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Value chain analysis requires a strategic framework or focus for organising internal and external information, for analysing information, and for summarising findings and recommendations. Because value chain analysis is still evolving, no uniform practices have yet been established. However, borrowing recent concepts from strategists and organisation experts, three useful strategic frameworks for value chain analysis are
Steps in the Value Chain Analysis
The way the value chain approach helps these organisations to assess competitive advantage includes the use of following steps of analysis :
The way the value chain approach helps these organisations to assess competitive advantage includes the use of following steps of analysis :
(i) Internal cost analysis :rganisations use the value chain approach to identify sources of profitability and to understand the cost of their internal processes or activities. The principal steps of internal cost analysis are:
1. Identify the firm’s value-creating processes.
2. Determine the portion of the total cost of the product or services attributable to each value-creating process.
3. Identify the cost drivers for each process.
4. Identify the links between processes.
5. Evaluate the opportunities for achieving relative cost advantage.
(ii) Internal differentiation analysis — to understand the sources of differentiation (including the cost) within internal value-creating processes; and
(iii) Vertical linkage analysis — to understand the relationships and associated costs among external suppliers and customers in order to maximise the value delivered to customers and to minimise cost.
(iv) Core Competencies Analysis — Core competencies should tie together the portfolio of end products and help a firm excel in dominating its industry. Core competencies need to be continually validated. In the early 1970s, Timex held half of the global market for watches with its core competence in low-cost management of precision manufacturing. By the mid-1970, the watch industry moved to digital technology, making Timex’s core competence irrelevant.
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