Value Chain
Tutorial 2
Sources
Value Chain Resource Planning: Adding Vaue with Systems Beyond the Enterprise; Authors: Elliot Bendoly, Ashok Soni and M. A. Venkatramanan;
Business Horizons, March 2004.
Internal-Business-Process Perspective, Harvard Business School Publishing, 2006, Chapter 5 on the Balanced Scorecard: Translating Strategy
into Action
Value Chain
Value Chain framework is a
model that views firms by sets of
activities that firms use to create
value and competitive advantage.
Value Chain
Value Chain models the firm as a chain of value-creating
activities.
Its ultimate goal is to maximize value creation while
minimizing costs.
The value chain framework is a powerful analysis tool for
strategic planning.
Value chain model purpouse is to analyze the internal
operation of corporation, in order to increase its
efficiency, effectiveness and competitiveness
The concept of Value Chain popularized by Michael Porter (Harvard University)
Michael Porter’s Value-Chain
Developed in 1985 by Michael E. Porter in
Competitive Advantage
Highlights cost advantages and
distinctive capabilities--the value processes
But note that there is no one template.
STRATEGIC COST
MANAGEMENT - BA122B – 4-4
Spring 2009
Value Chain and the QCT
Triangle
VC allows alignment of processes with
customers. This generates a quality
advantage.
VC focuses cost management efforts.
VC provides for efficient processes which
improves the timeliness of operations.
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MANAGEMENT - BA122B – 4-5
Spring 2009
Inbound Outbound
Operations
Logistics Logistics
Value Chain
Marketing
and sales
The value chain categorizes the generic value-adding
activities of an organization.
It describes the activities within and around an
organization, and relates them to an analysis of the Service
competitive strength of the organization.
it evaluates which value each particular activity adds to
the organizations products or services
The ability to perform particular activities and to manage
the linkages between these activities is a source of
competitive advantage
Inbound Outbound
Value Chain
Operations
Logistics Logistics
The "primary activities" Marketing
and sales
identified by Michael
The “support activities" identified by
Porter include: Michael Porter include:
Procurement (Purchasing, sourcing, Service
Inbound logistics etc.)
operations Technology Development
(production), (Information systems, etc.)
Human Resource Management
outbound logistics, (employee benefits, compensation,
marketing and sales, etc.)
and Infrastructure Management (finance,
legal, etc.)
services
(maintenance).
Proses Bisnis Yang Ada Di Dalam Sebuah
Perusahaan Dapat Dikategorikan Menjadi:
core business process, merupakan sejumlah rangkaian proses bisnis yang
terkait langsung dengan usaha penciptaan produk atau jasa yang di
tawarkan kepada pelanggan.
supporting process, merupakan sejumlah aktivitas di dalam perusahaan
yang bertujuan untuk membantu ter selenggaranya proses bisnis utama
secara baik.
value chain ,Michael Porter
Porter’s View
The term ‚Margin’ implies that organizations realize a profit margin that
depends on their ability to manage the linkages between all activities in the
value chain.
The Value Chain (Continued)
Chapter 13 10
Value Chain Elements
Support Activities
Customer value added
Human
Margin resources
orientation (general and admin.)
Tech. development
Primary activities
Procurement
Inbound logistics
Operations
Outbound logistics
Sales and marketing
Service and support
STRATEGIC COST
MANAGEMENT - BA122B – 4-11
Spring 2009
Goal of Value Chain
Driven by customer perceptions
Increase margins
Focus on value processess
Distinctive capabilities
Cost advantages
Some examples
Southwest Airlines
Intel Corporation
4-12
Value Chain Analysis
Document the activities
Understand the cost and margins at each
step.
Use Activity Based Costing
Map the value chain to the industry value
chain
Look for core competencies
Map the cost structure
Note that external values drive cost advantages
4-13
Discovering Your Own Value
Processes
Distribute a summary of the value chain model.
Create functional process lists.
Transfer lists to color-coded labels.
“Pin the process” on a large VC diagram.
Identify appropriate processes as:
$ (cost advantage)
CC (core competency)
4-14
Using the Value Chain
Helps you to stay out of the “No Profit Zone”
Presents opportunities for integration
Aligns spending with value processes
Provides for reconfiguration of the value
chain
outsourcing
off-shoring
co-location with customers or suppliers
redesign for efficiency
Involves chain partners: customers &
suppliers 4-15
The Internal - Business - Process Perspective
Innovation was a critical internal process.
So is Postsale Service
Example
Summary
Unlike the primary activities, which directly add value to the
product or service, the support activities are operations that
support the creation of value (primary activities)
The firm’s infrastructure (accounting, finance,
management)
Human resources management
Technology development (R&D)
Procurement
The initial purpose of the value chain model was to analyze the
internal operations of a corporation in order to increase its
efficiency, effectiveness, and competitiveness. We can extend that
company analysis by systematically evaluating a company’s key
processes and core competencies to eliminate any activities that
do not add value to the product.
Chapter 13 19
Summary (cont)
IT can add value to company in one of two
general ways:
Direct, reducing the cost (efficient)
Indirect, increasing revenue (effective)