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Value Creation
and Delivery
Value Chain Critical Success
Analysis Factors (CSF)
Sequence
Strategic
Alliances / Skills and core
collaboration Benchmarking competencies
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B u s i n e s s a n d C u s t o m e r Va l u e
Preface
“Proving business and customer value” have always been a point of discussion among
scholars, business and technology students, and practicing managers. This topic is highly
regarded as the backbone of any business success; it is, therefore, included in diverse
range of subject modules in business and management studies e.g. Management
Information Systems, Marketing Management, Principles of Marketing, Customer
Relationship Management, Human Resource Management and Information Systems, etc.
While realizing the significance of the topic in today’s business world, the author made
an initial attempt to address some of its fundamental issues. These key notes and ideas are
compiled and edited from different resources. In addition, readers are also encouraged to
carry out their own research to facilitate their arguments.
Please note that your examination will include questions from this
literature.
Keywords: The Value Delivery Process, Value Creation and Delivery Sequence,
Importance of Competitor Analysis, Michael E. Porter’s Generic Value Chain,
Composite Value Chain, Critical Success Factors (CSF), Management Information
Systems (MIS), Benchmarking.
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version 2.1
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Initial idea: The task of any business is to deliver customer value at a
profit.
What is Hypercompetition?
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Dr. Richard D'Aveni
Professor of Strategic Management at the Tuck School of Business at Dartmouth College, USA
(http://oracle-www.dartmouth.edu/dart/groucho/tuck_faculty_and_research.faculty_profile?p_id=A332QC)
The Value Delivery Process
Q. What happens normally (i.e. Traditional View)?
The firm makes something and then sells it. In this view, Marketing
takes place in the second half of the process. The company knows
what to make and the market will buy enough units to generate profits.
This view is acceptable when there are shortages of goods as well as
customers are not fussy (mean: choosy or selective) about quality,
features, or style.
You will agree that this traditional view of the business process will not
work in those economies where people face abundant choices. It
means that the “mass market” actually splinters into numerous micro-
markets, each with its own wants, perceptions, preferences, and
buying criteria. The smart competitor must design and deliver offerings
for well-defined target markets. This belief is the core of the new view
of business processes, which places Marketing at the beginning of the
planning.
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Formula: “Segmentation, Targeting, and Positioning (STP)” is the
essence of Strategic Marketing.
Phase 2: Providing the Value: Once the business unit has chosen
the value, the second phase is providing the value. Marketing must
determine specific product features, prices, sourcing (making) and
distribution.
Idea: By lowering its inventories, the company can reduce its costs.
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appreciation. Following are the three major reasons due to which
companies usually condone ‘competitor analysis’:
Q. What are the main key effects when a firm realizes the
importance of Value Chain?
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Recognition of the existence of such a value chain focuses analysis on
the organizations that comprise them and the nature and strength of
the relationships between them. In turn such analysis has led the
following attempts:
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.
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Important: According to Porter (1985, p.36), “The most complete
descriptions of the business system concepts are Gluck (1980) and
Bauron (1981). See also Bower (1973)”.
1.2 OPERATIONS:
Activities associated with transforming inputs into the final product
form, such as machining, packaging, assembly, equipment
maintenance, testing, printing, and facility operations.
Example:
Pakistan Steel Mills Toyota Indus Motors Toyota Eastern Motors You (as an individual) or
(‘Steel’ as their finished (‘Steel’ as the raw material to ICI Pakistan, KPMG buy
product) be used in the manufacturing Toyota Corolla 2009
of Toyota Corolla 2009 model) models for their senior
executives / partners.
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Example 2: Boeing (manufacturing company 1) and Airbus
(manufacturing company 2) aircrafts (products) are purchased
by different airline companies (buyers of Boeing and Airbus) viz.
Pakistan International (PIAC), American Airlines (AA), Lufthansa,
Qatar Airways, British Airways (BA), KLM-Air France, etc. Now
you, as a traveler or commuter, purchase a travel ticket from
airline companies.
1.5 SERVICE:
Activities associated with providing service to enhance or maintain the
value of the product such as installation, repair, training, parts supply,
and product adjustment.
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The additional insight proposed by these two authentic literatures and
then Senge’s (1990) work on Learning Organization led to
Norman and Remirez (1993) to propose an expansion of the
concept of the value chain into one of value constellation (mean:
collection or a group). They conclude that
• Organizational
entrepreneurshi
p
• Organizational
learning
• Cross-functional
synergy
• Core
competence
building
• Organizational
creativity,
innovation
Value Enhancement Activities
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Value Chain – an example
As discussed, Value Chain Analysis is a well known strategic concept which enables you to
establish how value is being added within a business. The whole enterprise is 'broken down' into
key 'Support' and 'Primary' activities which are then compared with competitive 'benchmarks'
representing best practice.
Using the Value Chain example below, individual 'Support' and 'Primary Activities' can be
configured for a company as appropriate. Using activity based cost analysis, the resource
consumed by each value area in the production of a good or service is then determined.
Deducting these monetary values, together with the cost of raw materials from the overall selling
price gives an indication of the gross and net margins. The effect of changing the underlying data,
for example increasing the cost of raw materials, or reducing production costs can then be seen
on overall profitability. Comments about the competitiveness and colour coding can be added in
to highlight areas of strength and weakness.
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Critical Success Factors (CSF)
Idea: There are few factors which are decisive for the success of the
company, and that these factors can be ascertained.
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The above are the major factors which are often emphasized on the
development of management information systems as only one of four
different approaches to CSF, the others being:
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2. Establishment of the key success factors and true measure of
productivity.
3. New ideas leading either to continuous improvement or
breakthrough change.
4. Improvement in understanding and meeting the needs of
customers.
5. A view of external conditions leading to the establishments of
more relevant goals.
6. Becoming more competitive in the marketplace.
7. Becoming aware of and emulating industry best practices.
Summary
References
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Bauron (1981) <further details not available>
Bower, J. L.(1973) Simple economic tools for strategic analysis,
Harvard Business School Case Study, No. 9-373-094
Gluck, F. W. (1980), Strategic choice and resource allocation, The
McKinsey Quarterly, pp.22-23
Hamel, G. and Prahalad, C.K. (1994) Competing for the Future.
Boston, MA: Harvard Business School Press
Kotler, P. and Keller, K.L (2006) Marketing Management, 12e Low
Price Edition, Pearson Prentice Hall.
Norman, R. and Remirez, R. (1993) From Value Chain to Value
Constellation: Designing Interactive Strategy, Harvard Business
Review.
Porter, M. E. (1985) Competitive Advantage: creating and sustaining
superior performance, New York: Free Press
Rockart, J.F. (1979) “Chief Executives define their own data needs”,
Harvard Business Review.
Senge, P. M. (1990) The Fifth Discipline: The Art and Practice of the
Learning Organization. New York: Doubleday/Currency.
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