Value chain analysis is the concept used in the context of companies where each activity conducted in the company is measured according to value it creates or adds for the company and based on that analysis steps are taken to ensure that there is an improvement which in turn will help the company in having a competitive advantage over its competitors. In order to get a better idea about this concept, one should look at some of the important features of value chain analysis –
Value Chain Analysis Features
Analyses Internal Activities
The first and foremost feature of value chain analysis is that it analyses the internal activities of the company, the internal activities include all things which go into converting inputs into outputs or final products, and hence one can say that the primary goal of value chain analysis is to analyze internal activities and no attention is paid to external activities or environment like competitors, government policies, consumer taste and so on. In simple words, the focus of value chain analysis is on the internal working of the company and has little or no concern as far as external factors affecting the company are concerned.
Value Chain Analysis Throw Suggestions
Another characteristic of value chain analysis is that due to analysis of the internal activities value chain analysis throws suggestions on how to make changes in those activities so that those activities add more value to the firm. Hence for example if the analysis threw that by making changes in the manufacturing process company can reduce the cost and add value then the company can make the necessary changes which in turn will give the company a competitive advantage over its competitors or it can throw some suggestions regarding product differentiation which in turn will add value to its existing product line and thus will help the company in having an edge over the competitors due to product differentiation.
Primary and Secondary Activities
In the case of value chain analysis, the company segregates all the activities of the company into two parts one is primary activities and the other is secondary activities. The primary activities are those activities that are helpful in the creation of the main product or service of the company hence all things like raw materials, shipping, packaging, marketing, advertising will fall under primary activities while secondary activities are those activities that help the primary activities in getting the work done easily and smoothly hence all activities related to human resource management, use of technology in working of the company, infrastructure-related things and so on will fall under secondary activities.
Inter Relationship between Activities
Value chain analysis for a single process or single department rather it is done for the company as a whole which in turn helps the company in improving the overall performance of all the processes as well as departments of the company. Hence for example if during value chain analysis company improves the quality of products produced by the production department then the company’s after-sales service department will also benefit due to the reduced number of faulty products coming for service and hence improve their efficiency as well.
Helps Understand the Processes Better
Another important feature of value chain analysis that is overlooked is that even if it does not leads to any benefit it helps the management in understanding the various processes of the business better because while undertaking value chain analysis there is a detailed evaluation which is made about primary as well as secondary activities of the company and due to that the company’s management gets a detailed idea about the functions and working of the various departments of the company which in the future can be of great help as far as top management of the company is concerned.
As one can see from the above that value chain analysis has some unique features and that is the reason why companies that want to improve their performance and want to have a competitive edge over their competitors opt for value chain analysis of day-to-day activities conducted by the company.