Value chain analysis

It is evident that value chain analysis is difficult to implement and proves little
practical significance to an organization. A study by (Wei, 2010) suggests that,
organizations that deal in diverse products and services find it difficult to
implement value chain analysis. This is because in accounting strategy analysis
and development the value chain model provides an alternative way of thinking
such that the main concepts used in accounting analysis can also be applied in
strategic analysis. For accounting analysis, the primary activities typically involve
the logistic product flow and support activities especially indirect activities. When
these concepts are applied in strategic management accounting, the value chain
focuses on the value derived from every activity individually. Besides, the value
chain analysis focuses on the enabling an organizations competitive advantage
from every activity. Unfortunately, the model is ineffective when applied in
organization venturing in delivering diverse services. This is because of the
tedious activity involved to develop a comprehensive strategy with both primary
and secondary activities and competencies within the chains. Besides, achieving
this initiative would imply increase in operational costs, which might turn out to
be of little practical significance for an organization (Wu, 2009, p. 69). For
instance, in learning institutions the organization value chain is described to
consist the value creating activities within an organization such as course
development enhanced through the delivery of course offerings and significant
services to the customers. Therefore, considering this example, it is justified that
since value chain involves a comprehensive alteration of the strategic operations
it is becomes tedious to coordinate the functions effectively on a diverse range
activities within products and services. The feasibility of value chain analysis can
then be enhanced through analyzing the competitive forces in the model to
ensure it attains the organizations fundamental attractiveness. In turn exposing
the underlying stimulants of profit to decipher a better approach to increase
profits, provided there is an effective coordination of resources in technology,
communication channels, development of alternative products and competition
from related organizations.
Although low cost operations associated with value chain can be a potential
source of competitive advantage. Most organizations in the contemporary are
largely considering the concept of value chain analysis; the issue has raised a lot
of discussion regarding the application of strategic approach to cost
management in value chain. However, it is noted that assessing cost related to
value chain is quite a daunting task because the available systems for cost
accounting do not capture data for value chain analysis. Hutaibat, (2011, pp.
206) suggests that the accounting system only capture the strategic factors such
as economies of scale and learning among others but does not show how the
factors relate to Each other. A similar study by (Wu, 2009, p. 69) confirms that
value chain analysis has a few limitations in its implementation. The first
challenge is that the accounting system employed in strategic accounting is not
sufficient to identify cost related to value chain operations. The best solution to
the problem is to implement ABC. However, rough estimated can be used to
provide some insight about the effective realization of value chain costs in reality
as it is indicated on paper. However, estimations also affect the value chain
outcomes. This is because when competitions emerge, organizations find it

mandatory to manage their activities ad costs precisely to maintain a

competitive position in the market (Wei, 2010).