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Value chain analysis

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Value chain analysis

  1. 1. Value Chain Analysis What can it do for you and your company? Copyright  l aney & associates Inc. November 2002
  2. 2. Table of Contents <ul><li>Value Chain Analysis </li></ul><ul><li>Competitive Intelligence – what is it? </li></ul><ul><li>Value of Competitive Intelligence </li></ul><ul><li>Different tools and techniques of Competitive Intelligence </li></ul><ul><li>Value Chain Analysis </li></ul><ul><li>Value Chain Components </li></ul><ul><li>Developing your value chain </li></ul><ul><li>How a firm can use value chain analysis </li></ul>
  3. 3. Value Chain Analysis <ul><li>Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer . </li></ul>
  4. 4. Value Chain Analysis <ul><li>Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer. </li></ul><ul><li>It can: </li></ul><ul><ul><li>Increase your competitiveness </li></ul></ul>
  5. 5. Value Chain Analysis <ul><li>Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer. </li></ul><ul><li>It can: </li></ul><ul><ul><li>Increase your competitiveness </li></ul></ul><ul><ul><li>Reduce your costs </li></ul></ul>
  6. 6. Value Chain Analysis <ul><li>Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer. </li></ul><ul><li>It can: </li></ul><ul><ul><li>Increase your competitiveness </li></ul></ul><ul><ul><li>Reduce your costs </li></ul></ul><ul><ul><li>Improve your market share </li></ul></ul>
  7. 7. Value Chain Analysis <ul><li>Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer. </li></ul><ul><li>It can: </li></ul><ul><ul><li>Increase your competitiveness </li></ul></ul><ul><ul><li>Reduce your costs </li></ul></ul><ul><ul><li>Improve your market share </li></ul></ul><ul><ul><li>Bottom Line - improve overall profitability! </li></ul></ul>
  8. 8. Competitive Intelligence – what is it? “ The best way to differentiate your company from the competition, the best way to put distance between you and the crowd is to do an outstanding job with information… How you gather, manage and use information will determine whether you win or lose” Bill Gates, 1999
  9. 9. Competitive Intelligence – what is it? <ul><li>Competitive Intelligence is: </li></ul><ul><ul><li>Information about opportunities and threats </li></ul></ul>
  10. 10. Competitive Intelligence – what is it? <ul><li>Competitive Intelligence is: </li></ul><ul><ul><li>Information about opportunities and threats </li></ul></ul><ul><ul><li>Leveraging information/knowledge to improve competitive position of companies and local industries </li></ul></ul>
  11. 11. Competitive Intelligence – what is it? <ul><li>Competitive Intelligence is: </li></ul><ul><ul><li>Information about opportunities and threats </li></ul></ul><ul><ul><li>Leveraging information/knowledge to improve competitive position of companies and local industries </li></ul></ul><ul><ul><li>Forecasting of changes about the economic environment </li></ul></ul>
  12. 12. Competitive Intelligence – what is it? <ul><li>Competitive Intelligence is: </li></ul><ul><ul><li>Information about opportunities and threats </li></ul></ul><ul><ul><li>Information which makes companies and local industries more competitive </li></ul></ul><ul><ul><li>Forecasting of changes about the economic environment </li></ul></ul><ul><ul><li>Actionable recommendations from analysis of the environment </li></ul></ul>
  13. 13. Competitive Intelligence – what is it? <ul><ul><li>It is the total knowledge a </li></ul></ul><ul><ul><li>company or a local industry possesses about the environment in which it competes </li></ul></ul><ul><ul><li>gathered in an ethical manner </li></ul></ul>
  14. 14. Market Intelligence vs Competitive Intelligence <ul><li>Market Intelligence: </li></ul><ul><ul><li>Tells a company about the marketplace </li></ul></ul>
  15. 15. Market Intelligence vs Competitive Intelligence <ul><li>Market Intelligence: </li></ul><ul><ul><li>Tells a company about its environment </li></ul></ul><ul><ul><ul><li>Supply and demand for its products </li></ul></ul></ul>
  16. 16. Market Intelligence vs Competitive Intelligence <ul><li>Market Intelligence: </li></ul><ul><ul><li>Tells a company about its environment </li></ul></ul><ul><ul><ul><li>Supply and demand for its products </li></ul></ul></ul><ul><ul><ul><li>Drivers that influence demand </li></ul></ul></ul>
  17. 17. Market Intelligence vs Competitive Intelligence <ul><li>Market Intelligence: </li></ul><ul><ul><li>Tells a company about its environment </li></ul></ul><ul><ul><ul><li>Supply and demand for its products </li></ul></ul></ul><ul><ul><ul><li>Drivers that influence demand </li></ul></ul></ul><ul><ul><ul><li>Who the buyers and suppliers are </li></ul></ul></ul>
  18. 18. Market Intelligence vs Competitive Intelligence <ul><li>Market Intelligence: </li></ul><ul><ul><li>Tells a company about its environment </li></ul></ul><ul><ul><ul><li>Supply and demand for its products </li></ul></ul></ul><ul><ul><ul><li>Drivers that influence demand </li></ul></ul></ul><ul><ul><ul><li>Who the buyers and suppliers are </li></ul></ul></ul><ul><ul><ul><li>Overall economic outlook for the product </li></ul></ul></ul>
  19. 19. Market Intelligence vs Competitive Intelligence <ul><li>Market Intelligence: </li></ul><ul><ul><li>Tells a company about its environment </li></ul></ul><ul><ul><ul><li>Supply and demand for its products </li></ul></ul></ul><ul><ul><ul><li>Drivers that influence demand </li></ul></ul></ul><ul><ul><ul><li>Who the buyers and suppliers are </li></ul></ul></ul><ul><ul><ul><li>Overall economic outlook for the product </li></ul></ul></ul><ul><li>Competitive Intelligence: </li></ul><ul><ul><li>Helps a company understand what its competitive position is in a specific market – weaknesses and strengths </li></ul></ul>
  20. 20. Business Pyramid Business Intelligence Broad – environmental scanning, market research and analysis
  21. 21. Business Pyramid Business Intelligence Competitive Intelligence Assimilates all Competitive Intelligence Broad – environmental scanning, market research and analysis
  22. 22. Business Pyramid Business Intelligence Competitor Analysis Competitive Intelligence Individual Competitor Profile Assimilates all Competitive Intelligence Broad – environmental scanning, market research and analysis
  23. 23. Value of Competitive Intelligence <ul><li>A study by the University of North Texas found that CI </li></ul><ul><li>Companies outperformed other companies by all three </li></ul><ul><li>key financial measures 1 </li></ul><ul><ul><li>Sales </li></ul></ul><ul><ul><li>Market share </li></ul></ul><ul><ul><li>Earnings per share </li></ul></ul><ul><li>1 Steven Miller, Editor Competitive Intelligence Magazine – 1995 study </li></ul>
  24. 24. Different tools and techniques <ul><li>Five basic tools : </li></ul><ul><ul><li>Strategic Analysis </li></ul></ul>
  25. 25. Different tools and techniques <ul><li>Five basic tools : </li></ul><ul><ul><li>Strategic Analysis </li></ul></ul><ul><ul><li>Product-oriented Analysis </li></ul></ul>
  26. 26. Different tools and techniques <ul><li>Five basic tools : </li></ul><ul><ul><li>Strategic Analysis </li></ul></ul><ul><ul><li>Product-oriented Analysis </li></ul></ul><ul><ul><li>Behavioural Analysis </li></ul></ul>
  27. 27. Different tools and techniques <ul><li>Five basic tools : </li></ul><ul><ul><li>Strategic Analysis </li></ul></ul><ul><ul><li>Product-oriented Analysis </li></ul></ul><ul><ul><li>Behavioral Analysis </li></ul></ul><ul><ul><li>Financial Analysis </li></ul></ul>
  28. 28. Different tools and techniques <ul><li>Five basic tools : </li></ul><ul><ul><li>Strategic Analysis </li></ul></ul><ul><ul><li>Product-oriented Analysis </li></ul></ul><ul><ul><li>Behavioral Analysis </li></ul></ul><ul><ul><li>Financial Analysis </li></ul></ul><ul><ul><li>Customer Oriented Analysis </li></ul></ul>
  29. 29. Different tools and techniques <ul><li>Five basic tools : </li></ul><ul><ul><li>Strategic Analysis </li></ul></ul><ul><ul><li>Product-oriented Analysis </li></ul></ul><ul><ul><li>Behavioral Analysis </li></ul></ul><ul><ul><li>Financial Analysis </li></ul></ul><ul><ul><li>Customer Oriented Analysis </li></ul></ul><ul><ul><ul><li>Value Chain Analysis </li></ul></ul></ul>
  30. 30. Value Chain Analysis <ul><ul><li>It can be developed for individual competitors or an entire industry </li></ul></ul>
  31. 31. Value Chain Analysis <ul><ul><li>It can be developed for individual competitors or an entire industry </li></ul></ul><ul><ul><li>It can be for the product as it relates to end customers or customers within a chain </li></ul></ul>
  32. 32. Value Chain Analysis <ul><ul><li>Cost Factors </li></ul></ul><ul><ul><li>Why costs differ? </li></ul></ul><ul><ul><li>Why swings in profitability? </li></ul></ul><ul><ul><li>Efficiencies and inefficiencies </li></ul></ul><ul><ul><li>Influence </li></ul></ul><ul><ul><li>Competitor’s costs </li></ul></ul><ul><ul><li>Nature and source of advantage </li></ul></ul>
  33. 33. The Three Tiers <ul><li>There are three tiers of Value Chain Analysis </li></ul>
  34. 34. The Three Tiers <ul><li>There are three tiers of Value Chain Analysis </li></ul><ul><ul><li>Internal Cost Analysis </li></ul></ul>
  35. 35. The Three Tiers <ul><li>There are three tiers of Value Chain Analysis </li></ul><ul><ul><li>Internal Cost Analysis </li></ul></ul><ul><ul><li>A firm or a sector needs to understand its own value chain in order to compare to its competitors </li></ul></ul>
  36. 36. The Three Tiers <ul><li>There are three tiers of Value Chain Analysis </li></ul><ul><ul><li>Internal Cost Analysis </li></ul></ul><ul><ul><li>Internal Differentiation Analysis </li></ul></ul>
  37. 37. The Three Tiers <ul><li>There are three tiers of Value Chain Analysis </li></ul><ul><ul><li>Internal Cost Analysis </li></ul></ul><ul><ul><li>Internal Differentiation Analysis </li></ul></ul><ul><ul><li>A firm or a sector then needs to identify the processes that distinguish its products or services from that of its competitors </li></ul></ul>
  38. 38. The Three Tiers <ul><li>There are three tiers of Value Chain Analysis </li></ul><ul><ul><li>Internal Cost Analysis </li></ul></ul><ul><ul><li>Internal Differentiation Analysis </li></ul></ul><ul><ul><li>Vertical Linkage Analysis </li></ul></ul>
  39. 39. Vertical Linkage Analysis <ul><li>“ gaining and sustaining a competitive advantage requires that a firm understand the entire value delivery system, not just the portion of the value chain in which it participates. Suppliers and customers and suppliers’ suppliers and customers’ customers have profit margins that are important to identify in understanding a firm’s cost/differentiation positioning, because the end-use customers ultimately pay for all the profit margins along the entire value chain.” </li></ul><ul><li>Shank and Govindarajan (1993) </li></ul>
  40. 40. Value Chain Components Value Chain Analysis for Assessing Competitive Advantage – CMA Handbook R&D Design Production Marketing Distribution Service Supplier Value Chain Firm Z Value Chain Distribution Value Chain Buyer Value Chain Disposal Value Chain End-Use Consumer Pays for Profit Margins Throughout the Value Chain Primary Activities Support Activities Service Service Service Service
  41. 41. Developing Value Chains <ul><li>Value Chain Analysis requires expertise in more than one area </li></ul>
  42. 42. Developing Value Chains <ul><li>Value Chain Analysis requires expertise in more than one area </li></ul><ul><li>Competitive intelligence is to be gathered ethically </li></ul>
  43. 43. Developing Value Chains <ul><li>Value Chain Analysis requires expertise in more than one area </li></ul><ul><li>Competitive intelligence is to be gathered ethically </li></ul><ul><li>And then developing a systematic process for capturing, analyzing it and disseminating the intelligence and developing the appropriate strategies to enhance your competitiveness. </li></ul>
  44. 44. How a firm can use Value Chain Analysis <ul><li>Three useful strategic frameworks have been identified for value chain analysis: </li></ul>
  45. 45. How a firm can use Value Chain Analysis <ul><li>Three useful strategic frameworks have been identified for value chain analysis: </li></ul><ul><ul><li>Industry Structure Analysis </li></ul></ul>
  46. 46. How a firm can use Value Chain Analysis <ul><li>Three useful strategic frameworks have been identified for value chain analysis: </li></ul><ul><ul><li>Industry Structure Analysis </li></ul></ul><ul><ul><li>Core Competencies </li></ul></ul>
  47. 47. How a firm can use Value Chain Analysis <ul><li>Three useful strategic frameworks have been identified for value chain analysis: </li></ul><ul><ul><li>Industry Structure Analysis </li></ul></ul><ul><ul><li>Core Competencies </li></ul></ul><ul><ul><li>Segmentation Analysis </li></ul></ul>
  48. 48. Michael Porter’s Five Forces Model <ul><li>Michael Porter (1980, 1985) developed the five forces model. Five factors influence the profitability of a firm </li></ul><ul><ul><li>Bargaining power of suppliers </li></ul></ul><ul><ul><li>Bargaining power of buyers </li></ul></ul><ul><ul><li>Threat of substitute products or services </li></ul></ul><ul><ul><li>Threat of new entrants </li></ul></ul><ul><ul><li>Intensity of Competition </li></ul></ul>
  49. 49. Bargaining Power of Suppliers/Buyers <ul><li>For Suppliers this includes: </li></ul><ul><ul><li>Input differentiation </li></ul></ul><ul><ul><li>Supplier concentration </li></ul></ul><ul><ul><li>Volume </li></ul></ul><ul><ul><li>Cost relative to total dollars </li></ul></ul>
  50. 50. Bargaining Power of Suppliers/Buyers <ul><li>For Buyers this includes: </li></ul><ul><ul><li>Buyer concentration </li></ul></ul><ul><ul><li>Volume </li></ul></ul><ul><ul><li>Integration </li></ul></ul>
  51. 51. Entry Barriers <ul><ul><li>Economies of scale </li></ul></ul><ul><ul><li>Product Differences </li></ul></ul><ul><ul><li>Brand Identity </li></ul></ul><ul><ul><li>Access to distribution </li></ul></ul><ul><ul><li>Cost advantages </li></ul></ul><ul><ul><li>Government policy </li></ul></ul>
  52. 52. Vertical Alliances <ul><li>Value Chain analysis can show opportunities for participants within the chain that can have an immediate effect on your costs </li></ul>
  53. 53. Real Life Examples <ul><ul><li>SWATCH </li></ul></ul><ul><ul><li>IKEA </li></ul></ul><ul><ul><li>FedEx </li></ul></ul><ul><ul><li>AB originated Beef to L.A. retail stores </li></ul></ul><ul><ul><li>Agricultural chemicals sold in the US Midwest </li></ul></ul>
  54. 54. Bibliography <ul><ul><li>CMA Value Chain Analysis for Assessing Competitive Advantage </li></ul></ul><ul><ul><li>Canadian Institute for Competitive Intelligence </li></ul></ul><ul><ul><li>SCIP – Society of Competitive Intelligence Professionals email address [email_address] </li></ul></ul><ul><ul><li>Competitive Intelligence Magazine </li></ul></ul>

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