The strategic tool of value chain analysis

SWOT Analysis, also known as SWOT Matrix, helps you evaluate strengths, weaknesses, opportunities and threats that your company face by focusing on your strengths, minimizing threats, and taking the greatest possible advantage of opportunities available to you. Now, you can focus on fact-finding of the SWOT by listing out the information in bullet points. Value chain analysis A Value Chain Diagram is a visual representation of a value chain, which is a set of activities that a business perform to deliverable a valuable product or service for the market. Our Value Chain Diagram tool makes drawing Value Chain Diagram easy with the help of easy bullet editor and auto layout capability!

The strategic tool of value chain analysis

A broken chain link illustrating poorly managed business' value chain. Definition Value chain analysis VCA is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.

Value chain represents the internal activities a firm engages in when transforming inputs into outputs. Understanding the tool Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable i.

The firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do.

When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits. Porter introduced the generic value chain model in Value chain represents all the internal activities a firm engages in to produce goods and services.

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VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly. Although, primary activities add value directly to the production process, they are not necessarily more important than support activities.

Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed. The more activities a company undertakes compared to industry's VC, the more vertically integrated it is.

Below you can find an industry's value chain and its relation to a firm level VC.

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Using the tool There are two different approaches on how to perform the analysis, which depend on what type of competitive advantage a company wants to create cost or differentiation advantage.

The table below lists all the steps needed to achieve cost or differentiation advantage using VCA. Competitive advantage types Cost advantage Differentiation advantage This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs.

Establish the relative importance of each activity in the total cost of the product. Identify cost drivers for each activity.

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Identify links between activities. Identify opportunities for reducing costs. Evaluate the differentiation strategies for improving customer value. Identify the best sustainable differentiation.

Cost advantage To gain cost advantage a firm has to go through 5 analysis steps: All the activities from receiving and storing materials to marketing, selling and after sales support that are undertaken to produce goods or services have to be clearly identified and separated from each other.

The managers who identify value chain activities have to look into how work is done to deliver customer value. The total costs of producing a product or service must be broken down and assigned to each activity. Activity based costing is used to calculate costs for each process. Activities that are the major sources of cost or done inefficiently when benchmarked against competitors must be addressed first.

Only by understanding what factors drive the costs, managers can focus on improving them.Value chain analysis is an important tool for strategic cost management which is an important part of the management accounting.

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According to Porter, in ‘value chain cost management methodology’ first the value chain need to be identified, and then the cost, asset and revenue need to be assigned to the value activities (Hoque, ). Value Chain Analysis Value chain analysis is a way to visually analyze a company's business activities to see how the company can create a competitive advantage for itself.

Value chain analysis helps a company understands how it adds value to something and subsequently how it can sell its product or service for more than the cost of adding the.

Utilizing the Various Strategic Analysis Tools What Is a Value Chain Analysis? One of the most valuable tools, the value chain analysis, provides businesses an advantage over their competition.
Value Chain Analysis in Strategic Management: Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers. But this idea is just as important in service industries, where people use inputs of time, knowledge, equipment, and systems to create services of real value to the person being served — the customer.

Value chain analysis is a strategic analytical and decision-support tool that highlights the bases where businesses can create value for their customers.

The framework can also be applied to identify sources of competitive advantage for businesses. Value chain is a set of consequent activities that. Value chain analysis is a strategy tool used to analyze internal firm activities.

The strategic tool of value chain analysis

Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are.

Value-chain concept • A value chain describes the linked set of value-creating functions that are required to bring a product or service to the customer. Value chain analysis is a management tool that useful in the SWOT analysis stage of the strategic planning process. SWOT, or strategic analysis, involves researching the environment, in which the organization operates, and the key resources and capabilities of the organisation itself.

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