Question

The value chain is a tool for identifying key activities that create value and costs in a specific business. Identify the value chain activities first for your project and second, explain the concept using an example?

Answer 1

Value chain analysis is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation.

Value chain represents the internal activities a firm engages in when transforming inputs into outputs.

M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly.

Using the Tool of Value Chain:

Competitive Advantages types

Cost Adavntage	Differentiation Advantage
This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs.(Ex:Amazon.com, Wal-Mart, McDonald's, Ford, Toyota)	The firms that strive to create superior products or services use differentiation advantage approach. (EX: Apple, Google, Samsung Electronics, Starbucks)
Step 1. Identify the firm’s primary and support activities.	Step 1. Identify the customers’ value-creating activities.
Step 2. Establish the relative importance of each activity in the total cost of the product.	Step 2. Evaluate the differentiation strategies for improving customer value.
Step 3. Identify cost drivers for each activity.	Step 3. Identify the best sustainable differentiation.
Step 4. Identify links between activities.
Step 5. Identify opportunities for reducing costs.