The Value Chain

The term ‘Value Chain’ was used by Michael Porter in his book "Competitive

Advantage: Creating and Sustaining superior Performance" (1985). The value chain

analysis describes the activities the organization performs and links them to the

organizations competitive position.

The sequential set of primary and support activities that an enterprise performs to turn

inputs into value-added outputs for its external customers. An IT value chain is that

subset of enterprise activities that pertain to IT operations, both to add value directly

for external customers and to add indirect value by supporting other enterprise

operations. A framework for examining the strengths and weaknesses of an

organization, and for using the results of this analysis to improve performance. Value

Chain analysis is premised upon the assumption that a basic purpose of business is

provide or create value for users of its products or services, and that value and

customer satisfaction are primary customer drivers. Within a Value Chain analysis,

organizational activities are classified as being either primary activities (that create,

transfer or support something of value) or as support activities (that assist the primary

activities by providing resources or infrastructure).

Value chain analysis describes the activities within and around an organization, and

relates them to an analysis of the competitive strength of the organization. Therefore,

it evaluates which value each particular activity adds to the organizations products or

services. This idea was built upon the insight that an organization is more than a

random compilation of machinery, equipment, people and money. Only if these things

are arranged into systems and systematic activates it will become possible to produce

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something for which customers are willing to pay a price. Porter argues that the

ability to perform particular activities and to manage the linkages between these

activities is a source of competitive advantage.

Porter distinguishes between primary activities and support activities. Primary

activities are directly concerned with the creation or delivery of a product or service.

They can be grouped into five main areas: inbound logistics, operations, outbound

logistics, marketing and sales, and service. Each of these primary activities is linked

to support activities which help to improve their effectiveness or efficiency. There are

four main areas of support activities: procurement, technology development

(including R&D), human resource management, and infrastructure (systems for

planning, finance, quality, information management etc.).

Impact of Internet on Operations

With companies rushing to try to implement the latest and greatest technology in

order to get one step ahead of the competition, many are finding that selling the

employees and others involved in the change on the project is more difficult than

actually putting the software in place. This has been especially true in regards to value

chain software; particularly, the part that helps streamline and track procurement more

effectively.

The mistake most companies make is jumping into the deep end of the technology

pool before they even learn to swim. For example, the most businesses which adopt e-

procurement software want to immediately begin using the technology in areas where

they spend the most. Of course, these are also their most important purchases and

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involve their most important vendors. However, since the program's success is still in

doubt, employees will either reject it outright or wait for a small problem arise as

evidence that the whole project was a fiasco. Vendors may also have doubts about

working with an unproven system and overcoming their resistance can be difficult.

The solution is not to abandon plans for implementing procurement programs but for

taking those implementations slowly. One suggestion is to start off using the program

for indirect purchases, such as office supplies. While saving a few dollars on ink pens

may not seem to justify the cost of the procurement software, it does provide a

demonstrable example of the system's success that can be duplicated in other areas

and which can be used to sell the system to other departments, to other vendors, and

to the staff itself.

Once the system is being used for minor purchases successfully, those involved in

purchasing can make the transition to bigger purchases. They'll feel more comfortable

using the system because they've either seen it in use or worked with it themselves

with the indirect purchases.

The slower implementation also gives vendors more time to come on board.

Generally, vendors in a value chain need to update their technology in order to

become an integrated part of the overall purchasing strategy. Because these updates

can be costly, vendors may be reluctant to make the switch quickly and without proof

that the new system will work. By using the software to make indirect purchases and

by increasing its usefulness in the company in increments, the vendors will be able to

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see the success for themselves and will have more time to prepare for their own

technological updates.

Companies that have approached value chain software in this manner have been

impressed with the results. They've seen less employee resistance and, as a result,

increased productivity since employees are more eager to begin working with the new

system in order to save themselves time.

While the incremental adoption of value chain software is one way to ensure a

company's successful entrance into the technology, another is to have realistic

expectations. Unfortunately, many businesses get into new procurement strategies and

anticipate incredible cost-savings of 60% or more. Occasionally those numbers can be

achieved, they are unlikely. A more realistic estimate would be a savings of 10 to

15% consistently across all categories of purchasing. Those numbers may not seem as

significant, but they do pay off over time.

The bottom line is that companies who expect instant miracles from value chain

software are not only disappointed but they set the stage for technology resistance in

their employees and possibly their vendors. Businesses need to have realistic

expectations of their anticipated cost-savings, and they need to implement the value

chain software slowly instead of immediately trying to save money on their most

important purchases. With these suggestions, companies are more likely to find

success with their new software.

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Impact of Internet on Marketing and Sales

Any Web-based marketing effort combines a Web site with online advertising. Online

advertising is the way to pre-qualify customers and drive traffic to your site. The Web

site is the way to brand a product and create a channel for future sales.

It allows the marketer to control and monitor the entire customer process from

qualifying customers to closing a sale. Throughout this process, marketers can track

what works and what doesn't, and they are able to adapt to changing market

conditions quickly and inexpensively.

Interactivity is the most important aspect of the World Wide Web for marketers and

advertisers are the ability to interact with consumers. No other medium allows for

instantaneous and two-way communication. Whether it is as simple as providing a

direct response mechanism or collecting data for a series of variable responses, the

Internet allows marketers to talk to and address the concerns of consumers, turning

them into customer

Marketing and sales using Internet have the potential to provide adopters with a set of

benefits over and above the ability to sell products. These benefits can in some cases

be the main reasons for choosing an Internet based marketing and sales over or in

conjunction with a traditional commerce solution. Some benefits of Internet sales and

marketing apply to both B2C and B2B solutions, while some apply only to one. 

Unlike traditional commerce solutions in which the selling or tendering process is

likely limited to the immediate business area or in areas where branch offices are

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present, Internet allows a company to have a branch office everywhere in the world.

The result of a good Internet value chain solution is that customers from around the

world have the opportunity to see and purchase goods.

REFERENCES

 Coopers & Lybrand and ECR Europe. 1996. European Value Chain Analysis,

Final Report, Utrecht

 Kotler, Ph. 1997. Marketing Management, New Jersey

 Zickmund, W.G. and D’Amico, M. 1996. Marketing, St. Paul