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Self Guided Lecture # 2
Strategic & Innovative Management
Cristin Howell-Vischer, MIMMANAGEMENT II – MAN 2600
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The Value Chain
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What is a Value Chain?
A sequential process of value-creating activities A categorization of the generic value adding activities of an organization A concept described and popularized by Michael Porter in his 1985 best-
seller, “Competitive Advantage: Creating and Sustaining Superior Performance”
It defines the organization’s activities as being either primary or support activities
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The Value Chain
General administration
Human resource management
Technology development
Procurement
Inbound logistics Operations Outbound
logisticsMarketing and sales Service
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Primary Activities
Associated with receiving, storing and distributing inputs to the product Location of distribution facilities
Material and inventory control systems
Systems to reduce time to send “returns” to suppliers
Warehouse layout and designs
Inbound Logistics
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Primary Activities
Associated with transforming inputs into the final product form Efficient plant operations
Appropriate level of automation in manufacturing
Quality production control systems
Efficient plant layout and workflow design
Inbound Logistics
Operations
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Primary Activities
Associated with collecting, storing, and distributing the product or service to buyers Effective shipping processes
Efficient finished goods warehousing processes
Shipping of goods in large lot sizes
Quality material handling equipment
Inbound Logistics
Operations
Outbound Logistics
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Primary Activities
Associated with purchases of products and services by end users and the inducements used to get them to make purchases Highly motivated and competent sales force Innovative approaches to promotion and
advertising Selection of most appropriate distribution channels Proper identification of customer segments and
needs Effective pricing strategies
Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
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Primary Activities
Associated with providing service to enhance or maintain the value of the product Effective use of procedures to solicit customer
feedback and to act on information
Quick response to customer needs and emergencies
Ability to furnish replacement parts
Effective management of parts and equipment inventory
Quality of service personnel and ongoing training
Warranty and guarantee policies
Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
Service
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Support Activities
Typically supports the entire value chain and not individual activities Effective planning systems
Ability of top management to anticipate and act on key environmental trends and events
Ability to obtain low-cost funds for capital expenditures and working capital
Excellent relationships with diverse stakeholder groups
Ability to coordinate and integrate activities across the value chain
Highly visible to inculcate (fix in people’s minds) organizational culture, reputation, and values
General Administration
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Support Activities
Activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel Effective recruiting, development, and retention
mechanisms for employees
Quality relations with trade unions
Quality work environment to maximize overall employee performance and minimize absenteeisn
Reward and incentive programs to motivate all employees
General Administration
Human ResourceManagement
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Support Activities
Related to a wide range of activities and those embodied in processes and equipment and the product itself Effective R&D activities for process and product
initiatives Positive collaborative relationships between R&D
and other departments State-of-the art facilities and equipment Culture to enhance creativity and innovation Excellent professional qualifications of personnel Ability to meet critical deadlines
General Administration
Human ResourceManagement
Technology Development
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Support Activities
Function of purchasing inputs used in the firm’s value chain Procurement of raw material inputs
Development of collaborative “win-win” relationships with suppliers
Effective procedures to purchase advertising and media services
Analysis and selection of alternate sources of inputs to minimize dependence on one supplier
Ability to make proper lease versus buy decisions
General Administration
Human ResourceManagement
Technology Development
Procurement
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Resource-Based View of the Firm
Two perspectives
The internal analysis of phenomena within a company (SWOT)
An external analysis of the industry and its competitive environment (PEST)
Three key types of resources
Tangible resources
Intangible resources
Organizational capabilities
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Types of Resources
Relatively easy to identify, and include physical and financial assets used to create value for customers Financial resources
Firm’s cash accounts
Firm’s capacity to raise equity
Firm’s borrowing capacity
Physical resources
Modern plant and facilities
Favorable manufacturing locations
State-of-the-art machinery and equipment
Tangible Resources
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Technological resources
Trade secrets
Innovative production processes
Patents, copyrights, trademarks
Organizational resources
Effective strategic planning processes
Excellent evaluation and control systems
Types of Resources
Tangible Resources
Relatively easy to identify, and include physical and financial assets used to create value for customers
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Types of Resources
Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time Human
Experience and capabilities of employees
Trust
Managerial skills
Firm-specific practices and procedures
Tangible Resources
Intangible Resources
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Types of Resources
Innovation and creativity
Technical and scientific skills
Innovation capacities
Reputation
Effective strategic planning processes
Excellent evaluation and control systems
Tangible Resources
Intangible Resources
Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in unique routines and practices that have evolved over time
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Types of Resources
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine tangible and intangible resources to attain desired end Outstanding customer service
Excellent product development capabilities
Innovativeness of products and services
Ability to hire, motivate, and retain human capital
Tangible Resources
Intangible Resources
Organizational Capabilities
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How Resources & Capabilities Lead to Advantages
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Adding Value
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Adding Value
Adding value means making the customer feel like they are getting real value for their money. This can happen by/through:
understanding and being close to the customer
committing to quality
maintaining a high level of all around service
reacting speedily to competitive opportunities and threats
constant innovation
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Examples of Adding Value
warranties
extra car features (rust filter)
airlines (mix of offerings in seat choices)
taking away features seen as a nuisance (handy features)
services (grocery delivery)
convenience packaging (salad in a bag)
cleanliness, value, quality, service (formerly McDonalds)
ambience/lifestyle (Starbucks)
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Opportunities for Adding Value
changes in industry regulation
marketing (segmentation/globalization)
operations (technology, cost reduction, service, quality)
people (exploiting expertise, encouraging innovation)
finance (globalization of financial markets, better use of assets)
information (exploiting the potential of information technology)
acquisition and restructuring strategies
co-operation strategies
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Ten Ways to Add Value to Your Business
According to Dr. David J. Skyrme
1. Establish the Strategic Role of Information
2. Identify Users Real Needs
3. Segment Your Market
4. Create a Unique Product
5. Sales & Marketing
6. Evaluation & Feedback
7. Exploit Technology
8. Selective Outsourcing
9. Building Partnerships
10. Develop Hybrid Skills