Value Chain Analysis in Strategy

Introduction

World over, firms are grappling with an ever-present task of making decisions that in one way or the other impact on their competitive position and profitability. Therefore, strategic planning is a suitable avenue for making these vital decisions. Almost all industries are awash with all manner of competitors, both small and big. For any business to survive the impact of globalisation, it must effectively compete by taking a higher position in the market (Noe et al., 2017). It must exhibit qualities that set it apart in the market while becoming a preferred choice for the relevant customers.

Value chain analysis

A firm will conduct a value chain analysis in order to identify its primary, support activities, and subsequently create value to the final product. The activities above are analysed to minimise costs and increase differentiation. Michael Porter (1985) introduced the concept of the value chain (Porter, 1985). The Harvard Business School professor suggested that competitive advantage cannot be understood by merely examining a firm in its totality. He was of the view that a firm has certain key activities like designing, producing, marketing, delivering, and supporting a product (Porter, 2011). These discrete activities will affect the position of a firm with regards to cost and differentiation.

Further, Porter divided businesses activities in a firm into two areas namely primary and support activities. Whereas primary activities entail inbound logistics, operations, outbound logistics, marketing and sales, and service, support activities include procurement, technology development, human resource management and secure infrastructure (Jonsson and Holmstrom, 2016). A company like Ford Motors has taken into consideration such factors and has gone further to centralise its supply chain information and functionality to enhance accuracy of information (Rothaermel, 2013). For a firm to survive in this highly competitive and global market, it must remain competitive over other players in a similar sector. It can be achieved through a difference in the value of goods and services it offers to its customers, and the attendant cost of manufacturing the product or providing the service. However, the firm must exhibit a certain level of differential advantage and low-cost advantage (Porter, 2011). When customers perceive a product or service as of high quality and reliability, a firm can go ahead to exploit the opportunity to maintain its market share. Similarly, a firm can enjoy a relative cost advantage where the overall costs are lower than the market average. (Porter, 2011)

IKEA

IKEA has maintained its reputation and position as a leading furniture provider at affordable prices. In order to successfully navigate the furniture market full of competition, IKEA has adopted a different way of value chain management (Jonsson et al., 2013). It has been able to provide to its customer's design, function, and quality at low prices. IKEA's signature strategy has been to design and develop furniture products based on customer needs at low prices. Technology development can be identified as an area where the firm excelled in since it has applied the use of technology in implementing quality designs in line with customer needs Cost drivers in any industry are essential in determining cost advantage. IKEA has extensively identified its primary activities, the cost drivers, and the link between the activities. It has helped them reduce cost not just in one area but several interlinked ones (Tarnovskaya and Chernatony, 2011). For instance, the company has strategically situated its stores away from city centres. It is a way of reducing the cost of storage of the products. IKEA is focused on maintaining sustainable business relationships hence have resorted to signing long-term contracts that in turn lower prices products (Dahlvig, 2012).

Additionally, the company has adopted a cost-effective way of promoting its products. Instead of expensive advertisements, free catalogues have been used to promote the company’s products to customers. In its production stage, self-assembly is done to reduce the cost of acquiring already assembled furniture like other competitors have been doing. Moreover, the company has adopted a more sustainable and frugal approach in conduction business by limiting running costs. The adoption of a centralised supply chain system was a turnaround for IKEA. However, such changes in supply management can be the source of the downfall of a company where information management is not efficient (Jonsson and Matsson, 2013). Having to deal with over 18,000 suppliers in 50 different countries, IKEA has in some instances been faced with quality issues regarding raw materials (Dahlvig, 2012). The company has been criticised for its environmental impact especially with reference to deforestation. In response IKEA now has a code of conduct known as IKEA Way of Purchasing Home Furnishing Products (IWAY) that provides for minimum rules and standards regarding environmental impacts.

Apple

Apple is a company that has risen over the years by perfecting defects in technological devices. They have progressed by introducing new products to the same customer base and maintaining a strong brand. It has exceedingly excelled in the sales and marketing facet of primary activities under Porter's theory (Jonsson and Holmstrom, 2016). Apple is known for the aggressive promotion of its products and their subsequent launches. As a result of market research and high-end designs, their products have been successful hence a high customer base and loyalty. Products sold by Apple are designed to reach a particular group of people in the market. They target the tech-savvy and young customers who are ready to spend relatively high amounts of money on acquiring the products. The approach used by Apple shares certain features with the IKEA approach to the extent that both companies are using long-term contracts with suppliers to achieve reduced costs (Brito, 2016). The difference between the two companies is majorly manifest in product pricing. Apple has adopted supply chain management practices that involve purchase of components and materials from different suppliers which are shipped to China by air. Once the products have been assembled they are shipped directly to consumers. This approach ensures reduced costs and saves time (Brito, 2016).

Conclusion

Value chain analysis is essential for any company in business for profit. It is regarded as an avenue through which a company evaluates s value creation. Organisations can know their capabilities; hence informed decisions could be made for improvements. Whether a company resorts to embrace cost advantage or differentiation, the most critical thing as seen in the IKEA approach is that it should be an all-around approach. The strategies should be implemented solely, in order to have the desired change effect.

List of References

Brito, B. D. R. M. S. (2016). Centralization of supply chain management operations: the case of Unilever Ultralogistik.

David, F. R., & David, F. R. (2013). Strategic management: Concepts and cases: A competitive advantage approach. Pearson.

Jonsson, P., & Holmström, J. (2016). Future of supply chain planning: closing the gaps between practice and promise. International journal of physical distribution & logistics management, 46(1), 62-81.

Jonsson, P., & Mattsson, S. A. (2013). The value of sharing planning information in supply chains. International Journal of Physical Distribution & Logistics Management, 43(4), 282-299.

Jonsson, P., Rudberg, M., & Holmberg, S. (2013). Centralised supply chain planning at IKEA. Supply Chain Management: An International Journal, 18(3), 337-350.

Melacini, M., Creazza, A., & Perotti, S. (2011). Analysis of supply chain planning centralisation for multinational companies. International Journal of Logistics Systems and Management, 9(4), 478-500.

Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2017). Human resource management: Gaining a competitive advantage. New York, NY: McGraw-Hill Education.

Porter, M. E. (2011). Competitive advantage of nations: creating and sustaining superior performance. Simon and Schuster.

Rothaermel, F. T. (2013). Strategic management: concepts. New York, NY: McGraw-Hill Irwin.

Tarnovskaya, V. V., & de Chernatony, L. (2011). Internalising a brand across cultures: the case of IKEA. International Journal of Retail & Distribution Management, 39(8), 598-618.

Thunberg, M. (2016). Developing a framework for supply chain planning in construction (Vol. 1782). Linköping University Electronic Press.

Dahlvig, A., (2012). The IKEA edge: building global growth and social good at the world’s most iconic home store. New York: McGraw-Hill.