Value Chain Analysis: Literature Review and Application on Ikea

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November 28, 2012
November 28, 2012
Aisling Lynch
C09687271

Aisling Lynch
C09687271

Stratgic management
the value chain concept: literature review and application analysis on IKEA Stratgic management
the value chain concept: literature review and application analysis on IKEA

Contents

* Introduction
* Origination
* Porter’s Value Chain Concept
* Linking of the Value Chain
* Focus on External Sources
* The Future - Conclusion
* Ikea Example
* References

Declaration

I, the undersigned, declare that this report is entirely my own written work, except where otherwise accredited, and that it has not been submitted for a degree or other award to any other university or institution.

Introduction

Since the 1980’s academics have been pointing to a firm’s own activity pool for analysis, as a way of determining competitive advantage. It was in 1985 that the term “Value Chain” was coined by Michael Porter (Porter 1998) and all its subsidiary headings. I will look at some of the literature surrounding the Value Chain concept to see how it has evolved and changed since its beginning two decades ago. Using this literature I will see what recommendations are cited to carry this concept into the future with an ever more globalized market. Finally an application of this literature will be carried out on Ikea: a global company that has changed with market trends when necessary to stay a top player in its industry.

Origination

Kippenberger identifies in his research, how the idea of analyzing internal activities as a source of competitive advantage began in the early 1980’s with McKinsey’s Business Systems Concept (Kippenberger 1991). Through this concept, firms could look at their own activity pool and performances and compare these to that done of their competitor. This comparison would then act as a source of competitive advantage. Michael Porter took influence from this research and began to fine tune it even further. His creation of the Value Chain concept in 1985 (Porter 1998) has been the topic of detailed research by academics in diverse fields: strategic management (Johnson et al. 2005), marketing (Webster 1988), and customer loyalty (Parasuraman 2000) to name a few. The concept was an aid to identify sources of competitive advantage by providing a basis of differentiation (Porter 1998). According to Porters earlier research, differentiation could be created by using one of both of the following strategies: lower relative cost, or some form of differentiation offering (Porter 1998).

Porter’s Value Chain Concept

The original concept started with a tool called the Value Chain which when implemented correctly helped to break down all activities that a business took part in, in order to identify and understand the sources of competitive advantage (Porter 1998). Johnson et al. (2005) states that the value chain can be used to understand how a company creates or loses value in its activities. This needs to be identified if the company achieves competitive advantage by providing value to their customers. By stripping systems back to ‘strategically relevant activities’ (Porter 1998), cost savers and creators can be identified as well as the activities that house sources of differentiation. If these are carried out more efficiently, better or cheaper than competitors, then competitive advantage is created (Parasuraman 2000). Kippenberger reminds us that in the original concept all of a firm’s activities can be broken down into two categories (Kippenberger 1991): primary and support. Primary activities are concerned with the physical creation and delivering of the product (Johnson et al. 2005); whilst support are the activities that supply primary ones with purchased inputs, human resources and technology. It also supplies the entire chain with firm infrastructure (Kippenberger 1991). All activities are embedded into a ‘stream of activities’ called the value system...
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