Learning Objectives
• Revisit the idea of competition
• To understand the basics of value chain analysis – Analysing fit between processes and outcomes
• Introduce concepts of strategically distinct activities • Introduce concept of strategic alignment
New
Potential
Entran ts Threat of New
Entrants
Industry
Competition
Bargaining Power of Buyers
Suppliers
Bargaining
Power of Suppliers
Buyers
Intensity
of Rivalry
Threat of
Substitutes
Substitutes
Background
• Business exists in a competitive environment
– Market share is divided against rival groups
• Government regulation enforces competition
• Value Creation
– Linked to overall firm performance (so far)
– Delivery of efficient processes
– Delivery of effective processes
– Remember Drucker? (Benchmarking lecture)
• If you can’t measure it, you can’t manage it
Modelling Business Performance
Business Model
* Product
* Scope
* Price
* Value
* Organisational capabilities
Background II: Environment
• The Competitive Environment drives business behaviour • This creates:
– The need to create products for competitive advantage (There’s more to this)
– Sustain a competitive edge over rival businesses
– Customers or Buyers that have options
– Suppliers have options
Five Forces Model
New
Potential
Entrant
s
Threat of New
Entrants
Industry
Competition
Bargaining Power of Buyers
Suppliers
Bargaining
Power of Suppliers
Buyers
Intensity
of Rivalry
Threat of
Substitutes
Substitutes
Examples from the fast food industry
• http://www.youtube.com/watch?v=hqf_SIQ3JAk
– Where do they perceive their value?
• http://www.youtube.com/watch?v=9LzMtL6cT4I
– What kind of value what a customer perceive from this?
• http://www.youtube.com/watch?v=4EVImH3geN
U
– See the difference?
Business Processes?
• At the business level:
– Processes operate under competitive markets, in this environment
– Everything in the value chain is part of this;
Customers, suppliers, the firm, etc.
• Theory goes:
– In order to survive we must be ‘competitive’
– Our strategy must focus on how we add value externally and internally
– Strategy and processes must be therefore align
Value Chain
Value Chain Analysis
• A tool used for analysing internal business processes – looks at “discreet” activities
• Individual value chains can be mapped upward into activity “areas” which are common to all businesses
• All business processes can be mapped as a series of activities that produce outputs (remember the maps)
• Outputs should add value to the overall organisation,
i.e. they should cost less than the value they add
• “Differences among competitor value chains are a key source of competitive advantage.” Porter, M.E., 1985, P.36
Value Chain Analysis
• Value chain analysis is the process of isolating activities “that are technologically and strategically distinct.” Porter, M.E., 1985. p. 39
• A firm’s value chain is a system of interdependent activities linked across and up/down the firm
• Neither value chains nor activity areas can be mapped consistently with accounting system categories • VCA aimed at the business unit level and lower – not really large corporations of multiple BU’s
Value Chain Analysis
“The value chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation.”
Porter, M.E., 1985. P.33
Qantas source of differentiation
• https://www.youtube.com/watch?v=16RhgfA6
62kLower fees vs more Freedom
• https://www.youtube.com/watch?v=-q2FmeH
LnAs
• Note: What are the sources of value?
Value Chain Analysis
• Activity areas divided into two types :
– Primary Activities
– Support Activities
• Activity areas are further divided into generic
categories
