Value Chain and the Internal Environment
Value Chain and the Internal Environment
Introduction
Every business should have a strategic management process in place for it to be competitive in the market. Ideally, strategic management helps an organization define its stand in the market. A value chain is the co-existence of various departments as they work together to achieve a common goal. The objective of the value chain is to create useful products from inputs. Also, it gives business a competitive advantage and helps it operate in a market where competitors exist. This paper is an overview of the value chain and the internal environment.
Ideally, strategic planning is a component of strategic management process. Importantly, strategic management is the procedure for determining and implementing the company’s work plan (Gadiesh & Gilbert 2001). This process involves the implementation of strategies viable in a particular business environment. Steps of strategic management process include;
Formulating mission, vision and objectives; this process involves internal and external analysis to determine the kind of products or services the organization will sell in an ideal location. Additionally, the organization determines its marketing plan. Strategy formulation; according to Karami (2007) plan formation involves revision of the mission and objectives, and it delivers a set of suggestions on how to achieve them. Strategy implementation, the filtered strategies are enacted in this step. Finally, strategic evaluation and control; the organization management evaluates the performance of the new plan. Also, there is control of the blueprint to ensure different departments run smoothly.
Firm’s resources and capability
Firm’s resources are the tangible and intangible assets that an organization has in its possession. Some organization's resources include information, knowledge and innovation states Daft (1983). A firm uses these assets to formulate and implement its plans and objectives. Ideally, these resources enhance firm’s competitiveness.
Primarily, firm’s resources fall into four main classes including; Finance, which involves the organization’s borrowing limit and potential to make funds. Physical, these include raw materials, buildings and machines. Human/labor, this includes employee innovation and managerial abilities. Finally, organizational; which includes intellectual property rights (IPR) and communication structures.
These resources require frequent auditing to determine the organization’s competitiveness. Ideally, verification involves assessment of the resources regarding their availability, amount and condition, the extent of use, sources reporting structure and performance.
Makadok (2001) highlights the difference between capability and resource by referring capability as a particular asset that an organization uses to enhance the productivity of other resources.
Value chain
According to Porter (1985), a value chain is a collection of actions undertaken by a firm in a particular industry with a goal of offering standard products or services. Importantly, value chain entails primary and support activities.
Primary Actions
Inbound Logistics; it involves receiving inputs from a supplier storage and dissemination of the materials into useful products.
Operations, it entails controlling the process of turning inputs into final products.
Outbound logistics, it involves the collection, storage and distribution of manufactured goods to customers.
Marketing and Sales; these are all the actions taken to ensure the end user purchases the products or services.
Services, these are the measures taken to ensure that a product retains its value. These may include after sale services, free installation, training or handling complaints.
Support Actions
Procurement, this is the process of buying the services or products required in the manufacturing process. The organization can purchase these inputs online or in local stores.
Technological development; an organization advances the machines, software, techniques and innovates ways of changing raw materials into final products.
Firm’s infrastructure; these are the departments that support the business in the transforming inputs into useful products. Some divisions include accounting, finance, public relations, quality control and overall management.
Uses of value chain analysis
Most important, the value chain is a flexible strategic instrument for examining your organization and competitor’s status in the particular industry. Also, this strategy is ideal for diagnosing and creating competitive advantage. Further, the value chain is a helpful tool for analyzing the actions of an organization, how they relate and impact each other’s performance and cost. Moreover, an organization gets a competitive advantage by undertaking these activities.
Criticism of value chain analysis
A major limitation of this strategy is that it applies to particular business, and it’s hard to adapt to service organizations. Ideally, the value chain is mainly meant for manufacturing companies and not ideal for other business models. Analyzing this strategic tool is tedious and takes a lot of time. Above all, generating information for this strategy from business information structures is not simple.
Conclusion
In conclusion, strategic management is very vital in any organization. This process helps to formulate a work plan that will guide the business through its activities. It involves four stages, formulation of objectives, strategic formulation, strategic implementation, and strategic evaluation and control. The firm’s resources are equally important when implementing the organization's blueprint.
The value chain is the process that ensures a firm offers quality products and services to its customers. In the value chain, there are primary and supportive activities that provide efficient transformation of inputs into products. Although, this process is not relevant to some business models, it an essential tool for analyzing business actions and valuing competitor’s effect. This paper has fulfilled its objective of examining how strategic management interacts with value chain in the business environment.
References
Gadiesh, A., & Gilbert, J., (2001). “Frontline Action,” Harvard Business Review. Harvard Business School Publishing Corporation.
Karami, A. (2007). Strategy formulation in entrepreneurial firms. United Kingdom: Ashgate Publishing.
Makadok, R. (2001). Toward a synthesis of the resource-based and dynamic-capability views of rent creation. Strategic Management Journal, 22(5), 387–401.
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance (5thed.). New York: The Free Press.
