The impact
of value chain analysis on management thinking has been profound and the model
continues to be applied more than 15 years after its first formulation.
Presumably it has been found useful by many. Principally these uses have been
to provide:
1. A way of analyzing the firm in terms of the
processes it uses to serve its customer. By looking cross-functionally
it can spot places where departmental processes, friction and self-interest
reduce the quality of the service to the customer or increase costs.
2. A way to analyse rivals. Recognizing
that a rival in your industry (or incumbents of an industry you wish to enter)
have a particular value chain ensures that you can take their best ideas but
also improve on activities where they are incurring excessive costs.
3. A common set of terminology for management
to use in discussing operations.
1.
A basis for other
management techniques. These are specialist techniques designed to
improve the firm’s operations. They include:
q Benchmarking;
q Business
process re-engineering;
q Activity-based
management;
q Information
system strategy;
q Analysis
of transactions costs and outsourcing decisions.
These
techniques are discussed elsewhere in this text or in other subjects at
Strategic Level.
5. A
way of identifying ways of generating superior competitive performance.
The value chain is Porter’s solution to the task of finding ways to achieve
cost leadership or differentiation. Even if management do not want to go to
these extremes, the value chain is a useful place to look for ideas on how to
reduce costs and/or improve customer satisfaction. We can illustrate this by
some examples of how Dell seeks to gain competitive advantages;
q
Inbound logistics. JIT
deliveries by component suppliers, decision not to take delivery of bulky items
like monitors and speakers but have them delivered direct to customers via
standard courier, provision of sales forecasts to non-JIT suppliers.
q
Operations. JIT
manufacturing process, testing, loading software.
q
Outbound
logistics.
Direct delivery by courier to final customer, suppliers of sub-assemblies
supply direct to customer.
q
Marketing and
sales.
Telesales and website operations, provision of customer advice on specification
and price, more up-to-date product specification due to no stocks everything
made to order: development of relationship with end-customer.
q
Service. No
specific mention- which is interesting because it is the area in which they are
currently heavily criticized.
q
Procurement.
Encouragement of suppliers to site locally in return for guaranteed orders,
creation of supplier hubs (i.e. supplier-managed distribution points) near Dell
plants, payment for components only on demand, limited supplier base.
q
Technology
development.
Development of website and e-service system, investment in developing server
technology.
6. A
basis for developing performance measures. Earlier we discussed the
requirement that key performance indicators (KPIs) should monitor the critical
success factors of the business strategy. If management choose to use the value
chain to develop this strategy, they will also provide an understanding of the
processes that deliver the strategy. It follows that KPIs should be based on
the activities in the firm’s value chain.
For more on theory and case studies on: http://expertresearchers.blogspot.com
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