Unit - II

Competitive advantage

Globalization and industry structure Meaning of globalization

Globalization is the term to describe the way countries are

becoming more interconnected both economically and culturally. This process is a combination of economic, technological, sociocultural and political forces Allowing other nations companies to enter into the home country. all the multinational companies MNC's are Examples, such as Pepsi , Coca-Cola, IBM, general electric, Vodafone, almost all have its business allover the world. for a MNC target market is whole world itself. Advantages of globalisation Increased free trade between nations .FOR EX: MOBILE PHONES Increased liquidity of capital allowing investors in developed nations to invest in developing nations: FOR EXAMPLE CURRENT ISSUE OF FDI Corporations have greater flexibility to operate across borders

Contd
Greater ease and speed of transportation for goods and people. FOR EX: SHIPPING
Reduction of cultural barriers increased the

global village effect

Continued.
Spread of democratic ideals to developed nations. FOR EX: RULES AND REGULATIONS
Reduction of likelihood of war between

developed nations . Increases in environmental protection in developed nations

Disadvantages
Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor.

FOR EX LABOURS ARE INTEREST TO WORK IN FOREIGN COUNTRIES Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity FOR EX MONEY ORIENTED LIFE STYLE

CONTINUED
International bodies like the world trade organization infringe (BREAK) on national and individual

Greater risk of diseased being transported unintentionally between nations. FOR EX : RISKS IN TRANSPORTATION Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage. FOR EX : CULTURAL

Contd..
Increased likelihood of economic disruptions in

one nation affecting all nations.

Increase in the chances of civil war within

developing countries and open war between developing countries as they vie for resources.
Decrease in environmental integrity as polluting corporations

Globalization gave rise to the following types of industries

Multi domestic Global Industries

Multi domestic
Multidomestic Industries are specific to each country or group of countries. This type of international industry is a collection of

essentially domestic industries like retailing, insurance and banking. It has manufacturing facility to produce goods for sale within their country itself

Global Industries
Global Industries operate worldwide, with MNCs making only small adjustments for countryspecific circumstances. A global industry is one in which a MNCs activities in one country are significantly affected by its activities in other countries. MNCs produce products or services in various locations throughout the world and sell them, making only minor adjustments for specific country requirements .Ex: Commercial Aircrafts, Television sets, Semiconductors, copiers, automobiles, watches and tyres. 39

Industry Structure
Industry meaning

Industry is a collection of firms offering goods or services that are close substitutes of each other. An Industry consists of firms that directly compete with each other. Industry structure refers to the number and size distribution of firms in an industry.

Four characteristics of industry structure are particularly important to the performance of new firms in the industry: 1. Capital Intensity 2. Advertising Intensity 3. Concentration 4. Average firm size

Capital Intensity
Measures the importance of capital as opposed to labor in the production process.
Some industries, such as aerospace, involve a

great deal of capital and relatively little labor. Other industries, such as textiles, involve relatively little capital and a great deal of labor

Advertising Intensity
Advertising is a mechanism (instrument) through which companies develop the reputations that help them sell their products and services. To build brand name reputation through advertising, two conditions need to be met. First,

the advertising has to be repeated over time. Second, economies of scale exist in advertising. For example : The company should give more advertisements for their products and also it should be based on economic process.

Concentration
It is a measure of the market share that is held by the largest companies in an industry.
For instance, pharmaceutical industry like

Merck account for almost all of the market. Merck company having more marketing share compare to other pharmaceutical small industry . The customer cannot buy drugs in new companies

Average firm size

New firms perform better, when the average firm size is small. New firms tend to begin small as a way to minimize the risk of

Entrepreneurial miscalculation. If the average firm size is large, this may lead to Inability to purchase in volume, higher average manufacturing and Distribution cost for example : the new firms should concentrate in their size of firm . e.,

USES OF INDUSTRY STRUCTURE

Business Policy and Strategy:

By looking at the structure of an industry, one can often learn a lot about competition, rivalry, entry barriers, and other aspects of competitive dynamics in that industry For example in Organization: Equal Opportunity with the employees Attendance and Time Off

Public Policy:
Public Policy View is that, reduced competition in an industry hurts consumers interest and encourages dominant firms to

adopt anti competitive trade practices. Examples of general public policy to improve nutrition and physical activity in schools. Prohibit the sale of junk foods and sodas in schools Teach nutrition education in schools.

Oligopoly:
A key characteristic of an oligopoly (a highly

structured industry) is that competitors are mutually interdependent; a competitive move by one company will almost certainly affect the fortunes of other companies in the industry and they will generally respond to the move-sooner or later. FOR EX : The automotive industry is a great example of an oligopoly. It has many competitors but is dominated by General Motors, Ford, Chrysler, Honda, and Toyot

Strategic group
A strategic group is a concept used in strategic management that groups companies within an industry that have

similar business models or similar combinations of strategies. For example, the restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation or make money

Types of Strategic group

Proprietary Group Generic Group

Proprietary group:
The companies in this proprietary strategic group are pursuing a high risk high return strategy. It is a high risk strategy because

basic drug research is difficult and expensive. The risks are high because the failure rate in new drug development is very high

Generic group
Low R&D spending, Production efficiency, as an emphasis on low prices characterizes the business models of companies in this

strategic group. They are pursuing a low risk, low return strategy. It is low risk because they are investing millions of dollars in R&D. It is low return because they cannot charge high prices

Creation of Strategic Group Maps

A useful way to analyze strategic groups is

through the creation of strategic group maps. Strategic group maps present the various competitive positions that similar firms occupy within an industry. Strategic group maps are not difficult to create; however, there are a few simple guidelines managers want to use when developing them

1. Identify Key Competitive Attributes.

As mentioned previously, many firms share similar competitive attributes such as pricing practices and product scope. The first step in developing a strategic group map is to identify key competitive attributes that logically differentiate firms in a competitive set. This is not always known in advance of creating the map so it is important to be ready to create multiple maps using different variables
Ie., price and levels of products

2.Create Map Based Upon Two Key Attribute Variables

For the variables selected, assign each variable to the X and Y axis, respectively. Also, select a logical gradation value for each axis

so that differences will be readily observable. When complete, plot each firms location on the map for the industry being analyzed.

c)Identify Strategic groups

Once all of the firms have been plotted, enclose each group of firms that emerges in a shape that reflects the positioning on the

strategic group. At this point, assess whether or not the differences between each group are meaningful or whether other variables must be selected from which another set of strategic groups can be drawn

For example :

Fast food industry strategic group mapping.

About fast food industry figure

The Figure above represents the strategic group

mapping of the fast food industry. The graph represents fast food companies, which were divided into different groups according to their price level and product line variety. As was stated before and we can see in the graph, all of the main and biggest fast food companies have limited menu with low prices for their products. This way all of them can compete on the same basis, according to these specifications

Continued..
There are always competitive pressures and driving forces which adversely affect the firms in strategic groups. Therefore, some

firms may try to shift to a more favourably situated group. This shifting is however difficult if the entry barriers of the target strategic group are high.

McDonalds company
McDonalds company is one of the leading companies in the fast food industry with over 32000 of restaurants in 117 countries around

the globe. McDonalds is also worlds first fast food company by sales, which gives for them advantage over their competitors in terms of profit.

The main competitors of McDonalds in the global market are:

Burger King Holdings; Dominos Pizza; Arby's Hardees

Comparison with local fast food industry

All of these companies serve fast food around the

world and are focused on providing a product that is based on low price convenience. Their strategic group is associated with many geographic locations and low price and quality. Even though these companies could be considered the biggest players in the global market, they face in each country local fast food restaurants, but bigger influence on them these local competitors are not able to do.

Example fast food industry

The above is an example of a strategic group map

for the fast food Industry. Strategic group creation and analysis provides an effective way to develop a clearer understanding of how firms within an industry compete. Since each strategic group depicts firms with similar if not identical competitive attributes within the industry, the map helps managers identify important differences among competitive positions. These differences can be subject to further analysis to helps explain more subtle differences in performance

NATIONAL CONTEXT AND COMPETITIVE ADVANTAGE

Despite the globalization of production & markets, many of the most successful companies in certain industries are still

clustered in a small number of countries Biotechnology & computer companies U.S. Electronics Company Japan. Chemical & Engineering company Germany

The Competitive Advantage of Nations of Michael Porter:

The Diamond model of Michael Porter for the

Competitive Advantage of Nations offers a model that can help understand the competitive position of a nation in global competition. This model can also be used for other major geographic regions. According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process

Determinants(decisions) of competitive advantage (or) Attributes(feature) to identify national environment (or) porters diamond model
a. Factor Conditions
b. Demand Conditions c. Related and Supporting Industries

d. Firm Strategy, Structure and Rivalry

A.FACTOR CONDITIONS
Factor conditions refers to inputs used as factors of production i.e.., nations position in factors of production porter argues that these are all key factors skilled labor, capital, natural resources, and infrastructure

Non key factors like unskilled labor, no natural resources etc So Such countries are forced to innovate to overcome their problem of scarce resources. For example: skilled Labors, logistics and infrastructure .

B. Demand conditions
Demand for the product at domestic level is must . If the local market for a product is larger and more demanding at home than in foreign markets, local

firms potentially put more emphasis on improvements than foreign companies.

for example the French wine industry. The French

are sophisticated wine consumers. These consumers force and help French wineries to produce high quality wines Japanese consumers have historically been more demanding of electrical and electronic equipment than western consumers this has partly founded the success of Japanese manufacturers with in this sector.

C. Related and Supporting Industries

When local supporting industries and suppliers are

competitive, home country companies will potentially get more cost efficient and receive more innovative parts and products. This will potentially lead to greater competitiveness for national firms For example , the Italian shoe industry benefits from a highly competent pool of related businesses and industries, which has strengthened the competitiveness of the Italian shoe industry world wide. Ooty tea industries .

d. Firm Strategy, Structure and Rivalry

Firm Strategy Structure Rivalry

1.Firm Strategy (a) Capital Markets

Domestic capital markets affect the strategy of firms. Some countries capital markets have a long-run outlook, while others have a short-run outlook. Industries vary in how long the long-run is. For example :Countries with a short-run outlook (like the U.S.) will tend to be more competitive in industries where investment is short-term (like the computer industry). Countries with a long run outlook (like Switzerland) will tend to be more competitive in industries where investment is long term (like the pharmaceutical industry).

(b)Individuals Career Choices

Individuals base their career decisions on

opportunities and prestige. A country will be competitive in an industry whose key personnel (workers) hold positions that are considered prestigious. (high status) For example : The company employees should be skilled persons and their position is must .

2. Structure
Porter argues that the best management styles vary among industries. Some countries may be oriented

toward a particular style of management. Those countries will tend to be more competitive in industries for which that style of management is suited. for example :Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and Italy has smaller, family-run firms. It represents the type of business

3.Rivalry
Porter's Five Forces model argues that strong

competition urge innovation. While at a single point in time a firm prefers less rivalry, over the long run more local rivalry is better since it puts pressure on firms to innovate and improve.

As an example, the Japanese automobile

industry with major competitors (Honda, Toyota, Suzuki, Nissan , Mazda, Mitsubishi, ) provide intense competition in the domestic market, as well as the foreign markets in which they compete.

Government
The role of government in Porter's Diamond Model

is "acting as a catalyst(vehicle) and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance . They must encourage companies to raise their performance, stimulate early demand for advanced products, focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

competitive advantage resources

Resources are the capital or financial, physical, social or human, technological and organizational factor endowments that allow

a company to create value for its customers.

Tangible resources: I) Are something physical, such as land, buildings, plant, equipment, inventory and money.

Intangible resources: II) Are non-physical entities that are the creation of the company and its employees, such as brand names, the reputation of the

company, the knowledge that employees have gained through experience and the intellectual property of the company including patents, copyrights & trademarks

CAPABILITIES: Refers to a companys skills at coordinating its resources & putting them to productive use. These skills reside in an organizations

rules, routines and procedures. For example FACILITIES AND EQUIPMENT EXPERTISE CUSTOMERS

COMPETENCIES:
Competency refers to the ability of a firm to carry

out an activity well. It is built and developed by firms consciously through experience and learning. A competency reside in people in the firm and not in physical assets. The examples below of competencies may be used in various staff management functions like: Planning performance expectations. Determining training and development needs. Establishing recruitment and selection criteria.

Core competency:
A core competency is a competency of the business

that is essential or central to its overall performance and success. These competencies are seen as important factors that improve the end products produced by the company. For example :The core competency of Apple can be said to be making user friendly user interfaces and design The core competency of Wal-Mart can be said to be Groceries at a low cost

i) Distinctive competency
A distinctive competency is any competency that

distinguishes a company from its competitors. While a distinctive competency can be any competency, core or otherwise, it is typically a core competency that truly distinguishes a company from the rest of the competition. For example, one of Google's distinctive competencies is its name recognition and status as the most notable search engine. This competency is hard for competitors to imitate and sets Google apart from the rest of the market.

In order to call anything a distinctive competency it should satisfy 3 conditions, namely:

Value disproportionate contribution to

customer perceived value; Unique unique compared to competitors Extendibility capable of developing new products

Distinctive Competencies are built around all functional areas, in organization namely:
Technology related
Manufacturing related Distribution related

Marketing related
Skills related Organizational capability other types.

Distinctive Competencies arise from two sources namely

Resources A resource in an asset,

competency, process, skill or knowledge. Resources may be tangible land, buildings,

intangible
Brand names, reputation, patents,. A resource is a strength which the company with competitive advantage and it has the

potential to do well compared to its competitors.

Competitive Advantage Definition

A competitive advantage is an advantage

over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices

Example
Examples of competitive advantage are everywhere. Just pick your favorite product or

company and examine it from the standpoint of uniqueness and value to you. Some examples include:

Face book It has one of the easiest and best user experiences and also continues to collect all of old friends and help reconnect them . Google Allows very quickly find what we are looking for and just work

Competitive Strategies or types of competitive advantage

Following on from his work analyzing the

competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage.

Continued
The four strategies relate to the extent to which the scope of a businesses' activities are narrow versus broad and the extent to which

a business seeks to differentiate its products The four strategies are summarized in the figure below

Strategy Differentiation
This strategy involves selecting one or more criteria used

by buyers in a market - and then positioning the business uniquely to meet those criteria.. Examples of Differentiation Strategy: Mercedes cars

 This strategy is usually associated with charging a premium (best) price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products

Strategy - Cost Leadership

With this strategy, the objective is to become the lowest-cost

producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimizing costs. If the achieved selling price can at least equal (or near)the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximize sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.
Examples of Cost Leadership; Dell Computers, nano

Strategy - Differentiation Focus

In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target

market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers. The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants wants. Examples of Differentiation Focus: Special tour for holidays

Strategy - Cost Focus

Here a business seeks a lower-cost advantage in just on or a small number of market segments. The

product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. Such products are often called "me-too's". Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products. Wheat flour etc..

GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE

Superior Quality

Superior Efficiency

Generic building Blocks of competitive advantage

Superior Customer Responsiveness

Superior Innovation

Introduction
Organizations today confront new markets, new competition and increasing customer expectations.

Thus todays organizations have to constantly reengineer their business practices and procedures to be more and more responsive to customers and competition. In the 1990s Information technology and Business Process re-engineering, used in conjunction with each other, have emerged as important tools which give organizations the leading edge. The efficiency of an enterprise depends on the quick flow of information across the complete supply chain i.e. from the customer to manufacturers to supplier.

A) EFFICIENCY
In a business organization, inputs such as land, capital, raw material managerial know-how and technological know-how are transformed into outputs such as

products and services. Efficiency of operations enables a company to lower the cost of inputs to produce given output and to attain competitive advantage. Employee productivity is measured in terms of output per employee.

for example : produce the cars , two wheelers, crackers, textile industry output per employee.

B)QUALITY
Quality of goods and services indicates the

reliability of doing the job, which the product is intended for. High quality products create a reputation and brand name, which in turn permits the company to charge higher price for the products. Higher product quality means employees time is not wasted on rework, defective work or substandard work. For ex: In consumer durable industries such as mixers, grinders, gas stoves and water heaters, ISO mark is a basic imperative for survival.

C) INNOVATION
Innovation means new way of doing things. Innovation results in new knowledge, new product development structures and

strategies in a company. It offers something unique, which the competitors may not have, and allows the company to charge high price. For ex: Photocopiers developed by carbon papers.

D) CUSTOMER RESPONSIVENESS
Companies are expected to provide customers

what they are exactly in need of by understanding customer needs and desires. Customer Responsiveness is determined by customization of products, quick delivery time, quality, design and prompt after sales service. For ex: The popularity of courier service over Indian postal service is due to the fastness of service.

Competitive AdvantageLow Cost and Differentiation

We say that a company has a competitive advantage when its profit rate is higher than the average for its industry. Profit rate is normally defined as some ratio, such as return on sales (ROS) or return of assets (ROA). The return on assets formula, sometimes abbreviated as ROA, is a company's net income divided by its average of total assets. The return on assets formula looks at the ability of a company to utilize its assets to gain a net profit.

Return on sales
A ratio widely used to evaluate a company's operational efficiency. ROS is also known as a firm's "operating profit margin". It is

calculated using this formula:

Continued.
2. The most basic determinant of a company's profit rate is its gross profit margin (P) this is simply the difference

between total revenues (TR) and total costs (TC), divided by total costs.

Continued..
3 For a gross profit margin to be higher than the

average for the industry, one of the following must be occurring: a. The company's unit price must be higher than that of the average company and its unit cost must be equivalent to that of the average company.

Continued
b. The company's unit cost must be lower than that of the average company and its unit price must be equivalent to that of the

average company. c. The company must have both a lower unit cost and a higher unit price than the average company.

Continued.
Thus, in order to achieve a competitive advantage, a company must meet either or both of these conditions: have lower costs

than its competitors or differentiate its product in some way so that it can charge a higher price than the competition.

Continued..
Porter has referred to low cost and differentiation

as generic business-level strategies. By this he means that they represent the two fundamental ways of trying to obtain a competitive advantage in an industry. A low-cost strategy is based on doing everything possible to lower unit costs. A differentiation strategy is based on doing everything possible to differentiate products from those offered by competitors in order to be able to charge a premium price.

The Durability(toughness) of Competitive Advantage

Barriers to Imitation
Imitating Resources
Imitating Capabilities

Capability of Competitors
Strategic Commitment
Absorptive capacity

Industry Dynamism

A) Barriers to Imitation:

Imitability refers to the rate at which others duplicate a firm underlying resources and capabilities. Tangible resources can be easily imitated but intangible resources cannot be imitated and capabilities cannot be imitated. For example : Samsung with apple case

Capability of Competitors:
B) Capability of Competitors:

1) strategic commitments & 2) Absorptive capacity

Continued
i) Strategic commitment: A companys

commitment to a particular way of doing business that is to developing a particular set of resources & capabilities. For example : Promise to complete particular project ii) Absorptive capacity: Refers to the ability of an enterprise to identify value, assimilate,(understand) and use new knowledge

C) Dynamism(energy) of industry:
Dynamic industries are characterized by high

rate of innovation and fast changes and competitive advantage will not last for a long time. The most dynamic industries tend to be those with a very high rate of product innovation. Ex: Computer industry

AVOIDING AND SUSTAINING(behind) COMPETITIVE ADVANTAGE

When a company loses its competitive advantage, its profitability falls. The company does not necessarily fail, it may just have

average or below-average profitability and can remain in this mode for a considerable time, although its resources & capital base is shrinking(reduction)

Reasons for failure (competitive advantage)

a) Inertia (lethargic) b) Prior strategic commitments C) The Icarus Paradox

a) Inertia:(inactivity)
The Inertia argument says that companies find it difficult to change their strategies & structures in order to adapt to changing

competitive conditions

b) Prior strategic commitments

A companys prior strategic commitment not

only limits its ability to imitate rivals but may also cause competitive disadvantage.

c)TheIcarusParadox(impossible)
According to Miler, many companies become

so confuse by their early success that they believe more of the same type of effort is the way to future success. As a result, they can become so specialized and inner directed that they lose sight of market realities and the fundamental requirements for achieving a competitive advantage. Sooner or later, this leads to failure

Steps to Avoid Failure:

1.Focus on the Building Blocks of competitive advantage

2. Institute continuous Improvement & Learning

3. Track Best Industrial Practice and use Benchmarking

4.Overcome Inertia

a) Focus on the Building Blocks of competitive advantage:

Maintaining a competitive advantage requires a

company to continue focusing on all four generic building blocks of competitive advantage efficiency, quality, innovation, and responsiveness to customers and to develop distinctive competencies that contribute to superior performance in these areas)

Institute continuous Improvement & Learning:

In such a dynamic and fast paced environment, the only way that a company can maintain a competitive advantage

overtime is to continually improve its efficiently, quality innovation and responsiveness to customer. The way to do this is recognize the importance of learning within the organization.

Track Best Industrial Practice and use Benchmarking:

Benchmarking is the process of measuring the company against the products, practices and services of some of its most efficient

global competitors.

d)Overcome Inertia(inactivity)
Overcoming the internal forces that are a barrier to change within an organization is one of the key requirements for maintaining a

competitive advantage. Once this step has been taken, implementing change requires good leadership, the judicious use of power and appropriate changes in organizational structure & control systems.

Value Chain Analysis

It is a useful tool for working out how you can create the greatest possible value for your customers. For example :

Introduction
Value Chain Analysis helps you identify the

ways in which you create value for your customers, and then helps you think through how you can maximize this value: whether through superb products, great services, or jobs well done. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").

Value Chain Analysis is a three-step process

Activity Analysis Value Analysis Evaluation and Planning

step 1 Activity analysis

The first step to take is to think the activities that you, your team or your company undertakes that in some

way contribute towards your customer's experience. At an organizational level, this will include the stepby-step business processes that you use to serve the customer. These will include marketing of your products or services; sales and order-taking; operational processes; delivery; support; and so on). for example : In communication industry Customer care system

Step -2 Value analysis

Now, for each activity, list the "Value Factors" the things that your customers' value in the way that

each activity is conducted.

If you're thinking about delivery of a professional

service, your customer will most likely value an accurate and correct solution; a solution based on completely up-to-date information; a solution that is clearly expressed and easily actionable; and so on.

Step 3 Evaluate Changes and Plan for Action

By the time you've completed your Value Analysis, you'll probably be fired up for action: you'll have generated plenty of ideas

for increasing the value you deliver to customers. And if you could deliver all of these, your service could be fabulous

Michael Porter suggested that the activities of a business could be grouped under two headings
(1) Primary Activities : those that are directly concerned with creating and delivering a product (e.g. component assembly) (2) Support Activities: They are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.

Primary value chain activities include:

Primary Activity

Inbound logistics

All those activities concerned with receiving and storing externally sourced materials Operations The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products)

Continued..
Outbound logistics All those activities associated with getting finished

goods and services to buyers Marketing and sales Essentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.) Service All those activities associated with maintaining product performance after the product has been sold

Secondary Activity
Procurement

This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) Human Resource Management Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business

Continued..
Technology Development

Activities concerned with managing information processing and the development and protection of "knowledge" in a business Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly

linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.