Value Chain

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Strategic Service ManagementValue chain techniqueMaster of Arts in International Service Management(MAISM)Maedot Assefa Kebede20073755Michel AltanSjoerd A. GehrelsSchool of Graduate StudiesStenden UniversityLeeuwardenThe NetherlandsNovember, 2008|

Table of Contents

1.Introduction3
2.Value chain Goal and objectives3
3.Origin of the Value chain6
4.Value chain and the ten schools7
5.Advantages and Disadvantages of the Value Chain9
6.Value Chain in Service industry10
Bibliography13

1. Introduction

The essence of strategy formulation is coping with competition (Porter, 1998). When an organization has competitive advantage, it has something that other competitor’s in its league doesn’t have. Competitive advantage is defined by Coulter, 2008 as what sets an organization apart or its competitive edge. Organizations can see internal and external factors to see where their competitive advantages can benefit them the most. Looking into internal analysis of organizations, it is important to emphasize on organizational resources. Resources include financial physical, human, intangible, and cultural structure assets used by an organization to develop, produce and deliver products or services to its customers (Coulter, 2008). The resource based view (RBV) states firm’s resources are important in getting and keeping a competitive advantage. But all resources might not necessarily contribute for the organization’s competitive advantage, there for the RBV suggests that resources must be unique to be a resource of potential competitive advantage. Value is one of the characteristics that resources should have and these resources can play part in making a competitive firm. Adding value generally mean resources can be used to exploit external circumstances that are likely to bring in organizational revenue or it can be used to neutralize negative external situations that are likely to keep revenue from flowing in (Coulter, 2008). In other words organizational resources are not valuable by themselves, but only when they exploit those external opportunities or neutralize the threats. 2. Value chain Goal and objectives

The value chain is a model that describes a series of value-adding activities connecting a company’s supply side (raw materials, inbound logistics, and production processes) with its demand side (outbound logistics, marketing, and sales) (The McKinsey Quarterly 1996 no 1.). By analyzing the stages of a value chain, managers have been able to redesign their internal and external processes to improve efficiency and effectiveness. Therefore the goal of using a value chain technique is to define competencies and activities. According to Subramanian et. al., 2007 the metrics used to measure the performance of a value chain include: 1. Cost

2. Time
3. Value added
4. Productivity

Cost and productivity are the underlying factors in determining the competitiveness of an industry. The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers. It ensures that the analysis treats the whole cycle of production, including that governing connectedness to final markets. This forces the analysis to consider not just the efficiency of the production link in the chain, but also those factors which determine the participation of particular groups of producers in final markets.

In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram: Inbound

Logistics| >| Operations| >| Outbound
Logistics| >| Marketing
&
Sales| >| Service| >| M
A
R
G
I
N...
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