The Value Chain Critique and Analysis - Essay Example

The business world has changed a lot in the last 15 years due to technological changes, full integration of the globalization movement, greater competition and the reality of the convergence age in which information travels and reaches the customers instantly at the touch of a keyboard. Companies must adapt to this new reality in which a firm product is available to anyone around the world and a environment in which price or quality are not the critical determining factors that company; customer are looking for a combination of variables which create what is know as value. It is essential to shift a company’s operation and geared them towards satisfying the client’s needs by creating companies that emphasize on customer focus. A way to transform a company is by submitting the business practices of the company to a value chain analysis in order to apply change management internally and find ways in the supply chain, internal manufacturing or service methodology, engineering, public relations, marketing strategies, and finance policies among other operation areas to provide greater levels of service and products or services with greater attributes that create value for the customer. This report provide a critique of value chain analysis by analyzing the concept itself as well as critiquing various articles written by experts in the subject matter. In the article The Value Chain by Dagmar Recklies the author describes the roots of value chain and its general components. The term value chain was first introduced by marketing guru Michael Porter in 1985 in his literature. The original definition of value chain according to Porter is that value chain represents and describes an array of activities an organization performs and links them to the organization competitive position (Recklies, 2007). The key with value chain analysis lies in creating a correlation between an activity and how that particular function can be enhanced in order for it to be aligned with a competitive strength of the company. The different business activities involved in the creation of a good or service can be added up like a Riemann summation formula in order to quantify the performance of the company, thus value chain analysis in itself can transform qualitative data into a quantitative metric to evaluate the performance of the company and find the weakness that must be improved in order to create greater value for the most important stakeholder of the company, the customer. In Porter’s value chain model primary activities are distinguished support activities because primary activities are more important towards the creation and final delivery of a product or service. There are five primary activities which are a source of value creation: inbound logistics, operations, outbound logistics, marketing and sales, and service (Recklies, 2007). This model following the vision of its founder, Michael Porter, does not clearly provide a guideline to follow that provides a specific way on how to create that mystical value everyone seeks. It does not consider than in certain industry there the market structure disallows the strategic option of doing anything that adds any type of cost to a product associated with value creation since the prices are standardize. For example in the commodities market all a product such as aluminum has homogenous characteristic and in reality at point of sale there the value chain implementation analysis does not bring anything to the table. The truth to the matter is that within these same examples at earlier stages of the supply chain value could have been created. Porter should have been more specific in his methodology as far as indicating that value chain application are not always feasible and that when this occurs the manager should not waist any resources looking for answer can not be found. Value chain analysis needs better protocols on how to be applied to certain situation and what are warning signs in a particular primary activity that can help the manager determine faster the possibility of value chain analysis not been able to improve an operation in any way. As Porter continued to write more on the matter of value chain he created three generic strategies which for him were the best and most practical ways to create value. Porter’s three primary generic strategies to create value are: overall cost leadership, differentiation, and focus (Kotler, 2003). These strategies provide pathways which have been used effectively by many companies such as Dell in the 1990’s with their cost leadership initiatives. The strategies to build value that Porter mention used the generic implying that the strategies could be customized in any way to fit a particular business model, but the strategies lack the scope needed for the new business environment of the 21st century. Two new strategies that should be included as enhancement to the original generic strategic to build value for a firm are technological capacity and internationalization. Scholar Iveta Simberava wrote an article called Internal Marketing as a Part of Marketing Culture Supporting Value for External Customers in which there the author discusses important aspects of how the human resources of an organization should be handled in order to create value (Simberava, 2007). The human relation between the employees of the company and the suppliers, vendors, and customer are a source that creates value for a company. By being honest with suppliers and venders and establish direct communication a company can negotiate better terms and build close relationships that lead to special concessions in the negotiation process. The employees are a critical component in the way the clientele perceives the atmosphere of a store. For example in the retail industry customers are looking for stores that provide a high level of service even though there are thousands of other customers entering the stores on a weekly basis. I personally entered K-Mart stores when they were going through their chapter 11 reorganization. The place was a sad and depressing place to enter in which I could walk around the entire store and could not find one single employee to ask them a question about a particular item. This is unacceptable behavior that instead of building value destroys any value chain goodwill a company had build up over the years. Value chain has become a business concept of great importance for executive running business which has expanded beyond Porter’s original notion in 1985. Porter stated that value chain should be dividing into five primary parts with complementary components. I defer from Porter idea as far as value chain being an integrated business application that must be a company-wide initiative and a strategic business focus. Twenty-three years ago humanity could not foresee the 21st century as it is today. A way to fully integrate and manage value chain is through the computerized information system that should include a customer relationship management (CRM) system module to provide exceptional customer service with both customers and the other stakeholders involved in the supply chain of the company such as the suppliers. The information system of a company can be used by the managerial and executive staff to optimize the operations of a company and utilize effective planning techniques such as forecasting in order to find solution that add value to a company. There is much more to be learn in the value chain discipline and new changes on the strategic option that add value will continue to surge. Value chain analysis is a tool that has revolutionized the business industry by adding new dimensions that must be considered by multinational corporations around the world. Domestic corporations in essence do not longer exist since any business entity in any location on earth can instantly become an international player thorough ecommerce. Value chain applications are powerful method to find ways to improve an organization and create income streams for any player in any industry. The marketing field is sophisticated business science that represents one of the most important functions in a business since sales are created as direct consequence of its input. The greater the amount of sales a company achieves creates equity shareholder value that is obtained by manufacturing value in all business aspects of a firm. References Kotler, P. 2003. Marketing Management (11th). New Jersey: Prentice Hall. Recklies, D. The Value Chain. Themanager. Retrieved February 23, 2008 from http://www.themanager.org/models/ValueChain.htm Simberova, I. (2008). Internal Marketing as a Part of Marketing Culture Supporting Value for External Customers. Economics and Management. 12. Retrieved February 23, 2008 from EBSCOhost database. Read More