Porters Generic Value Chain

Support Activities

Infrastructure Human Resource Management

Technology Development ProcurementPrimary ActivitiesInbound Logistics Operations Outbound Logistics Marketing & Sales Service

Elapsed Time - Value added time cost

Potential IS Contributions

Support Infrastructure Activities Human Resource -

Planning ModelsSkills & Experience Databases Computer-Aided Design On-line parts orderingPoint of Sale Scanners Outbound Logistics E-Commerce Remote Equipment Servicing Service

Technology Procurement Primary ActivitiesAutomated Warehouse Automated Check Clearing Operations

Inbound Logistics

Marketing & Sales

Elapsed Time - Value added time cost

GENERIC VALUE CHAIN : THE CONCEPTThe value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

DEFINITION A value chain is a chain of activities for a firm operating in a specific industry Every Firm is a collection of activities and can be disaggregated in terms of the activities. There are 9 distinct activities that create value in any firm, they would of course create cost as well. These nine activities are made up of 5 primary activities and 4 support activities. The 4 support Activities emerge out of the 5 primary activities.

THE NINE ACTIVITIESPRIMARY ACTIVITIES1. INBOUND LOGISTICS

SUPPORT ACTIVITIES1. FIRM

2. OPERATIONS (PRODUCTION) 3. OUTBOUND LOGISTICS 4. MARKETING & SALES 5. SERVICES

INFRASTRUCTURE 2. HUMAN RESOURCE MANAGEMENT 3. TECHNOLOGY DEVELOPMENT 4. PROCUREMENT

DEFINITION The 4 support Activities emerge out of the 5 primary activities. The chain of activities gives the products more added value than the sum of the independent activity's value. Value creation depends on how well each department of the firm perform its value creating activities. It also depends on how well various activities are being coordinated at various department level.

Business Process is basically a value creating and value delivering process and buyers patronize the firm that offers the highest value delivered.. A diamond cutter, as a profession, can be used to illustrate the difference of cost and the value chain. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond.

COMPETITIVE ADVANTAGE A Competitive Advantage grows fundamentally out of the value a firm is able to create for its buyers. For A Value to turn into Competitive Advantage it should be superior to the value generated by competitors in the same activity, either in terms of lower prices or additional benefits. The firm has to perform some value creating activities better than its competitors, in order to achieve a competitive advantage.

COMPETITIVE ADVANTAGETHROUGH INTEGRATION VIDEOCON Videocon bought Uptron color picture tube at a very high per unit price The idea was to acquire Competitive Advantage through Integration. The company wanted to become totally integrated TV manufacturer, thus manufacturing everything from glass shells to picture tubes to complete TV Sets. This integration meant a distinct competitive advantage to Videocon, in pricing as well as quality parameters.

THROUGH BRAND POWER NESTLE --- Maggie Maggie a product of NESTLE dominated the Indian noodle market for nearly 10 years. NESTLE had nurtured the brand in such a way Maggi had become a household name. Maggie had assiduously built its brand equity. The assurance of quick food was its first winning point & The welcome taste was second. Retail Support built over 10 years gave it further strength. NESTLE used all these winning points well and thereby built up Brand Equity

COMPETITIVE ADVANTAGETHROUGH JOINT VENTURES & ALLIANCES A Firm can also gain competitive Advantage through a Joint Venture These Strategic Alliances sometimes take place between rivals also. This happens with an objective to have better access to selected markets & to the mutual advantage of both partners. IBM Apple, IBM Siemens, Motorola Toshiba & Intel NEC, TATA- Sky { Sky Broadcasting Corporation}, TATAs alliance with AT&T switching Systems

THROUGH CREATING ENTRY BARRIERS There are 4 types of barriers such as (a) Entry Barriers (b) Mobility Barriers (c ) Shrinkage Barriers (d) Exit Barriers Entry Barriers are like walls built around the boundaries of an industry. They serve as defense for existing contestants. They act as barricades for the new comers.

COMPETITIVE ADVANTAGE THROUGH CREATING ENTRY BARRIERS Economies of Scale ( Size Barrier); this may relate to production, marketing & R&D etc. Differentiation Practised by various players (product differentiation/brand dominance in particular) Capital Requirement / Investment Technology Absolute cost advantage, independent of size Access to distribution channels Government Policy

COMPETITIVE ADVANTAGE THROUGH CREATING ENTRY BARRIERS Economies of Scale ( Size Barrier); this may relate to production, marketing & R&D etc. Differentiation Practised by various players (product differentiation/brand dominance in particular) Capital Requirement / Investment Technology Absolute cost advantage, independent of size Access to distribution channels Government Policy

COMPETITIVE ADVANTAGE THROUGH CREATING ENTRY BARRIERS MARUTU UDYOG Marutu Udyog is a good example of a firm which has gained competitive advantage by building entry barriers. It has nurtured its cost advantage arising from its relatively lower investments cost & built a formidable entry barrier in the passenger car industry of India through its low price for the small (budget) car.

CORE COMPETENCE is a fundamental, unique and inimitable strength of the firm that : (a) Provides the firm, the access to a variety of products / markets (b) Contributes significantly to customer benefits in the end products (c ) Is an exclusive preserve of the firm and cannot be imitated easily by competitors (d) Core Competence largely refers to technological competence, a competence at the root technology in particular.

FIRM SONY PHILIPS

CORE COMPETENCY Capability for miniaturization. It can make any product tiny. Optical Media Expertise

HONDA

Capability for making engines, which gives it an advantage in diverse products like cars, motorcycles, lawn mowers & generators Unique strength in Optics, Imaging and microprocessors controls: together they lend canon an advantage in diverse products as copiers, laser printers cameras etc.

CANON