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Value Chain Analysis
What can it do for you and your company?
Copyright laney & associates Inc. November 2002
laney & associates Inc
Table of Contents
Value Chain Analysis
Competitive Intelligence – what is it?
Value of Competitive Intelligence
Different tools and techniques of Competitive Intelligence
Value Chain Analysis
Value Chain Components
Developing your value chain
How a firm can use value chain analysis
laney & associates Inc
Value Chain Analysis
Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.
laney & associates Inc
Value Chain Analysis
Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.
It can: Increase your competitiveness
laney & associates Inc
Value Chain Analysis
Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.
It can: Increase your competitiveness Reduce your costs
laney & associates Inc
Value Chain Analysis
Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.
It can: Increase your competitiveness Reduce your costs Improve your market share
laney & associates Inc
Value Chain Analysis
Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer.
It can: Increase your competitiveness Reduce your costs Improve your market share
Bottom Line - improve overall profitability!
laney & associates Inc
Competitive Intelligence – what is it?
“The best way to differentiate your company from the competition, the best way to put distance between you and the crowd is to do an outstanding job with information…
How you gather, manage and use information will determine whether you win or lose”
Bill Gates, 1999
laney & associates Inc
Competitive Intelligence – what is it?
Competitive Intelligence is: Information about opportunities and
threats
laney & associates Inc
Competitive Intelligence – what is it?
Competitive Intelligence is: Information about opportunities and threats Leveraging information/knowledge to
improve competitive position of companies and local industries
laney & associates Inc
Competitive Intelligence – what is it?
Competitive Intelligence is: Information about opportunities and threats Leveraging information/knowledge to improve
competitive position of companies and local industries Forecasting of changes about the
economic environment
laney & associates Inc
Competitive Intelligence – what is it?
Competitive Intelligence is: Information about opportunities and threats Information which makes companies and local
industries more competitive Forecasting of changes about the economic
environment Actionable recommendations from
analysis of the environment
laney & associates Inc
Competitive Intelligence – what is it?
It is the total knowledge a company or a local industry possesses about the environment in which it competes
gathered in an ethical manner
laney & associates Inc
Market Intelligence vs Competitive Intelligence
Market Intelligence: Tells a company about the
marketplace
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Market Intelligence vs Competitive Intelligence
Market Intelligence: Tells a company about its environment
Supply and demand for its products
laney & associates Inc
Market Intelligence vs Competitive Intelligence
Market Intelligence: Tells a company about its environment
Supply and demand for its products Drivers that influence demand
laney & associates Inc
Market Intelligence vs Competitive Intelligence
Market Intelligence: Tells a company about its environment
Supply and demand for its products Drivers that influence demand Who the buyers and suppliers are
laney & associates Inc
Market Intelligence vs Competitive Intelligence
Market Intelligence: Tells a company about its environment
Supply and demand for its products Drivers that influence demand Who the buyers and suppliers are Overall economic outlook for the
product
laney & associates Inc
Market Intelligence vs Competitive Intelligence
Market Intelligence: Tells a company about its environment
Supply and demand for its products Drivers that influence demand Who the buyers and suppliers are Overall economic outlook for the product
Competitive Intelligence: Helps a company understand what its
competitive position is in a specific market – weaknesses and strengths
laney & associates Inc
Business Pyramid
Business IntelligenceBroad – environmentalscanning, market researchand analysis
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Business Pyramid
Business Intelligence
CompetitiveIntelligence
Assimilates allCompetitive Intelligence
Broad – environmentalscanning, market researchand analysis
laney & associates Inc
Business Pyramid
Business Intelligence
CompetitorAnalysis
CompetitiveIntelligence
Individual CompetitorProfile
Assimilates allCompetitive Intelligence
Broad – environmentalscanning, market researchand analysis
laney & associates Inc
Value of Competitive Intelligence
A study by the University of North Texas found that CICompanies outperformed other companies by all threekey financial measures 1
Sales
Market share
Earnings per share
1Steven Miller, Editor Competitive Intelligence Magazine – 1995 study
laney & associates Inc
Different tools and techniques
Five basic tools : Strategic Analysis
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Different tools and techniques
Five basic tools : Strategic Analysis Product-oriented Analysis
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Different tools and techniques
Five basic tools : Strategic Analysis Product-oriented Analysis Behavioural Analysis
laney & associates Inc
Different tools and techniques
Five basic tools : Strategic Analysis Product-oriented Analysis Behavioral Analysis Financial Analysis
laney & associates Inc
Different tools and techniques
Five basic tools : Strategic Analysis Product-oriented Analysis Behavioral Analysis Financial Analysis Customer Oriented Analysis
laney & associates Inc
Different tools and techniques
Five basic tools : Strategic Analysis Product-oriented Analysis Behavioral Analysis Financial Analysis Customer Oriented Analysis
Value Chain Analysis
laney & associates Inc
Value Chain Analysis
It can be developed for individual competitors or an entire industry
laney & associates Inc
Value Chain Analysis
It can be developed for individual competitors or an entire industry
It can be for the product as it relates to end customers or customers within a chain
laney & associates Inc
Value Chain Analysis
Cost Factors
Why costs differ?
Why swings in profitability?
Efficiencies and inefficiencies
Influence
Competitor’s costs
Nature and source of advantage
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The Three Tiers
There are three tiers of Value Chain Analysis
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The Three Tiers
There are three tiers of Value Chain Analysis
Internal Cost Analysis
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The Three Tiers
There are three tiers of Value Chain Analysis
Internal Cost Analysis A firm or a sector needs to understand
its own value chain in order to compare to its competitors
laney & associates Inc
The Three Tiers
There are three tiers of Value Chain Analysis
Internal Cost Analysis
Internal Differentiation Analysis
laney & associates Inc
The Three Tiers
There are three tiers of Value Chain Analysis
Internal Cost Analysis
Internal Differentiation Analysis A firm or a sector then needs to identify
the processes that distinguish its products or services from that of its competitors
laney & associates Inc
The Three Tiers
There are three tiers of Value Chain Analysis
Internal Cost Analysis
Internal Differentiation Analysis
Vertical Linkage Analysis
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Vertical Linkage Analysis
“ gaining and sustaining a competitive advantage requires that a firm understand the entire value delivery system, not just the portion of the value chain in which it participates. Suppliers and customers and suppliers’ suppliers and customers’ customers have profit margins that are important to identify in understanding a firm’s cost/differentiation positioning, because the end-use customers ultimately pay for all the profit margins along the entire value chain.”
Shank and Govindarajan (1993)
laney & associates Inc
Value Chain Components
R&D
Design
Production
Marketing
Distribution
Service
SupplierValueChain
Firm ZValueChain
Distribution ValueChain
Buyer Value Chain
DisposalValue Chain
End
-Use
Con
sum
er P
ays
for
Pro
fit M
argi
ns T
hrou
ghou
t the
Val
ue C
hain
PrimaryActivities
SupportActivities
Service
Service
Service
Service
Value Chain Analysis for Assessing Competitive Advantage – CMA Handbook
laney & associates Inc
Developing Value Chains
Value Chain Analysis requires expertise in more than one area
laney & associates Inc
Developing Value Chains
Value Chain Analysis requires expertise in more than one area
Competitive intelligence is to be gathered ethically
laney & associates Inc
Developing Value Chains
Value Chain Analysis requires expertise in more than one area
Competitive intelligence is to be gathered ethically
And then developing a systematic process for capturing, analyzing it and disseminating the intelligence and developing the appropriate strategies to enhance your competitiveness.
laney & associates Inc
How a firm can use Value Chain Analysis
Three useful strategic frameworks have been identified for value chain analysis:
laney & associates Inc
How a firm can use Value Chain Analysis
Three useful strategic frameworks have been identified for value chain analysis:
Industry Structure Analysis
laney & associates Inc
How a firm can use Value Chain Analysis
Three useful strategic frameworks have been identified for value chain analysis:
Industry Structure Analysis
Core Competencies
laney & associates Inc
How a firm can use Value Chain Analysis
Three useful strategic frameworks have been identified for value chain analysis:\
Industry Structure Analysis
Core Competencies
Segmentation Analysis
laney & associates Inc
Michael Porter’s Five Forces Model
Michael Porter (1980, 1985) developed the five forces model. Five factors influence the profitability of a firm Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products or services
Threat of new entrants
Intensity of Competition
laney & associates Inc
Bargaining Power of Suppliers/Buyers
For Suppliers this includes:
Input differentiation
Supplier concentration
Volume
Cost relative to total dollars
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Bargaining Power of Suppliers/Buyers
For Buyers this includes:
Buyer concentration
Volume
Integration
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Entry Barriers
Economies of scale
Product Differences
Brand Identity
Access to distribution
Cost advantages
Government policy
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Vertical Alliances
Value Chain analysis can show opportunities for participants within the chain that can have an immediate effect on your costs
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Real Life Examples
SWATCH
IKEA
FedEx
AB originated Beef to L.A. retail stores
Agricultural chemicals sold in the US Midwest
laney & associates Inc
Bibliography
CMA Value Chain Analysis for Assessing Competitive Advantage
Canadian Institute for Competitive Intelligence
SCIP – Society of Competitive Intelligence Professionals email address [email protected]
Competitive Intelligence Magazine