Value Chain
Value Chain
value chain Michael Porter proposed the value chain as the main tool for identifying ways to
A major tool/or create more customer value (see Figure 11.2). 15 Every firm consists of a collection identifying ways to
of activities performed to design, produce, market, deliver and support the firm's create more customer
products. The value chain breaks the firm into nine valuecreating activities in an value.
effort to understand the behaviour of costs in the specific business and the poten tial sources of competitive differentiation. The nine valuecreating activities include five primary activities and four support activities.
The primary activities involve the sequence of bringing materials into the business (inbound logistics), operating on them (operations), sending them out (outbound logistics), marketing them (marketing and sales) and servicing them (service). For a long time, firms have focused on the product as the primary means of adding value, but eustomer satisfaction also depends upon the other
stages of the value chain.' 1 The support activities occur within each of these primary activities. For example, procurement involves obtaining the various inputs for each primary activity only a fraction of proeurement is done by the purchasing department. Technology development and human resource manage ment also occur in all departments. The firm's infrastructure covers the overhead of general management, planning, finance, accounting and legal and government affairs borne by all the primary and support activities.
Under the valuechain concept, the firm should examine its costs and per formance in each valuecreating activity to look for improvements. It should also estimate its competitors' costs and performances as benchmarks. To the extent
that the firm can perform certain activities better than its competitors, it can achieve a competitive advantage.
The firm's success depends not only on how well each department performs its work, but also on how well the activities of various departments are co ordinated. Too often, individual departments maximize their own interests rather than those of the whole company and the customer. For example, a credit depart ment might attempt to reduce bad debts by taking a long time to check the credi! of prospective customers: meanwhile, salespeople get frustrated and customers wait. A distribution department might decide to save money by shipping goods hy rail; again the customer waits. In each case, individual departments have erected walls that impede the delivery of quality customer service.
To overcome this problem, companies should place more emphasis on the smooth management of core business processes, most of which involve inputs and cooperation from many functional departments. These core business processes include the following;
• Product development process. All the activities involved in identifying, researching and developing new products with speed, high quality and
reasonable cost.
Delivering Customer Value and Satisfaction • 481
Figure 11.2
The generic value chain
• Inventory management process. All the activities involved in developing and managing the right inventory levels of raw materials, semifinished materials and finished goods, so that adequate supplies arc available while
the costs of high overstocks are avoided. • Ordertopayment process. All the activities involved in receiving orders,
approving them, shipping the goods on time and collecting payment. • Customer service process. All the activities involved in making it easy for
customers to reach the right parties within the company to obtain service, answers and resolutions of problems.
Successful companies develop superior capabilities in managing these and other core processes. In turn, mastering core business processes gives these
companies a stibstancial competitive edge. 1 " For example, one of Marks &
Spencer's great strengths is its superiority in handling the inventory management and order flow process. As individual Marks & Spencer stores sell their goods, sales information flows not only to Marks & Spencer's headquarters, but to the company's suppliers, which ship replacement goods to Marks & Spencer stores almost as fast as they move off the shelf.
Parts
» Book Principles Of Marketin Pleased
» I'hrce considerations underlying the
» The Information Technology Boom
» • False Wants and Too Much Materialism
» There is good reason to search a 2.4
» Levi's Strategic Marketing and Planning
» Analysing the Current Easiness Portfolio
» Conflict Between Departments
» Marketing Strategies for Competitive Advantage
» Principal actors in the company's
» • Persistence of Cultural Values
» McDonald's; Breaking into the South African Market
» Analysis of International Market Opportunity Deciding Whether or Not to Go Abroad
» Understanding the Global Environment
» Procter & Gamble: Going Global in Cosmetics
» Sheba: The Pet's St Valentines Day Pedro Quclhas Brito, Universidade do Porto, Portugal
» Individual Differences in Innovativcncss
» Influence of Product Characteristics on Rate of Adoption
» Selling Business Jets: The Ultimate Executive Toy
» • Systems Buying and Selling
» • Strong Influences on Government Buyers
» TABI.EI GOVERNMENT CODES OF PRACTICE IN VARIOUS COUNTRIES
» Qantas: Taking Off in Tomorrow's Market
» • Defining the Problem and Research Objectives
» CLOSEDEND QUESTIONS NAME DESCRIPTION
» Estimating Total Market Demand
» Estimating Actual Sales and Market Shares
» TimeSeries Analysis technology.
» Segmenting International Markets
» • Selecting Market, Segments
» 2 VOLUME BRAND SHARES (%) BRAND SHARE CoffeeMate total: 55.5
» 7 CONSUMPTION BY HOUSEHOLD SIZE (PER PERSON/WEEK)
» Preview Case Gastrol: Liquid Engineering
» Determine the Competitors'Positions One way of defining competitors is to look at
» Communicating and Delivering the Chosen Position
» The Need for Customer Retention
» The Ultimate Test: Customer Profitability
» 1 POTENTIAL PRODUCT FIELDS FOR AN EXPANSION OP THE UNCLE BEN'S BRAND
» 2 VARIETIES OF UNCLE BEN'S FEINSCHMECKER SAUCE
» Federal Express: Losing a Packet in Europe
» Close or Distant Competitors
» • Expanding the Total Market
» • The Customer Service Department
» What Governs NewProduct Success?
» Lufthansa: Listening lo Customers
» Managing Productivity CU _ C7 ^ •
» Mattel: Getting it Right is No Child's Play
» Internal Factors Affecting Pricing Decisions
» • BreakEven Analysis and Target Profit Pricing
» 1 CAR OWNERSHIP ACROSS THE EUROPEAN UNION
» Mobile Phones: Even More Mobile Customers
» Stena Sealink versus Le Shuttle, Eurostar and the Rest
» Preview Case British Home Stores
» • Selecting the Message Source
» Setting the Total Promotion Budget
» Factors in Setting the Promotion Mix
» Integrated Marketing Communications
» Setting the Advertising Budget
» • Selecting Advertising Media
» Standardization or Differentiation
» Media Planning, Buying and Costs
» IBM Restructures the Sales Force
» • Other Sales Force Strategy and Structure Issues
» 5 per cent sales elite apart from the rest is 'an astounding 60 per cent [are] just there for the
» Britcraft Jetprop: Whose Sale is it Anyhow? 1
» 1 COMMERCIAL SUCCESS OF THE JETPROP AIRCRAFT, 1992 NUMBER OF CONTINENT
» 1 PANEUROPEAN CONSUMER GROUPS
» Analyzing Customer Service Needs
» Defining the Channel Objectives and Constraints
» Identifying Major Alternatives
» Designing International Distribution Channels
» Evaluating and Controlling Channel Members
» • Building Channel Partnerships
» The Growth of Direct Marketing
» Customer Databases arid Direct Marketing
» DirectResponse Television Marketing
» Online Marketing and Electronic Commerce
» Germany, the UK and other countries in Europe 1997 to SI.64 billion or 7.5 per cent of global
» • Creating an Electronic Storefront
» • Participating in Forums, Newsgroups and IVcb Communities
» • The Promise and Challenges of Online Marketing
» Roberto Alvarez del Blanco and Jeff Rapaport*
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