The Value Chain
As the first step in examining this concept, consider the value chain, which is illustrated in Figure 3.5.11 The term value chain refers to the idea that a company is a chain of activities that transforms inputs into outputs that customers value.
The transformation process involves both primary activities and support activities that add value to the product. Primary Activities Primary activities include the design, creation, and delivery of the product, the product’s marketing, and its support and after-sales service. In the value chain illustrated in Figure 3.5, the primary activities are broken down into four functions: · research and development,
· marketing and sales,
· customer service. Research and Development
Research and development (R&D) refers to the design of products and production processes. Although we think of R&D as being associated with the design of physical products and production processes in manufacturing enterprises, many service companies also undertake R&D. For example, banks compete with each other by developing new financial products and new ways of delivering those products to customers. Online banking and smart debit cards are two examples of the fruits of new-product development in the banking industry. Earlier examples of innovation in the banking industry included ATM machines, credit cards, and debit cards.
By creating superior product design, R&D can increase the functionality of products, making them more attractive to customers, and thereby adding value. Alternatively, the work of R&D may result in more efficient production processes, thereby lowering production costs. Either way,