1.

Value Chain Analysis VALUE CHAIN Marketing Design Build OS/UI Apps Distribution &
Service Customer Sales Network Strategic Management Analysis : Apple 28 iPhone 3G

2. R¬ Rapid technological advances ¬Value Chain (cont’d) • Technology Development: &

The iPhone has incentives for its partners and monetization opportunities for Apple
throughout- Outside software developers keep 70% of each sale for the products they
develop Strategic Management Analysis : Apple 29 iPhone 3G¬ Incredible business
model and ecosystem ¬ Design has always been a part of Apple’s DNA ¬D department
is one of the best in today’s world- creates immense value by introducing variants to
the iPhone • Product Design:

3. Apple and AT¬ Marketing the iPhone directly to end-users, certain education
customers, and resellers through online and retail stores • Service and Distribution: ¬
Internet advertising helped in the sales of the iPhone ¬ Cleverly utilized the internet to
build hype for the iPhone ¬ iPhone is assembled and distributed in China - cheap labor
• Marketing: ¬ Outsourced most manufacturing - reduces operating costs ¬Value Chain
(cont’d) • Manufacturing: & Best Buy needs to improve its brand and customer pull
Strategic Management Analysis : Apple 30 iPhone 3G¬T alliance

Concept of Value chain approaches

Dr.Kedar Karki
Introduction:
The value chain approach was developed by Michael Porter in the1980s in his book “Competitive
Advantage: Creating and SustainingSuperior Performance” (Porter, 1985). The concept of value added,
inthe form of the value chain, can be utilized to develop anorganisation’s sustainable competitive advantage
in the business arenaof the 21st C. All organisations consist of activities that link togetherto develop the
value of the business, and together these activitiesform the organisation’s value chain. Such activities may
includepurchasing activities, manufacturing the products, distribution andmarketing of the company’s
products and activities (Lynch, 2003). Thevalue chain framework has been used as a powerful analysis tool
forthe strategic planning of an organisation for nearly two decades. Theaim of the value chain framework is
to maximise value creation whileminimising costs.
Main aspects of Value Chain Analysis
Value chain analysis is a powerful tool for managers to identify the keyactivities within the firm which form
the value chain for thatorganisation, and have the potential of a sustainable competitiveadvantage for a
company. Therein, competitive advantage of anorganisation lies in its ability to perform crucial activities
along the value
chain
better
than
its
competitors.
The value chain framework of Porter (1990) is “an interdependentsystem or network of activities, connected
by linkages” (p. 41). Whenthe system is managed carefully, the linkages can be a vital source ofcompetitive
advantage (Pathania-Jain, 2001). The value chain analysisessentially entails the linkage of two areas.
Firstly, the value chainlinks the value of the organisations’ activities with its main functionalparts. Then the
assessment of the contribution of each part in theoverall added value of the business is made (Lynch, 2003).
In order toconduct the value chain analysis, the company is split into primary andsupport activities (Figure
1). Primary activities are those that arerelated with production, while support activities are those that
providethe background necessary for the effectiveness and efficiency of thefirm, such as human resource
management. The primary and secondaryactivities of the firm are discussed in detail below.
Primary activities
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The primary activities (Porter, 1985) of the company include the

following:
• Inbound logistics
These are the activities concerned with receiving the materials fromsuppliers, storing these externally
sourced materials, and handlingthem within the firm.
• O p era ti o n s
These are the activities related to the production of products andservices. This area can be split into more
departments in certaincompanies. For example, the operations in case of a hotel wouldinclude
reception,
room
service
etc.
• Outbound logistics
These are all the activities concerned with distributing the finalproduct and/or service to the customers. For
example, in case of ahotel this activity would entail the ways of bringing customers to thehotel.
• Marketing and sales:
This functional area essentially analyses the needs and wants ofcustomers and is responsible for creating
awareness among the targetaudience of the company about the firm’s products and services.Companies
make use of marketing communications tools likeadvertising, sales promotions etc. to attract customers to
their products.
• Service
There is often a need to provide services like pre-installation or after-
sales service before or after the sale of the product or service.
Support activities
The support activities of a company include the following:
• Procurement
This function is responsible for purchasing the materials that arenecessary for the company’s operations. An
efficient procurementdepartment should be able to obtain the highest quality goods at thelowest prices.
• Human Resource Management
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This is a function concerned with recruiting, training, motivating andrewarding the workforce of the company.
Human resources areincreasingly becoming an important way of attaining sustainablecompetitive
advantage.
• Technology Development
This is an area that is concerned with technological innovation,training and knowledge that is crucial for
most companies today inorder to survive.
• Firm Infrastructure
This includes planning and control systems, such as finance,
accounting, and corporate strategy etc. (Lynch, 2003).
Figure 1
The Value Chain
Source: Porter (1985)
Porter used the word ‘margin’ for the difference between the totalvalue and the cost of performing the value
activities (Figure 1). Here,value is referred to as the price that the customer is willing to pay fora certain
offering (Macmillan et al, 2000). Other scholars have usedthe word ‘added value’ instead of margin in order
to describe the same(Lynch, 2003). The analysis entails a thorough examination of how eachpart might
contribute towards added value in the company and how
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the success of the company as its business strategy. Notably, both thestrategy and business model of an
organisation are crucial for therobustness of the overall value chain.
For example, 7-Eleven had been vertically integrated, controlling mostactivities in the value chain by itself.
The company has now outsourcedmany parts of its business including functions like HR, IT
management,finance, logistics, distribution, product development, and packaging.According to Gottfredson
et al (2005), the value chain decisions ofcompanies will increasingly shape their overall
organisationalstructure. Moreover, the value chain decisions will play a role indetermining the type of
management skills that companies may needto develop or acquire to survive in fiercely competitive
business markets.
The Apple podcasting value chain is comprised of nine steps thatessentially move from raw content to the
listener. All the steps of thevalue chain include content, advertising, production,
publishing,hosting/bandwidth, promotion, searching, catching, and listening. It isimportant to note that each
step in the value chain adds value to thepodcast in distinctive ways, has its own sets of challenges
andopportunities.
It is important to note that the nature of value chain activities differsgreatly in accordance with the types of
companies and industries. Forcompanies with complex systems like IBM, Accenture and Cisco etc., itis not
possible for one member of the value chain to provide all theproducts and services from start to finish. The
marketing function insuch companies focuses on aligning with key partners and allies thatmust collaborate
with each other. For example, installing SAP's ERPsystem requires direct involvement from companies like
HP, Oracle,and Accenture, along with indirect involvement of companies like EMC,Cisco, and Microsoft, and
collaboration between many departmentswithin the company. The market assets contrast starkly between
thecompanies with complex systems and those that are driven by volumeoperations. For example, in case
of Apple’s leading products likeMacintosh and the iPod, the entire offer is inside a package, and theentire
value chain is preassembled. The change of supplier for theMacintosh from IBM, to Intel, improved the
system performance whileretaining the value in terms of price to the consumer. The onlyvariable to manage
in Apple’s case is the consumers’ preferences. Therole of creating differentiation through unique quality
features, alongwith promotion in order to create brand awareness, image andeventually brand equity
becomes imperative for volume operations driven
companies
like
Apple
(Moore,
2005).
It is imperative to note that the value chains of companies have
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undergone many changes over the last two decades, due to the rapidlychanging business environment.
Information technology and theInternet have played a fundamental role in transforming certain partsand the
interlinkages between parts of the value chains of companiestoday. Moreover HRM is increasingly becoming
a vital asset in the valuechain that contributes to competitive advantage. Strategic alliancesare also
becoming an integral part of the value chains. For example,IBM once enjoyed backward vertical integration
into the disk driveindustry and forward vertical integration into the consulting servicesand computer software
industries (Hill et al, 2007). According to thechanging business environment, IBM had more than 400
strategicalliances as of 2003 (Thompson et al, 2003). Herein, the value chainanalysis is useful in providing a
framework to examine the advantagesthat partners can give to each other (Pathania-Jain, 2001). It
isimportant to note the source of competitive advantage of a companyfor the value chain analysis. The
competitive advantage for IBM, forexample, lies in depth, breadth and the geographic spread of its
globaloperations (Rai, 2006) and the loyalty that the big blue enjoys from itsclientele.
Lastly, analysts should look for the managerial implications that thenew era of capability outsourcing may
bring. The value chain decisionsof companies will increasingly shape their organisational
structure.Furthermore these decisions will determine the types of managerialskills that companies may need
to develop to survive in an increasinglycompetitive business environment.
Where to find information for Value Chain Analysis
Analysts can explore various sources to find information necessary forconducting the value chain analysis.
Up to three years of annualreports of the company can be analysed to see how the costing of theactivities
are changing over the period and whether they are in unisonwith the competitive strategy of the firm. These
annual reports of thecompany can be compared to the annual reports of the keycompetitors in order to see
how competitive strategies differ betweenthe companies, along with finding the difference in the contribution
ofactivities
to
the
company’s
profitability.
In order to gain knowledge about the core competence of thecompany, analysts can look at the company
and competitor websites.SWOT analysis of the companies done by companies like Datamonitoretc. can help
the analyst to understand the key strengths andweaknesses of the company and how the firm differs from
itscompetitors. Furthermore, journal articles, trade publications andmagazines are useful sources of
information to identify how value is
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created in the particular industry in which the company operates and

which activities play a key role in the generation of that value.
Limitations of Value Chain Analysis
One of the limitations of the value chain model is that it describes anindustrial organization which essentially
buys raw materials andtransforms these into physical products. Notably, at the time when themodel was
introduced (Porter, 1985), service industries in the westerncountries employed lesser workforce compared to
today’s statistics ofthe same (www.wikipedia.org). Academics and practitioners alike havecritiqued the
model and its applicability in the context of serviceorganisations. Partnerships, alliances and collaboration
along withdifferentiation and low costs are common drivers of value today.The limitations of the model
include the fact that ‘value’ for the finalcustomer is the value only in its theoretical context (Svensson,
2003),and not practical terms. The real value of the product is assessed whenthe product reaches the final
customer, and any assessment of thatvalue before that moment is only something that is true in
theory.Despite this limitation, analysts can effectively use the value chainmodel to determine the value to the
final customers in a theoreticalway. Use of other planning tools and techniques like Porter’s
genericstrategies, analysis of critical success factors etc. is recommended inconjunction with the value chain
framework for a more comprehensiveanalysis of a company’s strategy and planning.
Conclusion
The value chain framework has been used as a powerful analysis toolfor organisational strategic planning
for nearly two decades now. Thevalue chain framework shows that the value chain of a company maybe
useful in identifying and understanding crucial aspects to achievecompetitive strengths and core
competencies in the marketplace. Themodel also reveals how the value chain activities are tied together
toultimately create value for the consumer. The five primary activitiesand four support activities form an
interdependent system that isconnected by linkages. Analysts conducting the value chain analysisshould
break down the key activities of the company according to theactivities entailed in the framework, and
assess the potential foradding value through the means of cost advantage or differentiation.Finally, it is
important to determine strategies that focus on thoseactivities that would enable the company to attain
sustainable
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