VALUE CHAIN

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GENERIC STRATEGIES AND
VALUE CHAIN
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What is Strategy?

• A company's objectives and philosophy
• Defining strategy
• the five 'Ps' of strategy
• a plan
• a ploy
• a pattern of behaviour
• a position with respect to others
• a perspective
• strategy as a mix of the five Ps

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What is Strategy?

• Strategic management
• strategic and day-to-day management
• the components of strategic management
• strategic analysis
• strategic choice
• strategic implementation
• different business types
• big or small business
• manufacturing or service provider business
• domestic or multinational business
• private-sector or public-sector business
• for-profit or not-for-profit organisations

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Strategic Analysis

• Factors affecting strategic choices
• The business environment
• PEST analysis
• Porter's five forces model
• the bargaining power of suppliers
• the bargaining power of buyers
• the threat of potential new entrants
• the threat of substitutes
• the extent of competitive rivalry

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Porter's Five Forces Model
Industry competitors
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
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Porter's Five Forces Model
Industry competitors Rivalry among existing
firms
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
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Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
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Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Threat of substitutes
Substitute products
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
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Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Bargaining power of suppliers
Suppliers
Threat of substitutes
Substitute products
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
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Porter's Five Forces Model
Potential entrants
Threat of new entrants
Industry competitors Rivalry among existing
firms
Bargaining power of suppliers
Bargaining power of buyers
Buyers
Suppliers
Threat of substitutes
Substitute products
Source Michael E. Porter Competitive Strategy
Techniques for Analyzing Industries and
Competitors, (The Free Press, 1980)
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Focused Differen- tiation
Focused Low Cost
Narrow Target Market
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Gaining competitive advantage out of Generic
strategy
Example
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The Value Chain
Support activities
Primary activities
Inbound logistics Materials receiving, storing,
and distribution to manufacturing
premises Operations Transforming inputs into
finished products. Outbound logistics Storing
and distributing products Marketing and
Sales Promotions and sales force Service Servic
e to maintain or enhance product value Corporate
infrastructure Support of entire value chain,
e.g. general management planning, financing,
accounting, legal services, government affairs,
and QM Human resources management Recruiting,
hiring, training, and development Technology
Development Improving product and manufacturing
process Procurement Purchasing input
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VALURE CHAIN ANALYSIS
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TYPE OF ACTIVITIES
DIRECT ASSEMBLY, PARTS MACHINING,ADVERTISING IND
IRECT MAINTENANCE, SCHEDULING, RESEARCH
ADMINISTRATION QUALITY ASSURANCE INSPECTING,
TESTING, REVIEWING
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IDENTIFICATION OF DISCRETE ACTIVITIES ACTIVITIES
WITH DIFFERENT ECONOMICS ACTIVITIES HAVING
POTENTIAL IMPACT ON DIFFERENTIATION ACTIVITIES
REPRESENTING A GROWING PROPORTION OF COST
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The Value Chain
Support activities
Primary activities
MARKETING ADVERTISING SALES TECH PROMOTION MANAG
EMENT FORCE LITERATURE ADMIN
OPERATION
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LINKAGES WITHIN THE VALUE CHAIN
THE SAME FUNCTION CAN BE DONE IN DIFFERENT
WAYS THE COST OR PERFORMANCE OF DIRECT
ACTIVITIES IS IMPROVED BY GREATER EFFORTS IN
INDIRECT ACTIVITIES ACTIVITIES PERFORMED INSIDE
A FIRM REDUCE THE NEED TO DEMONSTRATE , EXPLAIN,
OR SERVICE A PRODUCT IN THE FIELD. QUALITY
ASSURANCE FUNCTIONS CAN BE PERFORMED IN DIFFERENT
WAYS.
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Value chain participants
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Value Creating Activities common to a Cost
Leadership Business Level Strategy
Support Activities
Primary Activities
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Value Creating Activities common to a
Differentiation Business Level Strategy
Support Activities
MARGIN
MARGIN
Primary Activities
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Example of Reconfiguring the Value Chain
Transport to The plant Near the town
Convert to milk powder
Old Way
Collect Milk From villages
Export and sell
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Example of Reconfiguring the Value Chain
Feeder Balancing Dairy
Collect milk
Sell and export Milk powder directly
New Way
New Way
Make powder in the plant near village
Save on shipping costs by 10 times
Utilize cheaper non-union rural labor
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THE COMPETITIVE SCOPE SEGMENT NEEDS AND
GROUPS Microprocessor against
mainframe Individual against Large
corporation VERTICAL IN HOUSE V/S
OUTSOURCED Make or Buy Self owned distribution
system against distributors
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GEOGRAPHICAL RANGE OF marketing domain Canon
develops it at Japan and then spreads over
globe Costs of coordination and differences
amongst regions at times lead to reduce the
advantage of sharing, however. INDUSTRY RANGE OF
RELATED INDUSTRIES Shared RD, joint technology
or quality mission Common Logistical support
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Broad scope Performing more activities
internally Narrow scope Serve the target at a
low cost uniquely

• COALITIONS AND SCOPE
• Vertical and horizontal
• Technology Licenses, Supply agreements, Marketing
  agreements, Joint ventures.
• Bargaining powers to be evaluated before
  coalitions
• VALUE CHAIN AND INDUSTRY STRUCTURE
• Collective value chains of the competitors
• VALUE CHAIN AND ORGANISATIONAL STRUCTURE
• Departmental coordination and optimization should
  be the priority