Strategic Management

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Firm Level Analysis Value Chain
Dr. W. Scott Sherman
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Value Chain Analysis
Value Chain Analysis helps to identify which
capabilities can add value by deconstructing how
firm creates value

• Porter divided the firm into three subsets
• Primary Activities
• Directly related to producing product
• 2) Support Activities
• Support and Overhead
• 3) Margins
• Created if 1) and 2) net is to add value

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Capabilities
Capabilities are important when combined in
UNIQUE COMBINATIONS which create CORE
COMPETENCIES which have STRATEGIC VALUE and can
lead to COMPETITIVE ADVANTAGE.
What a firm DOES...
A firms ability to bundle its individual
resources to achieve an organizational objective.
Capabilities develop over time as a result of
complex interactions based on interrelationships
among firm tangible and intangible resources.
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Value Chain Analysis
helps to identify which resources and
capabilities can add value
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
MARGIN
Operations
Primary Activities
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Value Chain Analysis
do not get trapped into Porters Thinking
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Information System Development
Procurement
Marketing Sales
Inbound Logistics
Outbound Logistics
MARGIN
Operations
Primary Activities
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Value Chain Analysis

• The Value Chain
• Is a comparative tool
• You can compare firm to its competitors, its
  industry as an average, or itself at a different
  point in time
• Comparison is needed for analysis to have meaning
• Sometimes fails to recognize synergies among
  areas
• The value chain tends to focus on what is
  occurring now, or the is
• Focuses on firm capabilities

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Strategic Rationales for Outsourcing

• Improve Business Focus
• lets company focus on broader business issues by
  having outside experts handle various operational
  details
• Provide Access to World-Class Capabilities
• the specialized resources of outsourcing
  providers makes world-class capabilities
  available to firms in a wide range of
  applications
• Accelerate Business Re-Engineering
• achieves re-engineering benefits more quickly by
  having outsiders--who have already achieved
  world-class standards--take over process

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Strategic Rationales for Outsourcing

• Share Risks
• reduces investment requirements and makes firm
  more flexible, dynamic and better able to adapt
  to changing opportunities
• Free Resources for Other Purposes
• permits firm to redirect efforts from non-core
  activities toward those that serve customers more
  effectively

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Value Chain Analysis
Work Page
Support Activities
Primary Activities