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Value Chain Analysis EXPLAINED | B2U | Business To You

Introduction

In the previous video on the video framework, we discussed how a company's resources and capabilities can lead to an increasing competitive advantage. In this video, we will track the internal organization and its activities even more systematically, applying a better-known approach called Value Chain Analysis to map a company's value chain. By doing so, you will be better able to assess where true value is created within the company. My name is Lars, and welcome to a new episode of Business To You.

A company can be viewed as a collection of activities and steps that it performs to design, produce, market, deliver, and support its products or services. The goal is to use these processes to add greater value to customers than the cost of creating the product. The added value represents the company’s profit margin.

Michael Porter emphasized the importance of examining internal activities and how they interact to better analyze sources of competitive advantage. He developed the Value Chain Analysis, as published in his book "Competitive Advantage: Creating and Sustaining Superior Performance" in 1985. This analyzes value chain activities by dividing them into primary and support activities.

Primary activities include:

  1. Inbound Logistics: Handling purchased inputs such as raw materials.
  2. Operations: Conversion of inputs into the final product.
  3. Outbound Logistics: Storage and distribution of completed products.
  4. Marketing and Sales: Activities that make potential customers interested in purchasing.
  5. Service: Enhancing or maintaining the product value post-sale.

Support activities include:

  1. Procurement: Function of purchasing inputs.
  2. Technology Development: Necessary to improve both the product and production processes.
  3. Human Resource Management: Recruiting, hiring, training, and compensation.
  4. Firm Infrastructure: General management, planning, finance, and legal affairs.

Let's explore a real-life example. We visited Besseling Technologies in Heerhugowaard, Netherlands, known for producing state-of-the-art cleaning robots for greenhouse rooftops.

Inbound Logistics

Besseling handles purchased inputs like electronic components, wires, brushes, etc., ensuring quality right from suppliers.

Operations

The company employs a skilled team to transform these inputs into cleaning robots through machining, assembly, and quality testing.

Outbound Logistics

Their products are distributed worldwide, requiring efficient warehousing and transportation systems.

Marketing and Sales

Marketing and sales activities ensure the product reaches potential clients through various channels, including social media, newsletters, and trade events.

Service

Besseling offers installation and repair services, keeping customers satisfied even post-purchase.

Support activities include procurement managed through relationships with suppliers, technology development to remain competitive, human resource management to ensure the right skills are available, and firm infrastructure covering essential administrative functions.

Primary and Support Activities Coordination

Besseling's procurement team coordinates closely with other departments to manage inventories, and the technology team helps in continuous product innovation. Proper coordination between these activities ensures smooth process flow and competitive advantage.

Optimization and Coordination

Optimization can be achieved by improving the inspection of purchased materials, while effective coordination ensures smooth interaction between activities, avoiding miscommunications and inefficiencies.

Combining Value Chain Analysis with frameworks like VRIO can provide a good starting point for internal analysis. Integrating external analysis tools such as PESTEL Analysis and Porter's Five Forces can complete the business overview.

Feel free to comment on what framework you’d like to see covered in the next video. Don’t forget to subscribe for more business content. Thanks for watching, and let’s learn smarter together.

See you next time!

Keywords

  • Value Chain Analysis
  • Competitive Advantage
  • Michael Porter
  • Besseling Technologies
  • Inbound Logistics
  • Operations
  • Outbound Logistics
  • Marketing and Sales
  • Service
  • Procurement
  • Technology Development
  • Human Resource Management
  • Firm Infrastructure

FAQ

Q1: What is the main goal of the Value Chain Analysis? A: The main goal is to identify where value is added within a company and how internal activities interact, leading to a competitive advantage.

Q2: Who introduced the concept of Value Chain Analysis? A: Michael Porter introduced the concept in his book "Competitive Advantage: Creating and Sustaining Superior Performance" in 1985.

Q3: What are the primary activities in the Value Chain? A: The primary activities include Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service.

Q4: Can you give an example of a company using Value Chain Analysis? A: Yes, Besseling Technologies, which produces cleaning robots for greenhouse rooftops, effectively uses Value Chain Analysis to optimize its operations.

Q5: How do support activities function in the Value Chain? A: Support activities, such as Procurement, Technology Development, Human Resource Management, and Firm Infrastructure, underpin and enhance the effectiveness of primary activities.

Q6: How can a company optimize its Value Chain? A: Optimization can be achieved by improving processes, enhancing coordination among activities, and integrating technological advancements to reduce costs and improve efficiency.

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