The Value Chain

I. Todays customers face a growing range of choices in the products and services they can buy. A. They are making their choice on the basis of their perceptions of quality, service, and value. B. Companies need to understand the determinants of customer value and satisfaction. 1. Customer delivered value is the difference between total customer value and total customer cost. 2. Customers will normally choose the offer that maximizes the delivered value. 3. Customer satisfaction is the outcome felt by buyers who have experienced a company performance that has fulfilled expectations. 4. Customers are satisfied when their expectations are met and delighted when their expectations are exceeded. 5. Satisfied customers remain loyal longer, buy more, are less price sensitive, and talk favorably about the company. II. A major challenge for high-performance companies is that of building and maintaining viable businesses in a rapidly changing marketplace. A. They must recognize the core elements of the business and how to maintain a viable fit between their stakeholders, processes, resources, and organization capabilities and culture. B. Typically, high-performing businesses develop and emphasize crossfunctional skills rather than functional skills (overall project management and results versus functional strengths (best engineers, and so on.). C. They also build their resources into core capabilities that become core competencies, distinctive abilities, and competitive advantages. D. This along with a corporate culture of shared experiences, stories, beliefs, and norms unique to the organization are the keys to their success. III. To create customer satisfaction, companies must manage their value chain as well as the whole value delivery system in a customer-centered way. The companys goal is not only to get customers, but even more importantly to retain customers.

IV. Value chain analysis, as proposed by Porter, is a way of examining the nature and extent of the synergies that do or do not exist between the internal activities of a corporation. A. The systematic examination of individual value activities can lead to a better understanding of a corporation's strengths and weaknesses. B. Its advantage over other methods of analyzing a firm's internal environment is its ability to visualize a company in terms of strings of product value chains which can be tied together in places to achieve economies of scope. V. Delivering customer value and satisfaction by analyzing the Value chain. The nine value-creating activities: 1. Primary Activities 1. Inbound logistics: Handling raw material materials and inventory received Warehousing, storage Managing component flow from different suppliers Represents the beginning of the firms conversion of inputs Major source of direct costs Value opportunities Reduction in inventory costs Location of inventory Inventory turnover Speed 2. Operations Activities that transform raw materials into components and finished products Includes manufacturing, assembly, production, processes (EM Room care) Capital intensive Core customer product Value opportunities Technology = productivity TQM Speed of manufacture Better processes

3. Outbound Logistics Transfer finished goods to distribution channels or customer Included shipping, warehousing, transportation Manage the flow to wholesalers, retailers Value opportunities Available supply Responsiveness Electronic links to channels 4. Marketing and Sales Identifying market opportunities and segments Positioning products Pricing, promoting (communicating), selling Value opportunities Identify unique markets and market needs Superior selling activities Customer relationships 5. Service. Warranty, repairs, installations, customer support, customer response Impacts buying decision and customer loyalty Considered part of the product (the bundle of benefits customers purchase) Value opportunities Response time Problem resolution Relationships e-customer service (order confirmations, tracking delivery)

B. Support Activities 1. Procurement Purchasing inputs Billing, supplier processes, Source of cost advantage

2. Technology Development Found in every value-added activity in the firm Integrated into both Product and Process development Product: conception, design and commercialization of a new product. Better, faster designs, better performance Process: developing improved machinery, practices to improve methods of adding value. (factory automation, delivering ads over the net). 3. Human Resources Management Recruiting, hiring, compensating and training employees Enables firms to cultivate skills necessary to add value Managing the companys labor costs 4. Firm Infrastructure Accounting, finance, legal information systems, payroll Considered overhead costs Not always linked clearly to customer or company value 6. Value-delivery network A. To be successful a firm has to look for competitive advantage beyond its own operations. B. Building a better network can be a highly successful differentiation tactic that leads to greater customer satisfaction. (Dell and suppliers, Amazon and UPS)