Value Chain Analysis: A Strategic Tool for Business Performance

This essay provides an in-depth analysis of value chain analysis (VCA) as a strategic tool for enhancing business performance. It explains VCA's role in identifying valuable internal activities, leading to cost or differentiation advantages. The essay explores primary activities (inbound/outbound logistics, operations, marketing/sales, service) and how VCA helps firms analyze and improve these. It differentiates between VCA application for differentiation and cost advantage strategies, highlighting the importance of creating customer value and optimizing activities. Porter's value chain model is also discussed, emphasizing its contribution to transforming inputs into consumer-purchased outputs through primary and support activities. The essay concludes by highlighting VCA's significance in the globalized era, aiding firms in achieving systemic competitiveness, entering global markets, and achieving sustained income by improving internal processes and performance.

“VALUE CHAIN ANALYSIS-A TOOL FOR ENHANCING
BUSINESS PERFORMANCE”
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Introduction
Value chain analysis (VCA) is an effective strategy tool, which is used for analyzing internal
activities of a company. Main objective of this analysis is to find out importance of different
activities in a firm. Management of an organization can be able to recognize the internal
activities that are most valuable, which can help to gain cost or differentiation advantage.
Moreover, clear knowledge about firm's activities that need to be improved is obtained through
application of this tool. This essay focuses on VCA implications that help in enhancing business
performance of a firm.
Value chain analysis is a technique that helps a firm to identify different primary and support
activities, which helps in adding value to the final product (Grant, 2010). On another hand,
value chain can be defined as different internal activities, which a firm operates for transforming
inputs to output. A firm generally analyzes its value chain to evaluate critically every step of
production. Hence, any as in production can be identified and proper step can be taken to
mitigate these gaps. Thus, increase in overall performance of a firm can be noticed. This tool
helps to analyze whether value created from operations exceeds costs. Mainly there are five
primary value chain activities, which can be analyzed by a firm to ensure that the value is
exceeding the cost (Sausman et al. 2015). This cost has been invested in creating value. Different
value chain activities are inbound logistics, outbound logistics, operation, service and marketing,
and sales.
VCA tools also help a company to create an advantage in any of the primary activities. This, in
turn, creates a competitive advantage and impacts in profit level of the firm. If a firm operates by
adopting a differentiation advantage strategy, then they will try to improve their activities better
than other competitors in the market. Moreover, Jaligot et al. (2016) argued that if a firm
operates with the help of cost advantage strategy, then they will try to conduct internal activities
at much lower costs as compared to market competitors. If a firm is able to produce products at
lower costs and offer high-quality products at low costs. The acceptability and brand image of
that firm increases, which ultimately impacts on profit level by increasing revenue. Hence, VCA
can be applied to increase competitive advantage of a company.
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If a firm adopts the strategy of differentiation advantage then VCA is done differently. As stated
by Mustapha (2016), differentiation advantage can be gained by producing superior products as
compared to market competitors. In the first step of VCA identification of activity that creates
customer value is done. Managers focus only on those activities and operations that help to
create consumer value. After this step, evaluation of differentiation strategies are done that can
increase consumer value. Different strategies are used for differentiation like adding more
features to a product. In next step of VCA, identification of best sustainable differentiation is
done. Different interrelated activities help in achieving differentiation and consumer value. On
another hand, for gaining cost advantage, VCA is done is a different way, which involves five
steps. In the first step, identification of various primary and support activities is done. This
includes procurement, storing, marketing and sales that are undertaken to produce and distribute
goods and services (Lee et al. 2017). Next step involves establishment of importance of activities
in respect to total cost of production. During this step, total cost of production is broken and
assigned to all activities. After this, evaluation of various cost drivers for each activity is done.
For example, cost of labor activities is driven by rate of wage, working hours and others. In the
next step, links between different activities and identified and elaborated, which can help in
reduction of costs. At last, several opportunities for reducing production costs are identified,
which helps in elevating firm's performance.
Porter has focused on accounting cost types and he has developed a value chain model that can
help in improving business performance. According to Grant (2010), Porter’s value chain
model has been introduced in 1985 and this model is capable to help in transforming inputs to
potential outputs that are purchased by consumers. This model includes primary and support
activities and these activities add values in different manners. For example, primary activities
that are mentioned in this model are capable to add values in a direct way and the support
activities are liable to add values indirectly. These activities are performed by the firm for
producing products and services. Primary activities are considered as a source of cost as it is
easier to calculate cost of each primary activity. In addition, it can be found that management of
primary activities is easier than that of support activities. As contradicted by Sausman et al.
(2015), direct addition of values in production process takes place due to primary activities and
support activities are considered as a source of differentiation advantages. However, it is clear
that organizations perform both kinds of activities for improving performance of business.
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The tool of value chain analysis is significant in this era of globalization application of which
increases overall performance. Division of labor has increased in this competitive era and global
dispersion of different production components has happened. Hence, systematic competitiveness
has become more important that can be achieved by VCA tool. As mentioned by Jaligot et al.
(2016), obtaining efficiency in production process is a vital condition for entering in global
market successfully. Lowering cost of production and increasing quality of products can be done
by the help of VCA tool, which helps in systemic evaluation of all internal processes. It is
essential for managers in a firm to gain proper knowledge about dynamic factors in the whole
value chain. This can help a company to enter global markets and achieve sustained income for
longer time period.
Conclusion
It can be concluded that value chain analysis acts as an essential tool, which helps to identify
various strengths and weaknesses of a firm. Identification of weakness helps in mitigating gaps
in production process that helps to gain competitive advantage. Lowering production costs and
improvement of essential internal process can be done by this strategic tool. Hence, performance
of a firm gets elevated and desired business objectives can be achieved.
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Reference list
Grant, R., 2010. Comporary Strategy Analysis 7th Edition. John Wiley & Sons
Jaligot, R., Wilson, D.C., Cheeseman, C.R., Shaker, B. and Stretz, J., 2016. Applying value
chain analysis to informal sector recycling: A case study of the Zabaleen. Resources,
Conservation and Recycling, 114, pp.80-91.
Lee, K., Go, D., Park, I. and Yoon, B., 2017. Exploring Suitable Technology for Small and
Medium-Sized Enterprises (SMEs) Based on a Hidden Markov Model Using Patent Information
and Value Chain Analysis. Sustainability, 9(7), p.1100.
Mustapha, Y.I., 2016. Value Chain Analysis and the Performance of Small Scale Agri-business:
Evidence from Cultured Fish Farmers Kwara State. JOURNAL OF MARKETING, 1, p.2.
Sausman, C., Garcia, M., Fearne, A., Felgate, M., El Mekki, A.A., Cagatay, S., Soliman, I.,
Thabet, B., Thabet, C., Saïd, M.B. and Laajimi, A., 2015. From value chain analysis to global
value chain analysis: Fresh orange export sector in Mediterranean partner countries.
In Sustainable Agricultural Development pp. 197-225
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