chapter 1 value chain perspective

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Chapter 1Introduction to Business

Management: a value chainperspective


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Learning outcomes Explain the difference between basic and advanced

needs Explain what is meant by the economic principle

Explain what is meant by the free market system

Explain the organisation as a system with value-adding elements

Van Schaik Publishers 2006


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Learning outcomes Describe an organisations value chain

Investigate the ways in which an organisation addscompetitive value to its value chain

Investigate the ways in which an organisation adds

Rationalise the development of the supply chain into ademand chain

Describe an organisations supply chain



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Framework of chapter

Functional areas of business management

The role of needs in the business cycle The free market system

Need satisfaction institutions in the free market system

e organ sa on as a sys em w va ue-a ngelements

Adding competitive value



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Introduction

Our world is characterised by various types of

business activities Business Management is relevant to all people not

only business people

Business Mana ement as sub ect includes all

activities related to the management of all types ofbusinesses



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Functional areas ofBusiness Management

Purchasing and materials management

Production and operations management

Marketing management

Financial management



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Generic management functions

General management

Human resources management

Corporate communication management

-

_____All management functions should work together to

achieve the goals of the business.



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The role of needs in thebusiness cycle

Want = a vague feeling of deficiency= nice to have

Need = an intense and definable drive to get

= must have

____

Business activities are driven by the satisfaction of

human needs.



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Maslows hierarchy of needstheory

=

higher order needs =

Self-actualisation needs of fulfilling potential

Social needs of belonging

Safety needs of security

Physiological needs of human existence

= basic needs =



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Economic principle

to gain maximum satisfaction with minimum effort

the fundamental basis for economic activity

the basis of productivity issues

the basis for addin value to the economic rocess in

place, form and time utilities, when creating need-satisfiers



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Needs and need-satisfiers

Unlimited needs and wants

Limited resources to create need-satisfiers

Universal drive for need satisfaction gives stimulusfor business ventures

Scarcity/inability to efficiently utilise resources



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The free market system

Market forces are allowed to freely guide business

activity Individual and economic rights are recognised and

characterised by:

* private ownership* initiative for own profit

* freedom of choice

* dominant market forces* minimum government interference



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Objectives for businessorganisations

Profitability Growth

Market shares

Social responsibility Well-being of employees

Product quality

Service levels



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Need satisfaction institutions inthe free market system

Business organisations

Government organisations

Non-profit-seeking organisations



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The organisation as a system withvalue-adding elements

Systems approach to organisations

made up of interdependent parts

an internal system with various activities(functions) that are linked

also linked to external role-players

Organisation as system

series of inputs from the environment

internal processes

outputs



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Figure 1.1: A systems view of business


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The role of inputs in the processof adding value

Inputs- resources a business use to create outputs

Three types of resources- financial resources

- operating resources

- human resources



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The value-adding process

Added value

- the difference between the market value of outputand the cost of inputs

Value added = sales (operating costs + wages &salaries + raw materials)

Add value by

- value of output (sales), or- cost of inputs (operating costs, wages &

salaries, raw materials)



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Figure 1.2: Value added by a Higher Education

Institution


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Processes for adding value Value is added by the functional processes that

transform the inputs into products or services (output)

Customer value is created when a product/service ismade more useful for the customer:

e pro uc s un que an eren

the product is low priced

the organisation respondsquickly to specificcustomer needs



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Outputs as the result of thevalue-adding process

Added value is distributed to a business's role-players



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Figure 1.3: Typical business role-players


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Adding competitive value

Competitive advantage

when an organisation satisfies the needs of thecustomer more effectively than its competitors do

when an organisation adds value for customers inwa s that differentiates it from its com etitors

Competitive value is added to

an organisations value chain (the organisation'sinternal activities - functional areas)

an organisations supply chain (activitiesassociated with moving goods from the rawmaterial stage through to the end-user)



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Figure 1.4: The Value ChainSource:Adapted from Porter, M.E. 1985. Competitive advantage, creating and

sustaining superior performance. New York: The Free Press.


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Figure 1.5: The Supply Chain


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Figure 1.6: The Demand Chain

chapter 1 value chain perspective

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