduce costs, develop variants, differentiate products Ability to support other grown areas or to apply product to unique customer needs Key functional area and strategy focus Engineering: market penetration Sales: consumer loyalty; market share Production efficiency: successor products Finance: maximum investment recovery