value chains and adding value

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one step ahead accadis Hochschule Bad Homburg Self Guided Lecture # 2 Strategic & Innovative Management Cristin Howell-Vischer, MIM MANAGEMENT II – MAN 2600

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Page 1: Value Chains And Adding Value

onestepahead

accadisHochschuleBad Homburg

Self Guided Lecture # 2

Strategic & Innovative Management

Cristin Howell-Vischer, MIMMANAGEMENT II – MAN 2600

Page 2: Value Chains And Adding Value

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The Value Chain

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What is a Value Chain?

A sequential process of value-creating activities A categorization of the generic value adding activities of an organization A concept described and popularized by Michael Porter in his 1985 best-

seller, “Competitive Advantage: Creating and Sustaining Superior Performance”

It defines the organization’s activities as being either primary or support activities

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The Value Chain

General administration

Human resource management

Technology development

Procurement

Inbound logistics Operations Outbound

logisticsMarketing and sales Service

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Primary Activities

Associated with receiving, storing and distributing inputs to the product Location of distribution facilities

Material and inventory control systems

Systems to reduce time to send “returns” to suppliers

Warehouse layout and designs

Inbound Logistics

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Primary Activities

Associated with transforming inputs into the final product form Efficient plant operations

Appropriate level of automation in manufacturing

Quality production control systems

Efficient plant layout and workflow design

Inbound Logistics

Operations

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Primary Activities

Associated with collecting, storing, and distributing the product or service to buyers Effective shipping processes

Efficient finished goods warehousing processes

Shipping of goods in large lot sizes

Quality material handling equipment

Inbound Logistics

Operations

Outbound Logistics

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Primary Activities

Associated with purchases of products and services by end users and the inducements used to get them to make purchases Highly motivated and competent sales force Innovative approaches to promotion and

advertising Selection of most appropriate distribution channels Proper identification of customer segments and

needs Effective pricing strategies

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

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Primary Activities

Associated with providing service to enhance or maintain the value of the product Effective use of procedures to solicit customer

feedback and to act on information

Quick response to customer needs and emergencies

Ability to furnish replacement parts

Effective management of parts and equipment inventory

Quality of service personnel and ongoing training

Warranty and guarantee policies

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service

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Support Activities

Typically supports the entire value chain and not individual activities Effective planning systems

Ability of top management to anticipate and act on key environmental trends and events

Ability to obtain low-cost funds for capital expenditures and working capital

Excellent relationships with diverse stakeholder groups

Ability to coordinate and integrate activities across the value chain

Highly visible to inculcate (fix in people’s minds) organizational culture, reputation, and values

General Administration

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Support Activities

Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel Effective recruiting, development, and retention

mechanisms for employees

Quality relations with trade unions

Quality work environment to maximize overall employee performance and minimize absenteeisn

Reward and incentive programs to motivate all employees

General Administration

Human ResourceManagement

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Support Activities

Related to a wide range of activities and those embodied in processes and equipment and the product itself Effective R&D activities for process and product

initiatives Positive collaborative relationships between R&D

and other departments State-of-the art facilities and equipment Culture to enhance creativity and innovation Excellent professional qualifications of personnel Ability to meet critical deadlines

General Administration

Human ResourceManagement

Technology Development

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Support Activities

Function of purchasing inputs used in the firm’s value chain Procurement of raw material inputs

Development of collaborative “win-win” relationships with suppliers

Effective procedures to purchase advertising and media services

Analysis and selection of alternate sources of inputs to minimize dependence on one supplier

Ability to make proper lease versus buy decisions

General Administration

Human ResourceManagement

Technology Development

Procurement

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Resource-Based View of the Firm

Two perspectives

The internal analysis of phenomena within a company (SWOT)

An external analysis of the industry and its competitive environment (PEST)

Three key types of resources

Tangible resources

Intangible resources

Organizational capabilities

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Types of Resources

Relatively easy to identify, and include physical and financial assets used to create value for customers Financial resources

Firm’s cash accounts

Firm’s capacity to raise equity

Firm’s borrowing capacity

Physical resources

Modern plant and facilities

Favorable manufacturing locations

State-of-the-art machinery and equipment

Tangible Resources

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Technological resources

Trade secrets

Innovative production processes

Patents, copyrights, trademarks

Organizational resources

Effective strategic planning processes

Excellent evaluation and control systems

Types of Resources

Tangible Resources

Relatively easy to identify, and include physical and financial assets used to create value for customers

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Types of Resources

Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time Human

Experience and capabilities of employees

Trust

Managerial skills

Firm-specific practices and procedures

Tangible Resources

Intangible Resources

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Types of Resources

Innovation and creativity

Technical and scientific skills

Innovation capacities

Reputation

Effective strategic planning processes

Excellent evaluation and control systems

Tangible Resources

Intangible Resources

Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time

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Types of Resources

Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end Outstanding customer service

Excellent product development capabilities

Innovativeness of products and services

Ability to hire, motivate, and retain human capital

Tangible Resources

Intangible Resources

Organizational Capabilities

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How Resources & Capabilities Lead to Advantages

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Adding Value

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Adding Value

Adding value means making the customer feel like they are getting real value for their money. This can happen by/through:

understanding and being close to the customer

committing to quality

maintaining a high level of all around service

reacting speedily to competitive opportunities and threats

constant innovation

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Examples of Adding Value

warranties

extra car features (rust filter)

airlines (mix of offerings in seat choices)

taking away features seen as a nuisance (handy features)

services (grocery delivery)

convenience packaging (salad in a bag)

cleanliness, value, quality, service (formerly McDonalds)

ambience/lifestyle (Starbucks)

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Opportunities for Adding Value

changes in industry regulation

marketing (segmentation/globalization)

operations (technology, cost reduction, service, quality)

people (exploiting expertise, encouraging innovation)

finance (globalization of financial markets, better use of assets)

information (exploiting the potential of information technology)

acquisition and restructuring strategies

co-operation strategies

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Ten Ways to Add Value to Your Business

According to Dr. David J. Skyrme

1. Establish the Strategic Role of Information

2. Identify Users Real Needs

3. Segment Your Market

4. Create a Unique Product

5. Sales & Marketing

6. Evaluation & Feedback

7. Exploit Technology

8. Selective Outsourcing

9. Building Partnerships

10. Develop Hybrid Skills