Elements Of Strategic Management Process Essay Example

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The value chain concept, originated by Michael Porter in his book "Competitive Advantage: Creating and Sustaining Superior Performance" (Porter, 1985), is applicable for establishing and preserving a sustainable competitive advantage in the current business landscape. Within an organization, there are interconnected activities that collectively contribute to its overall value. These activities together constitute the organization's value chain.

The value chain framework encompasses various activities such as purchasing, manufacturing, distribution, and marketing of products (Lynch, 2003). It has been utilized as an effective analysis tool for strategic planning within organizations for approximately twenty years (www. wikipedia. org). The primary objective of the value chain framework is to optimize value creation while reducing costs. Key elements of Value Chain Analysis are as follows:

The value chain analysis is a valuable tool for managers as it helps them identify the key activities that form the organization's value chain. This analysis enables managers to determine which activities have the potential to create a sustainable competitive advantage. An organization's competitive advantage

is based on its ability to outperform its competitors in these essential activities. According to Porter's value chain framework (1990), the value chain consists of interdependent activities connected through linkages. When effectively managed, these linkages can be an important source of competitive advantage (Pathania-Jain, 2001).

The value chain analysis involves linking the value of an organization's activities with its main functional parts. This analysis assesses the contribution of each part to the overall added value of the business (Lynch, 2003). To conduct the value chain analysis, the company is divided into primary and support activities (Figure 1). Primary activities are production-related, while support activities provide the necessary background for the firm's effectiveness and efficiency, such as human resource management.

The text below provides a comprehensive explanation of the primary and secondary activities of a firm. The primary activities, as identified by Porter in 1985, are listed as follows:

1. Inbound logistics: These activities pertain to the receipt and storage of materials from suppliers, as well as their internal handling within the company.

2. Operations: This encompasses the production process for both products and services. In certain organizations, operations may be divided into various departments or sections. For instance, within a hotel setting, operations would include functions such as reception and room service.

3. Outbound logistics: The focus here is on effectively distributing the final product or service to customers. In relation to a hotel business, this involves implementing strategies aimed at attracting customers to avail themselves of the hotel's offerings.

4. Marketing and sales: This functional area is responsible for analyzing customer needs and desires in order to create awareness among the intended target audience about the company's products

and services. To achieve this objective, companies utilize marketing communication tools like advertising and sales promotions with the aim of enticing customers.

5.Service: This refers to any assistance provided to customers after they have made purchases or utilized a specific product or service.

Before or after the sale of a product or service, there is often a need for services like pre-installation or after-sales support. These support activities include procurement, which involves purchasing necessary materials for operations. A successful procurement department should be able to acquire high-quality goods at the best prices possible. Furthermore, Human Resource Management is responsible for various tasks related to employees, such as recruitment, training, motivation, and rewards.

The significance of human resources in attaining sustainable competitive advantage is increasing. Technology development is essential for company survival and encompasses innovation, training, and knowledge. Planning and control systems like finance, accounting, and corporate strategy are part of firm infrastructure. Porter termed the difference between total value and the cost of value activities as the "margin" (Figure 1).

In this context, "value" refers to the price customers are willing to pay for a specific offering (Macmillan et al, 2000). Some scholars have used "added value" instead of margin to convey the same meaning (Lynch, 2003). The analysis involves thoroughly examining how each component contributes to the company's added value and how it differs from competitors. Ghamdi (2005) found that in a study of Saudi companies, 22% frequently used the value chain, while 17% somewhat used it, and 42% did not use it at all.

Ghamdi (2005) found that manufacturing firms are more likely to use the value chain framework compared

to service counterparts. This analysis tool has been useful in strategic planning for organizations for nearly 20 years. It helps identify and comprehend key factors that contribute to competitive advantages and core competencies in the market. Furthermore, the framework illustrates how different activities within the value chain are interconnected to ultimately provide value to consumers.

The value chain analysis is the process of dissecting the company's main and secondary activities, which are intertwined. Analysts need to evaluate the possibility of enhancing these activities by either reducing costs or differentiating from competitors. Ultimately, the objective is to establish strategies that will result in a long-lasting competitive advantage.

Analyzing a company's value chain, which revolves around its core competency, is essential. The specific activities within the value chain differ based on the company and industry. Technological advancements have significantly influenced value chains in the last two decades, impacting the business environment greatly. The trend of outsourcing has notable managerial implications and can result in significant changes within organizations and their value chains.

The Value Chain originated from Porter (1985).