How to Write a Good Value Chain Analysis Essay

3459 Words Oct 20th, 2014 14 Pages
How to write a Good Value Chain Analysis The ability of a company to understand its own capabilities and the needs of the customers is crucial for a competitive strategy to be successful. The profitability of a firm depends to a large extent on how effectively it manages the various activities in the value chain, such that the price that the customer is willing to pay for the company’s products and services exceeds the relative costs of the value chain activities. It is important to bear in mind that while the value chain analysis may appear as simple in theory, it is quite time-consuming in practice. The logic and validity of the proven technique of value chain analysis has been rigorously tested, therefore, it does not require the user …show more content…
A company may benefit from cost advantages if it either reduces the cost of individual activities in the value chain or the value chain is essentially reconfigured, through structural changes in the activities. One of the problematic areas of the value chain model, however, is that the costs of the different activities of the value chain need to be attributed to an activity. There are few costing systems that contain detailed activity level costing, unless an Activity Based Costing (ABC) system is in place in the company (Macmillan et al, 2003). Another relevant area of concern that analysts must pay particular attention to is the customers’ view point of value. The customers of the firm may view value in a generic way, thereby making the process of evaluating the activities in the value chain in relation with the total price increasingly difficult. It is imperative for analysts to note that the overall differentiation advantage may result from any activity in the value chain. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or service of the company, or by reconfiguring the company’s value chain. The difference between a low cost strategy and differentiation in practice is unlike the rigidity that is provided regarding the same in theory. Analysts must note that the difference between these two strategies is one of the shades of

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