Part 2
Primary activities, as previously mentioned in Part 1, directly add value to the production process, but they are not always more significant than support activities. Nowadays, technological advancements or innovations in business models or processes are the key sources of competitive advantage. As a result, the most significant source of differentiating advantage is typically found in support operations like “information systems,” “R&D,” or “general management.” Primary activities, on the other hand, are typically the source of cost advantage since costs can be identified for each activity and well handled.
Five steps to developing a value chain analysis
Step 1: Identify all value chain activities.
Identify each process involved in producing the final product for your business.
Step 2: Calculate each value chain activity’s cost.
Do not forget to include cost drivers like rent, utilities, and personnel. It is simpler to determine how much income you are truly making when you have a clear view of every cost (and what activities raise or decrease costs).
Step 3: Look at what your customers perceive as value
Recognize that consumers directly associate value with a product’s price; in other words, perception has a significant impact on product margins. Knowing what your customers and the people in their social networks want gives you the chance to sell your product in a way that encourages people to buy it.
Step 4: Look at your competitors’ value chains
Market analysis is the most effective method for estimating value. You can utilize benchmarks as a starting point even if it is doubtful that you will have access to the infrastructure and operational breakdowns of your rivals. Competitive benchmarking is the name of this method. Competition benchmarking is measured in three ways like; process benchmarking, strategic benchmarking, and performance benchmarking.
Step 5: Decide on a competitive advantage
You will now have a good grasp of your internal costs, what adjustments you can make, and how they compare to those of your rivals. If you decide to pursue cost advantage, you must find a way to streamline and reduce the price of the primary and auxiliary activities that make up your value chain. You might decide to outsource talent, automate some human tasks, or look for less expensive delivery options or distribution channels. You might even decide to do away with office space as more and more people begin working remotely.
Benefits of Value Chain Analysis
The value chain framework helps your business identify and evaluate the areas of the organization where cost efficiency is good or bad. Analytical analysis of your company’s value chain enables you to:
✪ Support decisions made about various business activities
✪ Identify weak areas and strengthen them
✪ Recognize the relationships and accountability between various facets of your business
✪ Maximize effectiveness while cutting costs and establish a cost advantage over rivals
✪ Recognize the specific areas in which your company is successful.
Value chain analysis is a method for visually examining a company’s operations to determine how the company might gain a competitive edge. A company can better understand how it provides value by using value chain analysis, which also enables it to determine how much it can charge for a good or service while still making a profit. To put it another way, if they are managed effectively, the value received should outweigh the costs of managing them, which means that customers should return to the business and engage in free and willing exchanges.
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Writer,
Jannatul Kawser Riktha
Intern, Content Writing Department.
YSSE