Which of the following is a primary value activity in a value chain analysis?
A value chain is the full range of activities – including design, production, marketing and distribution – businesses conduct to bring a product or service from conception to delivery. Show
Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its final product / service. In this case, analyzing processes helps identify activities that help reduce costs or increase differentiation. In other words, value chain represents the internal activities a firm engages in when transforming inputs into outputs. Michael Porter introduced the generic value chain model in 1985[1] as a strategy tool to analyze a firm’s internal activities. In summary, focusing on these activities leads to competitive advantage[2]. Value Chain Porter noted that any firm could be divided into two main segments, each of which creates a certain value:
Primary activitiesThe primary activities help create the products and distribute them to buyers. The five primary activities are:
Although, primary activities add value directly to the production process, they are not necessarily more important than support activities. Secondary activitiesPresently, competitive advantage derives from technological improvements or innovations in business models or processes. Therefore, such support activities as information systems, R&D, or general management. Sometimes, they are the most important source of differentiation advantage. On the one hand, primary activities are usually the source of cost advantage. On the other hand, secondary activities are almost exclusively internal steps. Notwithstanding, these tasks support the primary activities. The four secondary activities are:
According to Investopedia, the primary goal of using the value chain analysis is creating or strengthening your business’s competitive advantage.
Summary Value chain analysis is a process of dividing various activities of the business in primary and support activities and analyzing them, keeping in mind, their contribution towards value creation to the final product. And to do so, inputs consumed by the activity and outputs generated are studied, so as to decrease costs and increase differentiation. APAMLAHarvardVancouverChicagoIEEE Think Insights (December 19, 2022) Value Chain Analysis. Retrieved from https://thinkinsights.net/strategy/value-chain-analysis/. "Value Chain Analysis." Think Insights [Online]. Available: https://thinkinsights.net/strategy/value-chain-analysis/. [Accessed: December 19, 2022] Successful businesses create value with each transaction—for their customers in the form of satisfaction and for themselves and their shareholders in the form of profit. Companies that generate greater value with each sale are better positioned to profit than those that produce less value. To evaluate how much value your company is creating, it’s critical to understand its value chain. Below is a look at what a value chain is, why it’s important to understand, and steps you can take to conduct one and help your company create and retain more value from its sales. Free E-Book: How to Formulate a Successful Business Strategy Access your free e-book today. DOWNLOAD NOWUnderstanding the Value ChainThe term value chain refers to the various business activities and processes involved in creating a product or performing a service. A value chain can consist of multiple stages of a product or service’s lifecycle, including research and development, sales, and everything in between. The concept was conceived by Harvard Business School Professor Michael Porter in his book The Competitive Advantage: Creating and Sustaining Superior Performance. Taking stock of the processes that comprise your company’s value chain can help you gain insight into what goes into each of its transactions. By maximizing the value created at each point in the chain, your company can be better positioned to share more value with customers while capturing a greater share for itself. Similarly, knowing how your firm creates value can enable you to develop a greater understanding of its competitive advantage. Components of a Value ChainAccording to Porter’s definition, all of the activities that make up a firm's value chain can be split into two categories that contribute to its margin: primary activities and support activities. Primary activities are those that go directly into the creation of a product or the execution of a service, including:
Secondary activities help primary activities become more efficient—effectively creating a competitive advantage—and are broken down into:
What Is Value Chain Analysis?Value chain analysis is a means of evaluating each of the activities in a company’s value chain to understand where opportunities for improvement lie. Conducting a value chain analysis prompts you to consider how each step adds or subtracts value from your final product or service. This, in turn, can help you realize some form of competitive advantage, such as:
Typically, increasing the performance of one of the four secondary activities can benefit at least one of the primary activities. How to Conduct a Value Chain Analysis1. Identify Value Chain ActivitiesThe first step in conducting a value chain analysis is to understand all of the primary and secondary activities that go into your product or service’s creation. If your company sells multiple products or services, it’s important to perform this process for each one. 2. Determine the Cost and Value of ActivitiesOnce the primary and secondary activities have been identified, the next step is to determine the value that each activity adds to the process, along with the costs involved. When thinking about the value created by activities, ask yourself: How does each increase the end user’s satisfaction or enjoyment? How does it create value for my firm? For example, does constructing the product out of certain materials make it more durable or luxurious for the user? Does including a certain feature make it more likely your firm will benefit from network effects and increased business? Similarly, it’s important to understand the costs associated with each step in the process. Depending on your situation, you may find that lowering expenses is an easy way to improve the value each transaction provides. 3. Identify Opportunities for Competitive AdvantageOnce you’ve compiled your value chain and understand the cost and value associated with each step, you can analyze it through the lens of whatever competitive advantage you’re trying to achieve. For example, if your primary goal is to reduce your firm’s costs, you should evaluate each piece of your value chain through the lens of reducing expenses. Which steps could be more efficient? Are there any that don’t create significant value and could be outsourced or eliminated to substantially reduce costs? Similarly, if your primary goal is to achieve product differentiation, which parts of your value chain offer the best opportunity to realize that goal? Would the value created justify the investment of additional resources? Using value chain analysis, you can uncover several opportunities for your firm, which can prove difficult to prioritize. It’s typically best to begin with improvements that take the least effort but offer the greatest return on investment. One Piece of the PuzzleValue chain analysis can be a highly effective means of understanding and contextualizing your business’s processes, but it’s just one tool at your disposal. There's a host of other frameworks and concepts that can help you evaluate organizational performance, craft winning strategies, and be more effective in your role. Ready to learn additional frameworks that can enable you to make smarter business decisions? Explore our eight-week course Economics for Managers and other online Strategy courses, and find out more about how to develop effective pricing strategies. What are the primary activities in value chain analysis?The value chain framework is made up of five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, service -- and four secondary activities -- procurement and purchasing, human resource management, technological development and company infrastructure.
Which of the following is a primary activity in value chain?The primary activities of the value chain include inbound logistics, operation outbound logistics, marketing and sales, and service. Secondary activities or the support activities include firm infrastructure, human resources management, and procurement.
What is a primary value activity?Components of a Value Chain
Primary activities are those that go directly into the creation of a product or the execution of a service, including: Inbound logistics: Activities related to receiving, warehousing, and inventory management of source materials and components.
Which of the following is a primary activity in the value chain Mcq?The five key (primary) activities that generate higher profits include inbound logistics, operations, outbound logistics, marketing and sales, and services.
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