How the Concept of Value Chain Helps Organizations to Achieve Competitive Advantage
The concept of value chain describes the whole chain of all activities involved in producing a particular good or service. The main reason most organizations employ the idea of a value chain is to gain a competitive advantage against their competitors in the market. Michael Porter, a Harvard School of Business professor, was the first to describe the value chain concept. The aim was to help organizations focus on the primary and secondary activities in their operations that added value to their products, giving them a competitive edge. An organization needs to evaluate its activities and subactivities to determine how efficient each operation is towards attaining its goals. The value chain concept helps organizations achieve competitive advantage through enhancing production efficiency, helps in rightful allocation of resources and helps identify points of inefficiency for correction and improvement.
Enhancing efficiency is one of the main goals of the value chain concept. Efficiency refers to utilizing resources for the best use possible to achieve the highest value using the least cost. This means that a business can only win over its competitors if it’s efficient in daily activities in the production process. For example, an organization can review its primary activities, which include inbound and outbound logistics, services, operations, sales and marketing to evaluate the efficiency of every single process. Take, for example, services involving customer care and the customer support system. An organization should ensure that customers get high-quality service regarding queries and any customer concerns about its products and services. Good customer care is likely to draw customers to an organization more frequently. They wish to make an organization preferable to customers than other organizations in the same market (Chen, 2018). Such efficiency gives an organization a competitive advantage over its competitors.
The value chain concept enables organizations to allocate their resources most profitably in time, cost and effort required. Allocating resources profitably implies that an organization will be able to use its available scarce resources to meet the needs of its customers without incurring any losses. This gives a business a competitive advantage in that it can efficiently produce its products or services, hence charging its customers reasonable prices better than their competitors. Analyzing the value chain helps an organization determine how resources for production will be allocated (Palandeng et al., 2018). For example, an organization can decide to allocate more resources to sales and marketing to increase its sales. Marketing will help an organization get more market recognition and inform consumers about its products in the market. This activity of selling out a company’s brand and its competitors give it a competitive advantage over its competitors.
Value chain analysis helps an organization identify ineffective areas of its operations. The organization must respond carefully to these weak areas through corrective action or completely remove the specific process if it’s not necessary. For an organization to remain competitive, it must eliminate all loopholes that can lead to unexpected shock in its production operations. For example, let’s take an organization with a weak procurement and purchasing department responsible for sourcing all the materials needed to produce its products or services. If the materials are not bought and availed in the manufacturing sector on time, it means the organization will be out of stock and have nothing to meet the needs of their customers. This may lead to the loss of customers. The concept of value chain enables an organization to constantly review its value chain to ensure it will have a stable and continuous flow of production, giving it a competitive edge over its competitors (Hofbauer & Sangl, 2018).
Conclusion
A value chain concept is critical for most organizations, especially those whose main goal is maximizing profit. Value chain analysis helps organizations review their primary and secondary activities in their operations and evaluate which processes should be improved and which are not necessary (Chen, 2018). The unnecessary processes are removed, and the organization aims to achieve efficiency to have a competitive edge over its competitors. The value chain concept aims at giving organizations a competitive advantage over their competitors by making sure to focus on value-added production.
References
Chen, C. J. (2018). Developing a model for supply chain agility and innovativeness to enhance firms’ competitive advantage. Management Decision. https://doi.org/10.1108/MD-12-2017-1236
Hofbauer, G., & Sangl, A. (2018). Considerations to rearrange the value chain. Archives of Business Research, 6(4).
Palandeng, I. D., Kindangen, P., Tumbel, A., & Massie, J. (2018). Influence analysis of supply chain management and supply chain flexibility to competitive advantage and impact on company performance of fish processing in Bitung city. Journal of research in business, economics and management, 10(1), 1783-1802. https://core.ac.uk/download/pdf/267833343.pdf