You will need to be able to properly construct/label a generic model of the Value Chain, and explain its use and value to managers. Beyond the text, there was further discussion of the value chain in the functional-level study slides.
The transformation process is composed of primary and support activities that add value to the product.
Primary Activities: activities related to a product’s design, production, distribution to markets and its support and after-sale services.
R&D-Research and Development (R&D) activities aim at improving the design of products and the overall production processes. R&D achieves this by increasing the functionality of products, making them more appealing to customers and thereby adding their value. For instance, R&D in an electronics company can develop more powerful microprocessors, improve coordination with equipment suppliers and make the manufacturing process more efficient.
Production-Production is the process of creating goods or services. The creation of value in a company is hinged on an efficient production function which helps reduce the cost of production. For example, the improvement of production operations in the manufacture of Toyota and Honda vehicles translates to low production costs, increased value and higher profits.
Marketing and sales- Marketing and sales can create value of products by investigating on customer needs, communicating those needs to the company’s R&D functions, which in turn come up with products that satisfy the customers’ needs.
The customer service- This function of a company provides after-sales services to customers advises customers on the company’s products and performs other support functions aimed at increasing customer loyalty. Improved customer relations assure businesses of a market for their products thereby creating value.
Support Activities- Activities of the value chain that provide inputs that allow the primary the activities to take place.
Materials Management-The materials management controls the movement of physical materials throughout the value chain right from the procurement stage to production facilities and into the appropriate distribution channels.
Human Resources: The Human Resources function of a company creates value. The HR function ensures that a company’s workforce has the right mix of skilled individuals able to perform value-creation activities effectively.
Information Systems: Information systems comprise of electronic systems used in managing inventories, tracking sales, pricing and selling products as well as handling customer service enquiries. When information systems are combined with communication features of the internet, they improve the efficiency of operations in a company. Managers can implement integrated Information Technology (IT) processes and create immense value for their companies.
Company Infrastructure: Company infrastructure, which comprising of, the organizational structure, company culture and control systems forms the context upon which the company conducts value-creation activities.
Can you explain the relationship between quality and an organization’s profit goals?
The quality of a product and the profits obtained from the sale of that product are related. The impact of producing high-quality products is twofold. First, high-quality products are reliable; they are capable of meeting the customers’ needs. Companies can charge high-quality products at high prices commensurate with increased product value. In addition, production of high-quality goods minimizes the time employees spend making defective goods or offering substandard services. Employees, therefore, spend less time correcting mistakes and use that time to create more value for the company. The second impact of high-quality goods on profits is in the enhancement of efficiency. Once there is efficiency in the production process; employee productivity soars thereby lowering the production unit costs. These effects combine to increase the profitability of a company.
Note: Quality and profitability are indirectly related while quality/reliability is directly related to productivity.
We make a distinction between core competencies and unique, inimitable competencies and the concern among managers of the fugaciousness of both. What is this all about?
Core competencies comprise of those aspects that a business must exude if it is to remain competitive in its industry. When a business fails to exude any of these aspects, its profitability and market share declines. Some examples of core competencies are efficient after-sales services, skills to produce high-quality products and innovations to integrate multiple technologies and create new and improved products among other unique aspects. Core competencies can be common among companies operating in the same industry. Imitable competencies, on the other hand, are unique to companies. They give a company some competitive edge to and help it weather existing competition in the industry. Examples of inimitable competencies include unique IT systems, secret chemical formulas and ingredients, strong organizational cultures, uniquely talented workforce among others. In order for managers to create value for their companies and ensure increased profitability, they need to identify their inimitable competencies and improve on them while strengthening on their core competencies.
A firm can create distinctive competencies without firm-specific and valuable resources if it has unique capabilities. What does this mean? What is the significance of this statement to strategic managers?
The endowment of one company with unique capabilities such as a uniquely talented workforce sets it apart from its competitors. Such a company can manage its resources better, create distinctive competencies and build on its strategies. Consequently, such companies are able to match those companies endowed with greater resources.
