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Questions and Answers
According to Porter's value chain framework, what is the primary benefit of carefully managing the linkages between activities?
According to Porter's value chain framework, what is the primary benefit of carefully managing the linkages between activities?
- It can be a vital source of competitive advantage. (correct)
- It simplifies the organizational structure.
- It always reduces operational costs.
- It guarantees higher market share.
What is the main objective of the value chain framework?
What is the main objective of the value chain framework?
- To increase the complexity of organizational activities.
- To streamline customer service processes exclusively.
- To focus solely on minimizing operational expenses.
- To maximize value creation while minimizing costs. (correct)
How do support activities contribute to the effectiveness of a firm?
How do support activities contribute to the effectiveness of a firm?
- They directly generate revenue through sales.
- They are involved in the physical creation of the product.
- They focus solely on reducing production costs.
- They provide the necessary background for primary activities to operate efficiently. (correct)
Which of the following is an example of a primary activity within a value chain?
Which of the following is an example of a primary activity within a value chain?
What role does 'inbound logistics' play in the value chain?
What role does 'inbound logistics' play in the value chain?
Which of the following activities is part of 'operations' in the value chain?
Which of the following activities is part of 'operations' in the value chain?
What does 'outbound logistics' primarily focus on?
What does 'outbound logistics' primarily focus on?
What is the main goal of 'marketing and sales' within the value chain?
What is the main goal of 'marketing and sales' within the value chain?
What is the significance of providing ‘service’ as a primary activity in the value chain?
What is the significance of providing ‘service’ as a primary activity in the value chain?
Why is 'procurement' considered a support activity?
Why is 'procurement' considered a support activity?
What is the central role of 'human resource management' in the value chain?
What is the central role of 'human resource management' in the value chain?
In what way does 'technological development' influence the value chain?
In what way does 'technological development' influence the value chain?
Why is 'firm infrastructure' considered a support activity?
Why is 'firm infrastructure' considered a support activity?
Within the context of a value chain, what do 'internal linkages' refer to?
Within the context of a value chain, what do 'internal linkages' refer to?
How can optimizing internal linkages affect a company's competitive advantage?
How can optimizing internal linkages affect a company's competitive advantage?
What potential issues can arise from weak or inefficient internal linkages?
What potential issues can arise from weak or inefficient internal linkages?
How is 'margin' defined in the context of a value chain?
How is 'margin' defined in the context of a value chain?
What determines the 'value' in the calculation of the margin?
What determines the 'value' in the calculation of the margin?
How does effective management of activities in the value chain relate to a firm's profitability?
How does effective management of activities in the value chain relate to a firm's profitability?
What is critical for a company, specifically relating to its capabilities and customer needs?
What is critical for a company, specifically relating to its capabilities and customer needs?
Flashcards
Value Chain Framework (Porter)
Value Chain Framework (Porter)
An interdependent system of activities connected by linkages. Managing these linkages can be a source of competitive advantage.
Primary Activities
Primary Activities
These activities are directly involved in creating and selling the product.
Support Activities
Support Activities
Activities that provide the necessary support for the effectiveness and efficiency of a firm's primary activities.
Inbound Logistics
Inbound Logistics
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Operations
Operations
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Outbound Logistics
Outbound Logistics
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Marketing and Sales
Marketing and Sales
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Service
Service
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Procurement
Procurement
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Human Resource Management
Human Resource Management
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Technological Development
Technological Development
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Firm Infrastructure
Firm Infrastructure
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Internal Linkages
Internal Linkages
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Optimization
Optimization
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Coordination
Coordination
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Margin
Margin
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Study Notes
Value Chain Analysis (Porter, 1990)
- Defines a company's activities as an interdependent system or network connected by linkages
- Linkages are a vital source of competitive advantage when managed carefully
- Aims to thoroughly examine how each part adds value and differs from the competition
Key Aspects
- All organizations have activities that link to develop business value, forming its value chain
- Aims to maximize value creation and minimize costs
- Cross-functional flows of products/services that add customer value are analyzed to achieve this aim
Conducting a Value Chain Analysis
- Capture all company activities and classify them as primary or support activities
Primary Activities
- Related to production and are directly involved in creating and selling the product
Support Activities
- Provide the necessary background for firm effectiveness and efficiency
- Support the primary activities and each other
Inbound Logistics (Primary)
- Receiving materials from suppliers, storing sourced materials, and handling them
- Activities include receiving, storing, and disseminating inputs to the product
- Examples include inbound material handling, inspection, warehousing, inventory control, and returns to the supplier
Operations (Primary)
- Transforming inputs to the desired product or service
- Includes production, assembly, packaging, maintenance, testing, and quality control
Outbound Logistics (Primary)
- Distributing the final product or service to customers
- Involves collecting, storing, and physically distributing the physical product to buyers
- Examples include finished good warehousing, sorting, order processing, scheduling, and transportation
Marketing and Sales (Primary)
- Analyzing customer needs and wants and creating awareness about the firm's products and services
- Activities include advertising, sorting, promotion, pricing, sales force management, and distribution channel selection
Service (Primary)
- Services like pre-installation or after-sales support
- Activities enhance or maintain the value of the product after sale and delivery
- Examples: advice, installation, repair/maintenance, customer service, product adjustments
Procurement (Support)
- Responsible for purchasing necessary materials for company operations
- An efficient department obtains the highest quality goods at the lowest prices
- Negotiating prices and purchasing raw materials, consumables, machinery, equipment, office supplies, and buildings
Human Resource Management (Support)
- Ensures the right skills are available when needed for value chain activities
- Involves recruiting, hiring, training, developing, compensating, motivating, and retaining personnel
Technological Development (Support)
- Concerned with technological innovation, training, and knowledge
- Crucial for survival and becoming a principal driver for competiton
- Embodied in every value chain activity and improves both the product and the production process
- Forms: Telecommunication, Accounting Software, Product Research & Development etc
Firm Infrastructure (Support)
- Supports the entire value chain, not just individual activities
- Examples include general management, planning, finance/accounting, legal/government affairs, and quality management
Internal Linkages
- Porter defines interactions amongst activities
- Activities must communication together
- Can lead to a competitive advantage through optimization and coordination
- Optimization makes the best/most effective use of a situation or resource
- Coordination is the organization of elements of an activity so enable them to work together effectively
Importance of Strong Linkages
- Decisions in one activity affect others positively or negatively
- Weak/inefficient linkages lead to miscommunications, misalignments, double work, and increased costs
- Stronger internal linkages increase competitiveness and margins
Margin
- The difference between the total value and the cost of value activities
- Value is the price customers are willing to pay for an offering
Competitive Advantage
- Understanding company capabilities and customer needs is crucial
- Firm profitability depends on effective value chain management
- Customer willingness to pay exceeds the relative costs, enhancing the value chain activities
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