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Value Chain

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Value Chain

  1. 1. What you will learn in this Section <ul><li>Envisioning Strategy </li></ul><ul><ul><li>Definition </li></ul></ul><ul><ul><li>Framework </li></ul></ul><ul><ul><li>Visual Models </li></ul></ul><ul><li>External Analysis </li></ul><ul><ul><li>PEST </li></ul></ul><ul><ul><li>PEST Impact Analysis </li></ul></ul><ul><li>Industry and Competitive Analysis </li></ul><ul><ul><li>Industry Structure </li></ul></ul><ul><ul><li>Evolution of Industries </li></ul></ul><ul><ul><li>Industry Supply Chain </li></ul></ul><ul><ul><li>Potential Industry Earnings </li></ul></ul><ul><ul><li>Porter’s 5 Forces Analysis </li></ul></ul><ul><ul><li>Competitive Intensity </li></ul></ul><ul><ul><li>Strategies for minimizing competitive forces </li></ul></ul><ul><ul><li>Perceptual Map </li></ul></ul><ul><ul><li>Barriers to Entry/Incumbency advantages </li></ul></ul><ul><ul><li>DSIR effect </li></ul></ul><ul><li>Company Resources and Capabilities </li></ul><ul><ul><li>ARC Analysis/HR </li></ul></ul><ul><ul><li>SWOT Analysis </li></ul></ul><ul><ul><li>Value Creating Processes/Core Competencies </li></ul></ul><ul><ul><li>Strategic Gameboard </li></ul></ul><ul><ul><li>Balanced Scorecard </li></ul></ul><ul><ul><li>Change Management </li></ul></ul>© Sunil Mehrotra
  2. 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. 3. Raw material to finished goods- the industry supply chain Raw material Supplier Customer Manufacturer Distributor/Wholesaler Retailer
  4. 4. Industry Supply/Value Chain © Sunil Mehrotra Suppliers Manufacturers Distributors Retailers Consumers
  5. 5. Student Examples: Supply Chain <ul><li>Breanne Hayes April 2008 MBA Graziadio School of Business and Management Pepperdine University </li></ul>Elizabeth Passeretti April 2008 MBA Graziadio School of Business and Management Pepperdine University
  6. 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. 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. 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. 9. Value Creation process: Value added by each member in the chain © Sunil Mehrotra
  10. 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. 11. The concept of PIE- Potential Industry Earnings Manufacturer has the biggest “pie” Retailer has the biggest “pie”
  12. 12. Oil & Gas Industry: Historical gas prices at the pump
  13. 13. Gasoline Value Chain: who gets what $1.34 $1.19
  14. 14. How big is the industry “PIE” and how is it split? Small pie Big pie Why ?
  15. 15. The concept of PIE- Potential Industry Earnings Industry Demand Opportunity Cost of Resources PIE Quantity Produced by the Industry <ul><li>Factors effecting demand : </li></ul><ul><li>Customer habits </li></ul><ul><li>Customer expenditures </li></ul><ul><li>Number of substitutes </li></ul><ul><li>Number of complementary products </li></ul><ul><li>Price reduction by incumbents </li></ul><ul><li>Factors effecting costs </li></ul><ul><li>Cost reductions by suppliers </li></ul><ul><li>Cost reductions by incumbents </li></ul><ul><li>Process improvements </li></ul><ul><li>Technology advances </li></ul>Adapted from: Saloner, Shepard, & Podolny: Strategic Management , Wiley and Sons, 2001
  16. 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. 17. Mnemonic 5: Value added by each member in the chain © Sunil Mehrotra

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