Business Functions and Processes - Coursework Example

Introduction According to Porter (1985), value can be defined as the amount that buyers are prepared to pay for the products or services provided by an organization. The value chain was designed in order to display the total value consisting of an organization’s value activities as well as margin (difference between the total value and the combined cost of conducting value activities). Hence, according to figure 1 depicted below, the standard value chain of an organization comprise three fundamental elements. They are primary activities, support activities and margin of the organization. Primary activities are mainly associated with the creation of a particular product, whereas support activities involve assignments that support the primary activities and each other. Three of the support activities that include procurement, human resource management and technology development can be connected to primary activities, while the fourth activity (firm infrastructure) is responsible for supporting the entire value chain. Fig 1: The generic value chain model (Source: Kippenberger, 1997) Background to value chain The concept of value chain postulated by Porter (1985) explains that attaining competitive advantage begins with the effort to build organizational proficiency in conducting specific competitive value chain activities. The underlying aim behind performing such activity is to attempt harnessing those capabilities, which strengthen competitiveness and strategy of an organization. Given the fact that one or more of these abilities become the cornerstone of a company’s strategy and more resources are then allocated towards building greater expertise in performing these activities, the targeted abilities may ultimately become sustainable core competencies (Roper, Du and Love, 2008). In order to understand significance that Porter had attached to the value chain, it is imperative to recognize that there are two distinct and basic sources of competitive advantage. One source is a lower relative cost advantage and the other is a sort of differentiation. Although empirical research scholars have argued on the fact that many companies (specially Japanese) have been largely successful in combining the two sources mentioned above into one source, Porter continued to seek ways whereby both the sources could be developed separately (Hansen and Birkinshaw, 2007). Porter’s primary emphasis was on the argument that attaining low cost advantage or differentiation largely relies upon the disconnected activities performed by an organization. By disaggregating these activities in strategically pertinent groups, managers will be able to understand behaviour of the costs and thereafter identify potential or existing sources of differentiation. Primary activities The primary activities within the value chain are: Inbound logistics: This includes warehousing, inventory control and materials handling. Operations: This includes activities that transform material inputs into end products (for example, machining, testing, equipment maintenance and packaging). Outbound logistics: This comprises activities that are associated with storing and distributing the products to buyers (for example, warehousing, order processing and delivery vehicle operations). Marketing and sales: This constitutes activities that are responsible for providing means to the buyers so as to purchase a product or avail a particular service (for example, sales force operations, advertising, selection and management of distribution channels). Service: This includes activities that are related to enhancement and maintenance of value such as, installation, repairing and supply of required parts (Bernett and Nentl, 2010). Support activities The support activities within the value chain involve: Procurement: This activity specifically refers to the function of acquiring goods and services from an external source. While procurement of raw materials is normally related to a purchasing department, other forms of purchasing is more often than not scattered throughout a company. Technology development: It is related to research and development. However, the scope associated is wider than the latter. Such an aspect involves engineering and process development as well as is associated with a development function. It is also dispersed throughout the company. Human resource management: This activity involves hiring, recruitment, development, training and compensation of each and every personal working for an organization. Although this activity is partly centralized, it is increasingly dispersed throughout an organization. According to Porter (1985), motivation level of employees as well as their skill set is a key determinant of gaining competitive advantage. Firm infrastructure: This element within the supply chain widely encompasses generic management activities. In addition to that, firm infrastructure is also associated with tasks related to finance, corporate affairs, accounting, legal and quality management. Although this element is often perceived as an overhead activity, it can prove to be a substantial source enabling a company to attain competitive advantage (for example expert negotiations with regulatory authorities) (J. Singh and H. Singh, 2013). Activity types Given that the underlying motive of analysing the value chain is to identify factors and areas that can place a company in a position of strategic advantage, it is imperative that activities associated with the value chain is comprehended. Direct activities: These are activities that directly involve the creation of value for a buyer. The activities may vary depending on the type of organization and nature of work conducted within the same. The activities may include parts assembly, product design, sales force operations, advertising and recruitment. Indirect activities: These are activities that enable a company to perform direct activities on a consistent basis. In other words, it can be said that indirect activities support direct ones, in a similar manner whereby support activities provide support to primary ones. Indirect activities involve maintenance, sales force administration, scheduling, record keeping and so on and so forth. Although this activity is generally not well-understood, it plays a key role in a fragmented manner so as to endow a company with low cost advantage or differentiation advantage. Accounting and several other practices tend to amalgamate direct and indirect activities, but these two activities have very dissimilar economics. According to Porter (1985), trade-offs are frequent when excessive spending on maintenance reduces the machine costs. He has also warned that grouping indirect activities under overheads can obscure the cost implications as well as contribution to differentiation (Chang, 2005; Benders, 2012). Quality assurance: This activity mainly requires ensuring quality among all activities performed within the value chain of an organization. Quality assurance activities comprise monitoring, checking and supervision. Commencing from the general value chain, it is necessary that individual value chain activities are appropriately identified for a particular company and the industry where it operates. Thereafter, the most critical part is to establish a linkage between every activity performed within the value chain of a company. The underlying aim of establishing this connection is to ensure that an organization is able to cater to needs and requirements of the customers, thereby maintaining a proper coordination with its suppliers. By maintaining such coordination between the customers and suppliers, an organization puts itself in a position of competitive advantage so as to beat market competition. There is no doubt regarding the fact that each and every activity within a company’s value chain is interdependent. Therefore, it becomes important for a company to make sure that each and every value chain activities complement each other. It has to be understood that if the functions are not aligned properly, then it may significantly deteriorate organisational performance. It is imperative for organizational managers to understand that a value chain should not only fit the organisational value system, but should also align with that of the industry. Linkages between functions within the value chain Despite a requirement for disaggregation as far as the definition is concerned, activities within the value chain are not independent. A thorough analysis of the value chain of an organization will always reveal that the activities involved are interdependent and should always be so. The existence of this linkage is primarily because of the impact that one activity has on the cost and performance of another one. According to the comments made by Porter (1985), it is pivotal for an organization to maintain such linkages within the value chain in order to secure a competitive advantage. An example of this linkage and its corresponding impact is when a company buys superior quality and well-prepared raw material, which in turn allows them to reduce any form of scrap. Companies are able to manage their inventories appropriately and conduct proper inventory allocation. As a result, they are able to prevent any form of inventory wastage, which help to reduce the cost of holding excess inventory or the need for excess inventory. It can be clearly seen that if one of the activities is performed in an appropriate manner, then it surely has a positive impact on another function and vice versa. Another example is the ways in which proper timing of product or service delivery can help fast food chains to effectively utilize their capacity. Thus, it is quite evident from the examples given above that linkage between the value chain functions is pivotal for an organization and managers should strive to upkeep these linkages. According to Porter (1985), a same function within the value chain could be performed in different ways; however, that depends on the desired end result. So, a manager has the flexibility to modify specifications of a function by way of purchasing superior quality products and thereafter by specifying strict manufacturing tolerance. Such conditions imply that the organization desires to manufacture and distribute superior quality products. Nonetheless, the same end result could be achieved in a different manner. For example, a company may impose severe inspection rules for the end products that are manufactured and ready to be distributed. Companies can adopt different techniques by connecting or modifying the value chain functions in order to attain different potential advantages. Another under-recognized factor related to the value chain is that performance and cost of the direct activities is enhanced by greater efforts made in the indirect activities. This fact clearly depicts the linkage that exists between functions of a value chain. An organization can implement multiple strategies in order to align its value chain functions. For instance, managers can prepare appropriate schedules for production and delivery of a particular product, which in turn will reduce time spent by the sales force while handling customer complaints as well as prevent delivery vehicles from making repeated runs. It is this process of recognizing linkages that Porter (1985) considers being very important for organizations worldwide. Managing linkages between the value chain functions can at times be very complex for the managers. Then again, the fact that being successful in managing these linkages often yields a considerable source of competitive advantage cannot be denied. The value system Porter (1985) extends the concept of value chain to what is defined as a value system. This fact takes into account that an individual organization’s value chain is inevitably embedded in a bigger stream of activities, thereby indicating that there are three supplementary value chains, which should be considered by managers while formulating any strategy. Supplier value chain: The functions in this value chain are responsible for delivering the indispensable inputs to a firm’s chain in order to allocate those for the production process. Channel value chain: The activities in this value chain form a part of the delivery mechanism that is conducted by a company so as to deliver products to the end buyer, consumer or customer. Buyer’s value chain: The activities within this chain represent the decisive source of differentiation precisely because the product involved plays a crucial role in determining needs of the buyer. The underlying aim of an organization is to provide superior quality products and services to its customers, thereby attaining higher customer satisfaction level. So, in order to be able to do so, it is imperative for the managers to maintain an alignment between the supply value chain, channel value chain and the customer value chain. Managers, who become successful in integrating the above mentioned value chains and associative functions, can place their organizations in a position of significant competitive advantage. The underlying aspect stated by Porter (1985) is that value of the different companies in a particular industry will more often than not differ according to a company's history, skills and strategies that have been implemented. Consequently, companies have the flexibility to tailor their value chain activities for the purpose of aligning with needs of the industry that is catered to. By way of tailoring the value chain functions, companies are able to serve a particular segment of the industry, which help in gaining significant advantage either through differentiation or low cost. It is very critical for organizational managers to understand the ways in which an organization's value chain fits into the entire value system. A misalignment between the value chain and value system will lead to inefficiency, which in turn can deteriorate organisational performance significantly. Competitive advantage does not simply arise out of nothing. It can be attained by having a thorough look at the entire value system and recognizing that different companies are able to adjust and enhance their value systems. Hence, an organization with the best alignment among all supply chain activities will always be in a position of competitive advantage. Supplier integration The underlying aim behind structuring an effective value chain is to serve customers in a prudent and appropriate manner and in turn attaining a higher customer satisfaction level. Having done that, managers are able to persuade customers for repeated purchases, which in turn improve financial performance of the company. The end result of this strategy is maximisation of a company’s value and its shareholders. Considering these facts, the managers must integrate its supply chain functions in the most efficient way. One way of achieving such integration is by integrating the supply chain. Also, in order to adequately enhance the value chain functions, a robust communication channel should be set that will facilitate free flow of information. The smooth exchange of information throughout the supply chain will allow managers to attain upward and downward integration. It is imperative for managers to share critical information such as, sales forecasts, master production schedules and inventory levels, with the supply chain partners so as to maintain a strong collaboration and coordination between all activities involved. By doing so, the managers enable the supply chain partners to forecast customers’ demand for a particular product and as such they are able to predict the need for inventory in future. Inventory management and allocation is one of the most pivotal activities for any organization. Maintaining a through alignment within all supply chain activities, a company is able to ensure that inventories are allocated to every production process, thereby preventing any excess stock pile up. Such measures enable companies to avoid any form of resource wastage and they need not bear any extra cost of holding the inventories. Managing the inventory levels efficiently is a critical activity for the organizational managers and the supply chain partners so as to upkeep a thorough alignment between the two. One way of doing so is that a company must share information regarding the inventory levels with the supply chain partners in order for them to be able to forecast the need for a particular material. As a result, a company will be able to predict the time for replenishing the stock, thereby preventing any form of delay in receiving materials required for the production process. Through such actions, managers will be able to make sure that the production process is commenced and completed on time and that the end product is delivered to customers on schedule. The alignment between value chain and the associated activities is comparatively straightforward. According to the arguments put forward by Porter (1985), a company's value chain is the sum total of all aligned functions that a company performs for the purpose of gaining competitive advantage. In other words, aligning the value chain functions in a manner that would give the company the ability to outperform its competitors is a potential source of competitive advantage. Since the end objective is to satisfy needs and demands of the customers, it is necessary for organizational managers to upkeep strong customer integration, in addition to the supplier integration. Customer integration As far as the point of view of Porter (1985) is concerned, the value chain of a company is associated with marketing, design, production, delivery, support and service of a product. This fact implies that a company's responsibility is not over after delivery of a product. Thereafter, a company needs to provide appropriate services to the customers in order to attain their loyalty. One of the fundamental reasons behind building customer integration is to pool and incorporate all customer resources to align all the other value chain functions. By adopting such a strategy, organizational managers are able to convey to the customers that their opinions and reviews are greatly valued and are taken under strict consideration while aligning value chain functions with the underlying aim of serving them in an enhanced manner. With adoption of such a strategy, organizational managers can enhance satisfaction level of the customers, which in turn enables them to persuade the latter to make repeat purchases. Given the fact that cost incurred for one particular activity within the value chain has a substantial impact on cost and performance of another function; this provides a broad opportunity for managers to capitalise on such flexibility. The best way to achieve alignment would be to alter the designs and the manufacturing process in such a manner that it will enable companies to achieve cost efficiency. By achieving cost efficiency in one particular function of a value chain, an organization will be able to instil the same in another function of the value chain. Incorporation of such a strategy provides companies with the opportunity to lower the price of their products and services by a significant margin and in that way, they can place themselves in an advantageous position whereby a massive customer segment can be targeted. This is one of the strategies that can help the managers to build customer integration, thereby aligning the value chain functions. By building customer integration, companies can effectively identify needs and requirements of the customers. This ability in turn contributes towards modifying the manufacturing and production process in such a manner that the customers’ needs are met with appropriately and at the earliest. The existence of a robust communication channel can ensure that requirements of the customers are conveyed accordingly to the manufacturing department so that end products satisfy the criteria given. In order to be able to satisfy the customers’ needs, the manufacturing department has to precisely forecast the raw materials that are required for the production. It becomes the duty of the supply chain partner and the inbound logistics to make sure that required materials are delivered in a proper quantity on the right time as well as the right place. Following completion of the manufacturing operations, the outbound logistics needs to ensure that the products are delivered accordingly to customers. Thereafter, the managers will have to undertake appropriate measures so that adequate services are provided to the customers. Maintaining such alignment between the value chain functions will allow a company to facilitate a stronger customer integration, which in turn will have a considerable positive impact on the organisational performance, thereby enhancing its brand reputation. Enabler of value chain alignment With the advent of internet technology, one of the key elements that can be regarded as a facilitator of value chain alignment is the e-business technology. E-business technology can serve as a platform to support the process of robust communication between all entities present in the value chain. The information that is to be conveyed between the functional units of a value chain can be channelled with the help of e-business technology. Not only will this measure facilitate distribution of the work load appropriately between the officials, but will also allow the managers to ensure attainment of organizational efficiency. The whole production process, starting from order through to delivery, can be governed with the help of e-business technology. By doing so, organizational managers will be able to identify areas of slack that exist within the production mechanism and thereafter, appropriate strategies can be implemented so as to eliminate the aforementioned areas. E-business serves as a bridge between a company and its suppliers as well as customers whereby information from both the entities can be shared. This ability in turn would help companies to make sure that there is strong coordination and collaboration between itself, the supplier base and customer base. With such a strong coordination and collaboration, companies will be able to align the functions of value chain appropriately using the same e-business technology. Incorporating e-business technology can prove to be very beneficial for companies as it facilitates a direct line of communication with the customers, which helps the company officials to serve the customer base appropriately. E-business technology offers customers with the option to convey their needs and requirement to the company directly, which can improve their negotiating power. Company officials are also in a better position to handle customer queries and complaints with incorporation of the e-business technology, which boosts the buying experience of customers. E-business technology also allows companies to share crucial feedback provided by the customers with the production department in order to take the same into consideration while products are manufactured (Ju, et al., 2006). E-business technology also enables companies to align its inbound and outbound logistics process. It provides companies with the mechanism to track orders after they are despatched by the supply chain partners. By being able to track progress of the order, organizational managers are able to schedule their production process accordingly so that it can be commenced as soon as the orders are received, thereby eliminating any scope of delay. This step contributes towards align the value chain functions whereby organisations are able to achieve substantial level of operational efficiency. By adopting such a strategy, an organization can follow advance planning and scheduling process through which the managers are able to set a precise time of delivery, once the manufacturing process is completed. The process of advanced planning and scheduling helps organizational managers to align the function of outbound logistics with that of the prediction process, which in turn facilitates a timely delivery of products to the customers (Narasimhan and Jayaram, 1998). Aligning the value chain functions As discussed above, aligning the value chain functions is crucial for all companies worldwide and one of the fundamental determinants of the same is infrastructure of a company. The company has to be competent in order to ensure that it is equipped with all facilities that are required to establish an effective and efficient value chain. The firm infrastructure mostly includes the organizational structure, the internal control mechanism and the company culture. The organization structure is a key component that plays a significant role in strengthening infrastructure of a company. So, the structure must comprise visionary leaders and managers who have the capability to make informed judgements and thereafter place the company in a position of substantial competitive advantage. The leaders are responsible for forming a robust internal control and governance framework that would be directed at the act of governing internal business operations. The officials serving within the internal control of a company will have to secure the fact that business operations conducted with every functional department conforms to the organisational conditions and comply with the ethical codes of conduct. The company culture also has a crucial role to play in establishing a robust firm infrastructure (Prajogo, McDermott and Goh, 2008). It is the duty of the organizational leaders to render the working culture flexible, which will provide even opportunities to each and every individual, thereby supporting attainment of all round development. As a result, not only will the employees be able to self-motivate themselves, but will also be able to enhance their level of commitment towards work and the company as a whole. Consequently, the managers can improve their operating efficiency by a significant margin. A robust firm infrastructure has to be aligned completely with the human resource department of a company. The human resource managers need to secure the fact that highly motivated and committed individuals are appointed in the firm. The motivated individuals must be integrated with a group of individuals who have a substantial level of experience and skills. The human resource managers should make sure that the talented and skilled workforce is allocated properly for each and every function. The individuals have to be trained and developed appropriately and thereafter assigned to the job that they were hired for. By doing so, the human resource managers will be able to effectively uphold the organizational culture. Then again, responsibility of the human resource managers is not only limited to this fact. They also have to assure that the employees would be recognized and appreciated appropriately for their consistent contribution made towards the organization. It is the duty of the human resource managers to design appropriate compensation for every employee as per their merit. By adopting such a strategy, a company will not only be able to attain a higher employee turnover, but can also greatly enhance their engagement level towards work (Narasimhan and Kim, 2001). Technology plays a key role in supporting the primary activities, thereby ensuring that they are in complete alignment with the support activities. It is the responsibility of the managers to formulate and implement appropriate strategies so as to incorporate technology within a company’s mainframe and use it appropriately so as to fetch business benefits. This is precisely because technology is largely responsible for triggering all the primary activities. The entire process of inbound logistics, ranging from order placement, order tracking to order delivery, is facilitated by technology. It enables smooth transportation whereby materials can be properly moved to and from the organization. Technology also provides organizations with a tool that facilitates material handling as well appropriate material storage. It also serves as a strong channel of communication between the managers and the inbound logistics department. In a very similar manner, technology also proves to be immensely beneficial for the outbound logistics department of a company enabling them to transport, handle and store the outbound materials properly. Moreover, it also serves as a channel of communication between the manager and the outbound logistics department (Escobar, González and Gallardo, 2008). As far as implementation of technology in the operations is concerned, contributions made are unprecedented. Technology supports the entire manufacturing and production process of a company. It enables the employees to ensure that manufacturing of the products is completed on schedule. Technology provides the employees with all necessary tools that are required to conduct the manufacturing operations efficiently. The machines that are used in the process of manufacturing are automated and are triggered by technology. Technology also allows employees to assess and maintain the product quality in an effective manner. Given the fact that the overall production process is highly complex, technology also serves as a robust information system, thereby facilitating free flow of information between every functional department. With the advent of social media, marketing and promotion of the products and services have simplified for organizations worldwide. Given the fact that social media is used by millions of users regularly, it has provided companies with a huge base of potential customers. In this particular case, a company can align technology with marketing and sales activities in order to market and promote the products offered effectively over the social media platforms. Social media not only provides companies with a huge base of customers, but also serves as the most inexpensive mode of marketing. Technology can also be incorporated by companies in order to design brand campaigns and advertise their products and services over television and the internet. Conclusion Accomplishing a thorough analysis of the value chain, it can be said that alignment of all the value chain functions is a key determinant of an organization’s success. Better the alignment between the value chain functions, higher will be the level of competitive advantage for a company. A company's profit margin depends on effectiveness involved in aligning the value chain functions and competency with which those functions are performed. As a consequence, companies will be able to ensure that the price that a customer is willing to pay for a particular product or service is substantially higher than the cost of aligning and performing the functions within the value chain. It is in alignment of these functions, where a company has the opportunity to maximise the shareholders’ value. Therefore, competitive advantage can be attained by re-aligning the value chain so as to facilitate better differentiation or lower cost. Reference List Benders, J., 2012. Lean Human Resources: redesigning HR processes for a culture of continuous improvement. International Journal of Production Research, 50(4). Bernett, R. and Nentl, N., 2010. Opinions and expectations about continuous improvement programs. Journal for Quality and Participation, 32(4), pp. 1-15. Chang, H. H., 2005. 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