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Value Chain Analysis

Many organizations do not achieve the profits they anticipate by using incorrect methods or models to determine the true costs of products and services. This failure to correctly assess the costs associated with business not only affects the profit margin, but the organizations competitive advantage as well. In order to asses whether the organization is failing to realize optimum resource allocation, the organization should look at the methodology first popularized by Michael Porter called the Value Chain Analysis (VCA). The VCA can be a powerful tool in increasing an organization's competitive advantage; by correctly pricing products and assessing the true costs of materials and labor, organizations can align the improvements in efficiency, quality, and profits with its strategic objectives. The main tool for analyzing these activities and isolating differences in approach and relative cost is the Value Chain. The idea that Value Chain is focus too much on a model of a manufacturing business is one of the criticisms it gets. An organization needs to adapt the Value Chain to fit its business and not subserviently follow the categories specified by Michael Porter. Some of the ways that are an advantage to using the Value Chain Analysis are:

• A very flexible strategy tool for looking at ones business, rivals and the respective places in the industry’s value system

• Can be utilized to analyze and create competitive advantages on both cost and differentiation

• Provides an understanding of the organizational issues involved with the promise of making customer value commitments and promises because it targets the needed attention on the activities essential to deliver the value proposition.

• Measuring your business model with competitors utilizing the value chain can provide a much deeper understanding of the strengths and weaknesses of an organization to be included in your SWOT analysis.

The value chain is well known...