ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Business and Employment»
  • Business Management & Leadership

Competitive advantage and Value chain analysis

Updated on October 12, 2012

Value chain analysis

To secure competitive advantage, a business must be able to perform key activities more successfully than its competitors. This means that it must either obtain some cost advantage over its competitors, or differentiate itself in some way from them. To help identify particular ways in which competitive advantage may be achieved, it is useful to analyze a business into a sequence of value-creating activities. This sequence is known as the value chain, and value chain analysis examines the potential for each link in the chain to add value.

For a manufacturing business, the value-creating sequence begins with the acquisition of inputs, such as raw materials and energy, and ends with the sale of completed goods and after-sales service. Figurebelow sets out the main ‘links’ in the value chain for a manufacturing business. We can see that five primary activities are supported by four secondary activities.

Value chain analysis applies as much to service-providing businesses as it does to manufacturers. Service providers similarly have a sequence of activities leading to provision of the service to their customers. Analysing these activities in an attempt to identify and eliminate non-value-added activities is very important. Each link in the value chain represents an activity that will incur costs and affect profits. Ideally, each will add value – that is, the customer will be prepared to pay more for the activity than it costs to carry out. If, however, a business is to outperform its rivals, it must ensure that the value chain is configured in such a way that it leads either to a cost advantage or to differentiation.

To achieve a cost advantage, the costs associated with each link in the chain must be identified and then examined to see whether they can be reduced or eliminated. For example, a business may identify a non-value-added activity, such as the inspection of the completed product by a quality controller. The introduction of a ‘quality’ culture in the business could lead to all output being reliable. As a result, inspection would no longer be needed and therefore this cost can be eliminated. To achieve differentiation from its rivals, a business must achieve uniqueness in at least one part of the value chain. A large baker, for example, may try to differentiate its products by moving production facilities to its retail shops to ensure that the products are freshly available to customers.

In some cases, value chain analysis may result in significant operational changes such as the introduction of new manufacturing or service-provision technology, or the development of new sales policies. In other cases it may result in significant strategic shifts. A manufacturing business, for example, may find that it is unable to match the manufacturing costs achieved by its rivals. Nevertheless, it has competitive strengths in the areas of marketing and distribution. In such circumstances, a decision may be made to focus on the business’s core competencies. This may lead it to outsource the manufacturing function and to concentrate on the marketing and distribution of the goods.

Comments

    0 of 8192 characters used
    Post Comment

    • misslong123 profile image

      Michele Kelsey 5 years ago from Edmond, Oklahoma

      I enjoyed your hub. I am also writing business hubs and maybe we can team up. Would you mind if I referred in my hubs to your hubs so that readers could get more information? This will also bring you more followers and traffic. :) I will be a follower and hope you will follow mine! I'd love it if you'd link mine as well. Great hub! Michele

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)