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Value Chain

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  • 1. What you will learn in this Section
    • Envisioning Strategy
      • Definition
      • Framework
      • Visual Models
    • External Analysis
      • PEST
      • PEST Impact Analysis
    • Industry and Competitive Analysis
      • Industry Structure
      • Evolution of Industries
      • Industry Supply Chain
      • Potential Industry Earnings
      • Porter’s 5 Forces Analysis
      • Competitive Intensity
      • Strategies for minimizing competitive forces
      • Perceptual Map
      • Barriers to Entry/Incumbency advantages
      • DSIR effect
    • Company Resources and Capabilities
      • ARC Analysis/HR
      • SWOT Analysis
      • Value Creating Processes/Core Competencies
      • Strategic Gameboard
      • Balanced Scorecard
      • Change Management
    © Sunil Mehrotra
  • 2. Industry Definition/ Structure Competitors Suppliers Customers © Sunil Mehrotra The Firm T he term industry is sometimes used to define a very precise business activity (eg: semiconductors) or a more generic activity (eg:consumer goods). Substitutes Industry New entrant
  • 3. Raw material to finished goods- the industry supply chain Raw material Supplier Customer Manufacturer Distributor/Wholesaler Retailer
  • 4. Industry Supply/Value Chain © Sunil Mehrotra Suppliers Manufacturers Distributors Retailers Consumers
  • 5. Student Examples: Supply Chain
    • Breanne Hayes April 2008 MBA Graziadio School of Business and Management Pepperdine University
    Elizabeth Passeretti April 2008 MBA Graziadio School of Business and Management Pepperdine University
  • 6. Overview of Industry Value Chain: Consumer Health Products Cotton, Plastics, Chemicals, etc. Retailers: Pharmacies, Drug Stores, Supermarkets Wholesalers Consumers Incumbent Firms engage in R&D and Mfg to produce consumer health products and OTC pharmaceuticals NOTE: Incumbent firms compete fiercely for retailer shelf space! Market size: $480B Breanne Hayes, April 2008 MBA, Graziadio School of Business and Management Pepperdine University
  • 7. Industry Analysis Industry Supply Chain Biotech Companies Hospitals / Pharmacies (39%)‏ Patients (Consumers)‏ Drug Wholesalers (61%)‏ $52 billion market $67 billion market Raw materials, Lab equipment, Chemicals FDA Payers (Insurance)‏ Physicians (Customers)‏ Legend Value = Product Value = Knowledge Regulators/Gatekeepers Elizabeth Passeretti April 2008 MBA Candidate Graziadio School of Business and Management,Pepperdine University
  • 8. The industry supply chain- what is the value added by each player in the chain Raw material Supplier Customer Manufacturer Distributor/Wholesaler Retailer
  • 9. Value Creation process: Value added by each member in the chain © Sunil Mehrotra
  • 10. Value created and captured by each member in the value chain Adapted from: http://faculty.msb.edu/homak/HomaHelpSite/WebHelp/HomaHelp.htm Suppliers Manufacturers Distributors Retailers Consumers ROI Asset Intensity Profitability Value Added
  • 11. The concept of PIE- Potential Industry Earnings Manufacturer has the biggest “pie” Retailer has the biggest “pie”
  • 12. Oil & Gas Industry: Historical gas prices at the pump
  • 13. Gasoline Value Chain: who gets what $1.34 $1.19
  • 14. How big is the industry “PIE” and how is it split? Small pie Big pie Why ?
  • 15. The concept of PIE- Potential Industry Earnings Industry Demand Opportunity Cost of Resources PIE Quantity Produced by the Industry
    • Factors effecting demand :
    • Customer habits
    • Customer expenditures
    • Number of substitutes
    • Number of complementary products
    • Price reduction by incumbents
    • Factors effecting costs
    • Cost reductions by suppliers
    • Cost reductions by incumbents
    • Process improvements
    • Technology advances
    Adapted from: Saloner, Shepard, & Podolny: Strategic Management , Wiley and Sons, 2001
  • 16. Nappies 11-13? Industry Supply Chain -raw material to customer How much Value is added by each member of the supply chain Concept of Industry PIE -How is the PIE split -How big is the PIE-- what determines the size?
  • 17. Mnemonic 5: Value added by each member in the chain © Sunil Mehrotra