Critically examine how a ‘sector matrix’ framework is useful for analysing demand and supply linkages. Use two contrasting examples.
From Industry Value Chain to Sector Matrix
Deviating from the industry value chain first introduced by Porter (1985) and later adapted by Gereffi (1996), a fairly recent alternative has been established by Froud, Haslam, Johal & Williams (1998) called the ‘sector matrix’. Until about a decade ago competitive focus was on the production process, the steps taken to develop a product being the ‘primary’ activities and company strategies outlined as ‘support’ activities. With continually increasing complexity within corporations, new and more innovative means of analysis are required. A sector matrix approach “de-emphasizes the organization of production and instead separately analyses the two webs of demand and supply relations” (Froud et al, 1998). What we are examining is whether or not a value chain approach is sufficient for certain firms and how useful a sector matrix can be to a company involved in a more complex infrastructure. “Connecting the way in which firms migrate into other activities the social and institutional context in which they operate allows us to understand why migration is possible in some sectors and not others” (Haslam et al, 2000). Respectively, we will be studying the British bread company Kingsmill in relation to Porter’s industry value chain, and the British mobile phone company and service provider Orange in relation to Froud et al’s sector matrix. Figure 1: Limitations of different analysis systems (McDonald, 2012)
Part I: Analysis of Value Chain and Sector Matrix
In Breaking the Chains, Froud et al site not so much the flaws of Porter’s value chain, but its limitations. The group states that it “is not [the chain] that is wrong but [the users who] fail to recognize its limits of application” (1998). Value Chain
Porter introduced his ‘value chain’ as a basic tool for competitive advantage for the first time in 1985, and since then business students and firms alike have been analyzing how its applications can benefit a real-world company. When released, Porter claimed that his industry value chain could represent the design, production, marketing, delivery and support stages of a product’s development and distribution (Porter, 1985). These actions, divided into ‘primary’ and ‘support’ activities (see Figure 1 below), are meant to outline where the company is able to differentiate themselves from competitors. Figure 2
Porter’s Value Chain, c. 1985
The industry value chain analyzes the organization of activities in a firm and provides a platform for decision makers to reform company structure. Concordantly, it outlines a solid structure through which firms can engage, and assign their own strategy. The primary activities in the chain are considered to be crucial aspects of competing in an industry; although, depending upon the firm involved, some activities may be considered more important than others (Porter, 1985). Primary activities are also known as vertical linkages, or the ‘supply side’ (Haslam et al, 2000) of the value chain, as their stress lies with supply relationships and the direct linear structure between supplier and distributor. Support activities are known as horizontal linkages and considered the ‘demand side’ (ibid), because they stress competition between firms of similar technologies and products as each firm is battling for market share. The examination of these different activity groups “identifies the points where cost can be reduced or features added to deliver cost advantage or product differentiation against competitors” (Froud et al, 1998).
Although value chains have an industry centred view, the subsets within a value chain can only be understood within the context of a single business unit (Porter, 1985); industry wide analysis would swell the...
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