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    Value Chain

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    Nikita Singh
    The value chain is a framework that analyzes a firm's activities and how they are connected. It identifies the primary and support activities that add value to the final product. Understanding the costs associated with each activity allows a firm to gain a competitive advantage by reducing individual activity costs or reconfiguring the value chain. Key decisions for firms using the value chain model include whether to pursue a cost advantage or differentiation strategy relative to competitors. Cost drivers that impact the overall value chain include economies of scale, learning, capacity utilization, and linkages between activities.

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    Value Chain

    Uploaded by

    Nikita Singh
    15 views2 pages
    The value chain is a framework that analyzes a firm's activities and how they are connected. It identifies the primary and support activities that add value to the final product. Understanding the costs associated with each activity allows a firm to gain a competitive advantage by reducing individual activity costs or reconfiguring the value chain. Key decisions for firms using the value chain model include whether to pursue a cost advantage or differentiation strategy relative to competitors. Cost drivers that impact the overall value chain include economies of scale, learning, capacity utilization, and linkages between activities.

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    The value chain is a framework that analyzes a firm's activities and how they are connected. It identifies the primary and support activities that add value to the final product. Understanding the costs associated with each activity allows a firm to gain a competitive advantage by reducing individual activity costs or reconfiguring the value chain. Key decisions for firms using the value chain model include whether to pursue a cost advantage or differentiation strategy relative to competitors. Cost drivers that impact the overall value chain include economies of scale, learning, capacity utilization, and linkages between activities.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    15 views2 pages

    Value Chain

    Uploaded by

    Nikita Singh
    The value chain is a framework that analyzes a firm's activities and how they are connected. It identifies the primary and support activities that add value to the final product. Understanding the costs associated with each activity allows a firm to gain a competitive advantage by reducing individual activity costs or reconfiguring the value chain. Key decisions for firms using the value chain model include whether to pursue a cost advantage or differentiation strategy relative to competitors. Cost drivers that impact the overall value chain include economies of scale, learning, capacity utilization, and linkages between activities.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Value Chain

    Value Chain is the linked set of value-creating activities from raw materials to the finished products,
    which are used by consumers. This concept was given by Michael Porter in his book Competitive
    Advantage: Creating and Sustaining Superior Performance.

    The following diagram shows a firm’s value chain.

    Need for Value Chain Costing


    The value chain framework helps a firm in understanding its strategically important activities. It helps a
    firm in indentifying and selecting those activities that can be used to produce and sustain a competitive
    advantage. This selection process requires the knowledge of cost and value of each activity. After
    ascertaining the cost of each activity, a firm can try to get a cost advantage over its competitors. This can
    be done in two ways:

    1. Reducing the cost of individual value chain activities


    2. Reconfiguring the value chain
    In case of the first method, the firm may try and reduce or modify the costs incurred in the value
    creating activities and for the activities that give it a competitive advantage.

    On the other hand, the firm may also try to reconfigure its value chain, which means introduction of
    structural changes such as a new production process, new distribution channels or a different sales
    approach.

    Value Chain Decisions


    The value chain model can be used to decide a firm’s strategy. The following decisions have to be taken
    by a firm:

     Whether to take Cost Advantage over the competitors


     Whether to pursue Diffrentiation

    Cost Drivers in a Value Chain


    According to Michael Porter, the following are the cost drivers in a value chain:

     Economies of Scale
     Learning
     Capacity Utilization
     Linkages among activities
     Interrelationships among business units
     Degree of vertical integration
     Timing of market entry
     Firm’s policy of cost or differentiation
     Geographic Location
     Institutional factors like regulations, taxes, union activity etc.

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