Value Chain as Competitive Advantage

Topics: Value chain, Strategic management, Value Pages: 5 (1287 words) Published: July 2, 2013
Value Chain as Competitive Advantage
Unit 3 Assignment
Christine Washington
GB570 Managing the Value Chain
Jerry Haenisch, Professor

Kaplan University
November 12, 2012

Value Chain as Competitive Advantage

Effective value chain as a competitive advantage can contribute significantly to the prosperity of a firm in the competitive arena, but it can cause dire situations if not operated properly (Guy, 2011). However, there are conflicts among companies as to how stakeholders think they gain competitive advantage. Porter (1996) suggests: A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at lower cost or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average costs (Walters & Rainbird, 2007, p.25). Walters & Rainbird (2007) states that an effective value creating strategy takes an organization beyond its own boundaries. An organization has an advantage over other providers of the same goods or a service in a consumer market unless it has a monopoly or is the first to create the market. Review of Concepts

Value chain helps companies assess their competitive advantage through internal cost analysis, internal differentiation analysis, and vertical linkage analysis. Competitive advantage is about discovering what customers want and profitably satisfying those needs and exceeding their expectations. Customer delight is a principle that drives repeat purchasing and customer loyalty. It is about creating a WOW feeling and it can be the difference between success or failure. Two criteria must be met for a company to survive and prosper in the industry: the company must supply what the customers want to buy and they must survive the competition.

Value Chain
A value chain describes the full range of activities that companies and workers do to bring the product from its conception to its end use and beyond. These activities are design, production, marketing, distribution and support to the final consumer. The value chain analysis can produce goods and services that can be contained within a single geographical location or a wider area (Global Value Chains, 2006).

Michael Porter (1985) described value chain as the internal processes or activities that a company performs “to design, market, deliver, produce, and support its product”. He even when a step further and stated “a firm’s value chain and the way it performs individual activities are a reflection if its history, its strategy, and the underlying economics of the activities themselves”. Companies use the value chain approach to understand which distribution channels, price points, segments, product differentiation, and selling propositions to yield them the greatest advantage of competition. Competitive Advantage

A competitive advantage is when the company sustains profits that exceed the average for its industry. Competitive advantage is assess by using the following value chain analysis of internal cost analysis to determine the sources of profitability; internal differentiation analysis to understand the sources of differentiation; and vertical linkage analysis to understand the relationships and associated costs among external suppliers and customers. The advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost, or deliver benefits that exceed those of competing products. A competitive advantage allows the company to create superior value for its customers and superior profits for itself (QuickMBA, 2010).

QuickMBA (2010) states that a competitive advantage is created by using resources and capabilities to achieve a lower cost structure or a differentiated product and this decision is a central component of the company’s strategy...


References: Denning, Steve (2011). Delighting Customer. Retrieved from
http://www.stevedenning.com/slides/SaltLakeCityDelightingCustomerAug2011.pdf
Global Value Chains Initiative (2006). Concepts & Tools. Retrieved from
http://www.globalvaluechains.org/concepts.html
QuickMBA (2010). Strategic Management: Competitive Advantage. Retrieved from
http://www.quickmba.com/strategy/competitive-advantage
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