Value Chain Analysis - Revision history

Tkokotas at 13:05, 18 December 2018

2018-12-18T13:05:11Z

← Older revision		Revision as of 13:05, 18 December 2018
Line 1:		Line 1:
			''Developed by Joseph Kurian''


	The term Value Chain is one of Michael Porter most famous concept along the five forces. It was introduced in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). An analysis of the value chain both describes the activities of an organization and links them to the competitive position of the organization. This analysis results in identifying the activities that are a source of cost or lead to a differentiation advantage and those that could improve the competitive advantage of the company or of the project. This tool helps companies designing viable products or services at the right price.		The term Value Chain is one of Michael Porter most famous concept along the five forces. It was introduced in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). An analysis of the value chain both describes the activities of an organization and links them to the competitive position of the organization. This analysis results in identifying the activities that are a source of cost or lead to a differentiation advantage and those that could improve the competitive advantage of the company or of the project. This tool helps companies designing viable products or services at the right price.

S150917: /* Evidence of Improved Financial Performance */

2016-09-26T21:49:59Z

Evidence of Improved Financial Performance

← Older revision		Revision as of 21:49, 26 September 2016
Line 38:		Line 38:

	==Evidence of Improved Financial Performance==		==Evidence of Improved Financial Performance==
	In 2004, Deloitte conducted a research into international value chains and found evidence of improved financial performance of companies adopting value chain principles ~~[1]~~. The analysis was based upon 300 survey respondents, each with annual revenues of at least US$200 million. <ref name=deloitte>Deloitte (2004), “Unlocking the value of globalisation. Profiting from continuous optimisation”, A Deloitte Research Global Manufacturing Study </ref>		In 2004, Deloitte conducted a research into international value chains and found evidence of improved financial performance of companies adopting value chain principles. The analysis was based upon 300 survey respondents, each with annual revenues of at least US$200 million. <ref name=deloitte>Deloitte (2004), “Unlocking the value of globalisation. Profiting from continuous optimisation”, A Deloitte Research Global Manufacturing Study </ref>
	[[File:Deloitte.png\|right\|400px]]		[[File:Deloitte.png\|right\|400px]]
	The survey recognized that companies that could be categorized as ‘value chain complexity masters’ were on an average 73% more profitable than the other companies surveyed.<ref name=deloitte/> The identification of value chain complexity masters were based on their value chain capabilities such as product innovation, sourcing effectiveness, flexibility, productivity, product quality, cost effectiveness, time to market, supply chain costs structures, and customer service, and the value chain complexity factors such as the global dispersion of the entire supply chain from sourcing to sales. Companies with high complexity and high capability were classified as a complexity master.<ref name=deloitte/>		The survey recognized that companies that could be categorized as ‘value chain complexity masters’ were on an average 73% more profitable than the other companies surveyed.<ref name=deloitte/> The identification of value chain complexity masters were based on their value chain capabilities such as product innovation, sourcing effectiveness, flexibility, productivity, product quality, cost effectiveness, time to market, supply chain costs structures, and customer service, and the value chain complexity factors such as the global dispersion of the entire supply chain from sourcing to sales. Companies with high complexity and high capability were classified as a complexity master.<ref name=deloitte/>
Line 51:		Line 51:

	Even though the research is not published in the peer reviewed academic literature, it validates that the value chain analysis is critical in achieving competitive advantage. It exhibits that best practice leads to superior financial performance.		Even though the research is not published in the peer reviewed academic literature, it validates that the value chain analysis is critical in achieving competitive advantage. It exhibits that best practice leads to superior financial performance.


	==Value Chain Analysis as a Project Management Tool==		==Value Chain Analysis as a Project Management Tool==

S150917 at 21:49, 26 September 2016

2016-09-26T21:49:38Z

← Older revision		Revision as of 21:49, 26 September 2016
Line 26:		Line 26:

	===Organisations Value Chain===		===Organisations Value Chain===
	[[File:Organisation value chain.png\|right\|~~300px~~]]		[[File:Organisation value chain.png\|right\|400px]]
	In most industries, the activities of the value chain, from product design, production of components, and final assembly to delivery to the final user, are not all handled by the company. Organisations are, as a result, part of a value system or supply chain. When analyzing the value chain, it is important to consider the one of the whole value system the chain is embedded in.<ref name=two> www.themanager.org, Dagmar Recklies, 2001,		In most industries, the activities of the value chain, from product design, production of components, and final assembly to delivery to the final user, are not all handled by the company. Organisations are, as a result, part of a value system or supply chain. When analyzing the value chain, it is important to consider the one of the whole value system the chain is embedded in.<ref name=two> www.themanager.org, Dagmar Recklies, 2001,
	Recklies Management Project GmbH </ref>		Recklies Management Project GmbH </ref>

S150917: /* Annotated Bibliography */

2016-09-26T21:47:15Z

Annotated Bibliography

← Older revision		Revision as of 21:47, 26 September 2016
Line 100:		Line 100:
	<references />		<references />
	==Annotated Bibliography==		==Annotated Bibliography==
	Competitive Advantage: Creating and Sustaining Superior Performance (1985), By Michael Porter. Michael Porter introduced the concept of separating a company into activities and aligned each activity with supporting parameters that represented the building blocks of competitive advantage in this book. The powerful framework introduced in this book has guided multiple businesses, researchers and business schools to understand the roots of competition.		'''Competitive Advantage: Creating and Sustaining Superior Performance (1985), By Michael Porter'''. Michael Porter introduced the concept of separating a company into activities and aligned each activity with supporting parameters that represented the building blocks of competitive advantage in this book. The powerful framework introduced in this book has guided multiple businesses, researchers and business schools to understand the roots of competition.

S150917 at 21:44, 26 September 2016

2016-09-26T21:44:50Z

← Older revision		Revision as of 21:44, 26 September 2016
Line 99:		Line 99:
	==References==		==References==
	<references />		<references />
			==Annotated Bibliography==
			Competitive Advantage: Creating and Sustaining Superior Performance (1985), By Michael Porter. Michael Porter introduced the concept of separating a company into activities and aligned each activity with supporting parameters that represented the building blocks of competitive advantage in this book. The powerful framework introduced in this book has guided multiple businesses, researchers and business schools to understand the roots of competition.

S150917 at 21:31, 26 September 2016

2016-09-26T21:31:14Z

← Older revision		Revision as of 21:31, 26 September 2016
Line 95:		Line 95:

	==Conclusion==		==Conclusion==
	Value chain analysis is a very useful management tool that helps to identify key activities which yields to the creation of superior product or service that is of high value to the customer. The analysis helps to maximize profits by creating superior product or service for which the customers are willing to pay a premium price, that exceeds the cost of production. Michael Porter created this useful model through which work products are broken down into various activities, which allows the management to focus on the truly useful activities that creates value to the organization. The value chain analysis also adds to the competitive advantage strategy of the company, helping to determine the vision and set direction for future products and services. The analysis also validates the supporting activities, which are often overlooked but are integral part to the value chain and value proposition of a company.		Value chain analysis is a very useful management tool that helps to identify key activities which yields to the creation of superior product or service that is of high value to the customer. The analysis helps to maximize profits by creating superior product or service for which the customers are willing to pay a premium price, that exceeds the cost of production. Michael Porter created this useful model through which work products are broken down into various activities, which allows the management to focus on the truly useful activities that creates value to the organization. The value chain analysis also adds to the competitive advantage strategy of the company, helping to determine the vision and set direction for future products and services. The analysis also validates the supporting activities, which are often overlooked but are integral part to the value chain and value proposition of a company. However, as it is the case with most academic frameworks, the high level of complexities in todays business operations and the wide array of stakeholders involved makes it difficult for a firm to obtain the right data in order to conduct an effective analysis. Moreover, the process in itself is highly time consuming, limiting its practicality in today's business operations.

	==References==		==References==
	<references />		<references />

S150917 at 21:23, 26 September 2016

2016-09-26T21:23:59Z

S150917 at 21:12, 26 September 2016

2016-09-26T21:12:55Z

← Older revision		Revision as of 21:12, 26 September 2016
Line 27:		Line 27:
	===Organisations Value Chain===		===Organisations Value Chain===
	[[File:Organisation value chain.png\|right\|300px]]		[[File:Organisation value chain.png\|right\|300px]]
	In most industries, the activities of the value chain, from product design, production of components, and final assembly to delivery to the final user, are not all handled by the company. Organisations are, as a result, part of a value system or supply chain. When analyzing the value chain, it is important to consider the one of the whole value system the chain is embedded in.		In most industries, the activities of the value chain, from product design, production of components, and final assembly to delivery to the final user, are not all handled by the company. Organisations are, as a result, part of a value system or supply chain. When analyzing the value chain, it is important to consider the one of the whole value system the chain is embedded in.<ref name=two> www.themanager.org, Dagmar Recklies, 2001,
	Within the whole value system, only a certain part of profit margin is available to the company. As stated previously, the profit margin is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service. It depends on how the value system is structured, how this margin spreads across the suppliers, producers, distributors, customers, and other elements of the value system. Each organization in the system will negotiate and use its market position to get a higher share of the margin. However, collaborations and cooperation can be encouraged if there is the opportunity for both companies to improve their efficiency and reduce their costs. The result is to achieve a higher total margin that benefits of all of them. An example is reducing stocks in a Just-In-Time system.<ref name=two> www.themanager.org, Dagmar Recklies, 2001,
	Recklies Management Project GmbH </ref>		Recklies Management Project GmbH </ref>
			Within the whole value system, only a certain part of profit margin is available to the company. As stated previously, the profit margin is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service. It depends on how the value system is structured, how this margin spreads across the suppliers, producers, distributors, customers, and other elements of the value system. Each organization in the system will negotiate and use its market position to get a higher share of the margin. However, collaborations and cooperation can be encouraged if there is the opportunity for both companies to improve their efficiency and reduce their costs. The result is to achieve a higher total margin that benefits of all of them. An example is reducing stocks in a Just-In-Time system.<ref name=two/>

	===Industry Application===		===Industry Application===
Line 38:		Line 38:

	==Evidence of Improved Financial Performance==		==Evidence of Improved Financial Performance==
	In 2004, Deloitte conducted a research into international value chains and found evidence of improved financial performance of companies adopting value chain principles [1]. The analysis was based upon 300 survey respondents, each with annual revenues of at least US$200 million.		In 2004, Deloitte conducted a research into international value chains and found evidence of improved financial performance of companies adopting value chain principles [1]. The analysis was based upon 300 survey respondents, each with annual revenues of at least US$200 million. <ref name=deloitte>Deloitte (2004), “Unlocking the value of globalisation. Profiting from continuous optimisation”, A Deloitte Research Global Manufacturing Study </ref>
	[[File:Deloitte.png\|right\|~~300px~~]]		[[File:Deloitte.png\|right\|400px]]
	The survey recognized that companies that could be categorized as ‘value chain complexity masters’ were on an average 73% more profitable than the other companies surveyed. The identification of value chain complexity masters were based on their value chain capabilities such as product innovation, sourcing effectiveness, flexibility, productivity, product quality, cost effectiveness, time to market, supply chain costs structures, and customer service, and the value chain complexity factors such as the global dispersion of the entire supply chain from sourcing to sales. Companies with high complexity and high capability were classified as a complexity master.		The survey recognized that companies that could be categorized as ‘value chain complexity masters’ were on an average 73% more profitable than the other companies surveyed.<ref name=deloitte/> The identification of value chain complexity masters were based on their value chain capabilities such as product innovation, sourcing effectiveness, flexibility, productivity, product quality, cost effectiveness, time to market, supply chain costs structures, and customer service, and the value chain complexity factors such as the global dispersion of the entire supply chain from sourcing to sales. Companies with high complexity and high capability were classified as a complexity master.<ref name=deloitte/>

	The results from the survey shows that the complexity masters, in comparison to the other organisations had higher competences in:		The results from the survey shows that the complexity masters, in comparison to the other organisations had higher competences in:<ref name=deloitte/>

	*‭ ‭ ‬Customer related operations - broad interest in client coordinated effort ventures ‬and client relationship management.		*‭ ‭ ‬Customer related operations - broad interest in client coordinated effort ventures ‬and client relationship management.

S150917 at 21:05, 26 September 2016

2016-09-26T21:05:26Z

← Older revision		Revision as of 21:05, 26 September 2016
Line 32:		Line 32:

	===Industry Application===		===Industry Application===
	A firm needs to identify and deliberate its value proposition or its differentiation factor while taking its value chain into account. As the value chain analysis aims to improve the profits by creating superior products or services such that the customers are willing to pay a higher price than what it takes to make it, the company’s goal should be to improve its value chain in accordance to its competitive advantage rather than just improving the value chain for the sake of improvement.		A firm needs to identify and deliberate its value proposition or its differentiation factor while taking its value chain into account. As the value chain analysis aims to improve the profits by creating superior products or services such that the customers are willing to pay a higher price than what it takes to make it, the company’s goal should be to improve its value chain in accordance to its competitive advantage rather than just improving the value chain for the sake of improvement.<ref name= three>[http://www.investopedia.com/articles/investing/111014/basics-value-chain-analysis.asp] </ref>

	Two common strategies for attaining a competitive advantage are low cost provider or specialization /differentiation of products or service.		Two common strategies for attaining a competitive advantage are low cost provider or specialization /differentiation of products or service. <ref name=porter /> <ref name= three />
	In a low cost provider, the value chain analysis will focus on costs and how to reduce them, while in a specialization strategy; the value chin analysis will focus on uniqueness of the product or service.		In a low cost provider, the value chain analysis will focus on costs and how to reduce them, while in a specialization strategy; the value chin analysis will focus on uniqueness of the product or service.

S150917: /* Organisations Value Chain */

2016-09-26T20:58:19Z

Organisations Value Chain

← Older revision		Revision as of 20:58, 26 September 2016
Line 27:		Line 27:
	===Organisations Value Chain===		===Organisations Value Chain===
	[[File:Organisation value chain.png\|right\|300px]]		[[File:Organisation value chain.png\|right\|300px]]
	In most industries, the activities of the value chain, from product design, production of components, and final assembly to delivery to the final user, are not all handled by the company. Organisations are, as a result, part of a value system ~~(does it ned to be defined? )~~ or supply chain. When analyzing the value chain, it is important to consider the one of the whole value system the chain is embedded in.		In most industries, the activities of the value chain, from product design, production of components, and final assembly to delivery to the final user, are not all handled by the company. Organisations are, as a result, part of a value system or supply chain. When analyzing the value chain, it is important to consider the one of the whole value system the chain is embedded in.
	Within the whole value system, only a certain part of profit margin is available to the company. As stated previously, the profit margin is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service. It depends on how the value system is structured, how this margin spreads across the suppliers, producers, distributors, customers, and other elements of the value system. Each organization in the system will negotiate and use its market position to get a higher share of the margin. However, collaborations and cooperation can be encouraged if there is the opportunity for both companies to improve their efficiency and reduce their costs. The result is to achieve a higher total margin that benefits of all of them. An example is reducing stocks in a Just-In-Time system.<ref name=two> www.themanager.org, Dagmar Recklies, 2001,		Within the whole value system, only a certain part of profit margin is available to the company. As stated previously, the profit margin is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service. It depends on how the value system is structured, how this margin spreads across the suppliers, producers, distributors, customers, and other elements of the value system. Each organization in the system will negotiate and use its market position to get a higher share of the margin. However, collaborations and cooperation can be encouraged if there is the opportunity for both companies to improve their efficiency and reduce their costs. The result is to achieve a higher total margin that benefits of all of them. An example is reducing stocks in a Just-In-Time system.<ref name=two> www.themanager.org, Dagmar Recklies, 2001,
	Recklies Management Project GmbH </ref>		Recklies Management Project GmbH </ref>

← Older revision		Revision as of 21:23, 26 September 2016
Line 32:		Line 32:

	===Industry Application===		===Industry Application===
	A firm needs to identify and deliberate its value proposition or its differentiation factor while taking its value chain into account. As the value chain analysis aims to improve the profits by creating superior products or services such that the customers are willing to pay a higher price than what it takes to make it, the company’s goal should be to improve its value chain in accordance to its competitive advantage rather than just improving the value chain for the sake of improvement.<ref name= three>[http://www.investopedia.com/articles/investing/111014/basics-value-chain-analysis.asp] </ref>		A firm needs to identify and deliberate its value proposition or its differentiation factor while taking its value chain into account. As the value chain analysis aims to improve the profits by creating superior products or services such that the customers are willing to pay a higher price than what it takes to make it, the company’s goal should be to improve its value chain in accordance to its competitive advantage rather than just improving the value chain for the sake of improvement.<ref name= three>http://www.investopedia.com/articles/investing/111014/basics-value-chain-analysis.asp</ref>

	Two common strategies for attaining a competitive advantage are low cost provider or specialization /differentiation of products or service. <ref name=porter /> <ref name= three />		Two common strategies for attaining a competitive advantage are low cost provider or specialization /differentiation of products or service. <ref name=porter /> <ref name= three />
Line 61:		Line 61:
	Identification of activities to undertake in order to deliver the product or service.		Identification of activities to undertake in order to deliver the product or service.

	The Activity Analysis stage requires the project team to brainstorm the activities necessary to undertake the project in order to add value, which eventually contributes to the end-user's experience. Therefore, this step requires an organized business process, which includes marketing, sales, order taking, operational process, delivery and support etc. that would help serve the customer needs. In other words, this stage requires the project team to carry out a systematic flow of work. Furthermore, it would also involve other factors such as:		The Activity Analysis stage requires the project team to brainstorm the activities necessary to undertake the project in order to add value, which eventually contributes to the end-user's experience. Therefore, this step requires an organized business process, which includes marketing, sales, order taking, operational process, delivery and support etc. that would help serve the customer needs.<ref name=four>Undisclosed author, "Value Chaing Analysis," http://www.mindtools.com/pages/article/newTMC_10.htm</ref> In other words, this stage requires the project team to carry out a systematic flow of work. Furthermore, it would also involve other factors such as:

	*How does the project motivate the team to perform more effectively?		*How does the project motivate the team to perform more effectively?
	*Recruitment methods? Recruitment of effective individuals with the right skill would give best value.		*Recruitment methods? Recruitment of effective individuals with the right skill would give best value.
Line 73:		Line 73:
	Maximizing the value of each activity in developing the product or service.		Maximizing the value of each activity in developing the product or service.

	The Value Analysis stage involves the project team to list value factors for each of the activity identified in the first stage. Value factors are those that the customers would value when an activity is conducted and they vary with the nature of business. In order to maximize the value for each activity, the requirements of what has to be done or changed is put down besides each value factors.		The Value Analysis stage involves the project team to list value factors for each of the activity identified in the first stage. Value factors are those that the customers would value when an activity is conducted and they vary with the nature of business. In order to maximize the value for each activity, the requirements of what has to be done or changed is put down besides each value factors.<ref name=four/>

	===Evaluating Changes and Planning of Action stage===		===Evaluating Changes and Planning of Action stage===
	Evaluation of changes and deciding whether the changes are worth making. The action plan is then followed to complete the project.		Evaluation of changes and deciding whether the changes are worth making. The action plan is then followed to complete the project.<ref name=four/>

	The final stage involves the project team evaluating the changes and plans for action.		The final stage involves the project team evaluating the changes and plans for action.
	The team has to prioritize from the list of generated ideas that adds value to the customer and pick the quick and simple tasks to increase the team spirit, subsequently adhering to the remaining changes. The more difficult tasks are tackled in a systemic manner, providing a steady improvement.		The team has to prioritize from the list of generated ideas that adds value to the customer and pick the quick and simple tasks to increase the team spirit, subsequently adhering to the remaining changes. The more difficult tasks are tackled in a systemic manner, providing a steady improvement.<ref name=four/>

	==Limitations==		==Limitations==
	Although both academics and industries have generally accepted Porter’s model of competitive analysis as a conceptual strategy model, it has been commonly described as deficient for use in todays environment [Hergert & Morris, 1989; Stabell & Fjeldstad, 1998]		Although both academics and industries have generally accepted Porter’s model of competitive analysis as a conceptual strategy model, it has been commonly described as deficient for use in todays environment <ref>Hergert, M. and Morris, D. (1989), Accounting data for value chain analysis. Strat. Mgmt. J., 10: 175–188.</ref> <ref>Stabell, C. B. and Fjeldstad, Ø. D. (1998), Configuring value for competitive advantage: on chains, shops, and networks. Strat. Mgmt. J., 19: 413–437.</ref>
	A few concerns in the general approach of the value chain model also include:		A few concerns in the general approach of the value chain model also include:
	* Difficulty in managing the exchange of sensitive information.		* Difficulty in managing the exchange of sensitive information.