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BOLA: Mintzberg - Strategy-making and Organisation Types
Value Chain Analysis
Value Chain Analysis is a tool developed my Michael Porter
to examine organisationa production and support processes for
their contribution to competitive advantage. Competitive
advantage cannot be understood by looking at a firm as a
whole. It stems from the many discreet activities a firm
performs in
designing, producing, marketing, delivering and supporting
its product.
Porter M.E (1983) Competitive Advantage, Free Press, NY, p33.
Focus and Scope
This tool is designed to assist with analysis at the
functional level. It provides a framework for evaluating the
contribution made by internal processes to overall customer
value. It does not consider issues in the external
environment (either direct or indirect) except where these
have an influence on internal process design or
implementation. Similarly, the more subjective aspects of the
internal environment such as organisational values and
culture are not addressed through the application of this
tool. It can provide a useful adjunct to an overall
assessment of organisational strengths and weaknesses by
providing a framework for a structured and systematic
analysis of specific operations within the organisation.
Description
Value Chain analysis proposes that we analyse any business in
terms of its
- primary activities; and
- support activities
Primary activities are those activities directly involved
with adding value to inputs and transforming them into goods
or services desired by customers. These include:
- Inbound logistics
- Operations
- Outbound logistics
- Marketing and sales
- Service
Support activities are those activities necessary to support
or enable the effective functioning of the primary
activities. They include:
- Firm infrastructure
- HRM
- Technology development
- Procurement
Application
As the value chain is concerned with ensuring functional
organisation supports business level strategy it should be
applied at a level where there are a coherent set of
functional activities directed at servicing a particular
market. This will generally be a distinct business unit.
Applying the tool at too high a level in an organisation will
not provide any valuable insight. This is because an industry
will contain many different segments which imply the need for
different processes and which involve different economic
relationships and dynamics. Recognise also that an
organisations value chain will be unique, a product of that
organisations individual strategic and business history.
In order to apply the value chain it is important that the
organisation is clear about its objectives. Analysis should
proceed in light of the overall corporate strategy to be
pursued.
Analysis can proceed on a number of fronts.
1. identify the actual activities performed by the business
unit in each of the generic categories nominated in the model
2. analyse the value added by each of these activities in
terms of overall business strategy (eg cost leadership,
differentiation, niching, timeliness)
3. examine how linkages and flows build value as processes
flow across tasks
4. examine how flows into and out of the organisation occur
and whether changes to internal processes can improve the
interface with suppliers or customers at various stages in
the value adding process.
5. identify those activities which are key to success of
business strategy
6. examine the resource allocations with a view to allocating
resources in accordance with the contribution of the task to
strategic direction.
As a rule, the aim is to strengthen those activities which
most contribute to overall strategy while constraining
resources allocated and consumed by tasks less critical.
Once analysis has been undertaken of the organisations value
chain, attention should be paid to how this dovetails into
the value chain of suppliers and customers.
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