A firm can hold a competitive edge with a finely tuned value chain. A firm’s strategically planned decisions impact its profitability and competitiveness in the market. It is through these efforts that a firm is able to hold itself against competition and as Porta suggests that value chain plays a vital role in gaining this competitive advantage.
So, a well-defined value chain allows the firm to design competitive strategies, recognize the mean(s) of competitive advantage and identify the links and interrelationships between different components of the value chain that create value. This report identifies the primary and secondary activities of Laureate's value chain and analyzes the link between those activities that lead to the firm’s strong, competitive and value-driven position in the market.
Interrelated activities in the value chain become the basis for competitive advantage. For example; Latureae aims to increase its sales by increasing its presence on social media. So, there is this unique interconnectedness of the sales and marketing department. Hence, successful handling and coordination of the interrelationships among activities will lead to achieving competitive advantage (Latureae, 2016).
The main purpose of this report is to identify the various kinds of linkages and interrelationships between primary and secondary activities of the value chain model. Even these linkages are divided into three types:
- by players in the linkages;
- by goals of the linkage;
- by the form of strategic linkage. (Ensign, 2001)
Critically analyze enterprise information systems and requirements in the context of the contemporary business environment
Latureae's profitability is a function of the attractiveness of the wellness industry and its wide portfolio leading to a relatively strong position in the health and wellness industry. Serving 100,000 customers a week, implying a relatively strong position of Latureae indicates a competitive advantage that can work as a shield against competitors and updates in the industry. Lautreae knows what holds for them in the future by seeing that the funding in new healthcare ventures grew by 125% from 2013 to 2014 helping them devise competitive strategies accordingly. (Latureae, 2016)
“Both industry attractiveness and competitive position can be shaped by a firm … a firm can clearly improve or erode its position within an industry through its choice of strategy. Competitive strategy, then, not only responds to the environment but also attempts to shape that environment in a firm’s favor.” (E.Porter, 1985)
Considering this, the value chain model plays an essential role in gaining competitive advantage. So a value chain is the conceiving of actions/activities essential for providing goods and services to customers. It models the ways that add values to a product or services when it passes through production, design, marketing, delivery, and customer service.
Hence it is this configuration of discrete activities in the value chain that result in a firm’s competitive advantage. Porter defined this value chain model as a combination of primary and secondary activities. The primary activities include Marketing, sales, and service, inbound logistics, outbound logistics, and operations. The support activities are also known as the secondary activities include Human resource management, technology development, the infrastructure of the firm and operations (you, 2018)
So, what do each of the elements of this simply sliced polygon means with respect to Latureae?
Figure: A diagram of Michael Porter's Value Chain based on an image from Porter M. E., Competitive Advantage: Creating and Sustaining Superior Performance
(Source;New York: Free Press, 1985), page 37.
As the word says primary which means all the activities that are directly related to the manufacturing and selling of the product or service.
- Inbound logistics
All the activities related to warehousing, inventory, vehicle management, dealing with suppliers and taking care of raw material, comes under inbound logistics.
A traditional production process includes inputs processed into output. So the inbound logistics covered the input part. Now comes the part when these raw materials reach the factory conveyor belt. It is when the operations come into action. For example, maintenance, packaging, quality control, etc (you, 2018)
- Outbound logistics
This is when the processed into converts into output. So, a manufactured product needs to be delivered to the target customers. Therefore, all the actions associated with the shipping of products to consumers like storage, collection, distribution, warehousing, and scheduling comes under outbound logistics.
- Marketing & Sales
Consumers are not aware of what exists in the market that might be of any use to them. This is when marketing and sales teams’ functions come in to play. Their strategies and communication tactics will make consumers aware of the product and create a purchase intent for those products.
Now, this function carries the highest weight. Why? Because in this competitive world if the customers are left unsatisfied, loyalty with the brand will be left doubtful and it will pull 10 more customers away from the brand through negative word of mouth. So, after sales service is the backbone for customer loyalty (you, 2018)
Similarly, support activities act as the backing to the primary activities. They support the function and aim to coordinate as much as possible.
The process that functions the purchase of inputs needed in the value chain. Such as machinery, office equipment, land, premises, etc.
- Technology Development
All the efforts made to improve and innovate a product or service comes under technological developments. Such as accounting, research, and development, etc.
- Human Resource Development
The employees of the firm are the key contributors to the organisation’s competitive advantage. Their skills and motivation play a vital role in innovations and effective production (you, 2018)
- Firm Infrastructure
A well-designed infrastructure leads to cost-effectiveness. They sometimes area accounted in the finances under the heading of “overhead costs”.
Knowing each of the elements of the value chain model is not enough. Value chain analysis is a method of understanding how each unit of it collectively impact the business. If we look at Latureae the inbound logistics include national manufacturing using in-depth expertise of vitamins, minerals, herbs, and nutrients. The supporting activities of research and development i.e., its advisory arm and human resource management’s creation of an educational environment through the use of training and mentoring to develop the skill sets of their employees. Their outbound logistics of 2000 suppliers both local and national supported by procurement of sustainable raw ingredients has made them achieve high production standards. Their major part of outbound logistics is supermarkets, special health food stores, and health care professionals who coordinate with patients and clients to promote wellness. Also marketing through its online portals like e-commerce website has created an income stream for Latureae. Their after-sale service team works hard to reward loyalty to their 100,000 customers as they know the fact that these customers have endless choices to spend their dollars (Latureae, 2016).
In relation to the above analysis, we know that linkages between the value chain activities can impact competitive advantage. Porter defines these linkages as
“linkages are relationships between the way one value activity is performed and the cost or performance of another.” (Porter, 1985)
As we defined three types of linkages: by players in the linkages, by goals of the linkage and by the form of strategic linkage. The first one is the link between participants. It includes the interrelationship between internal and external teams. The new assistance program designed by the HR department has enabled Latureae to become market leaders through new innovations and product development. The second linkage is with the goals of the company. Tasks performed, activities shared or network created that lead to the achievement of objectives. Health reforms carefully defined by the legal team of Latureae will enable them to meet their strategic objective of contributing sustainable development of health and wellness. The third one is the strategy linkage which involves all activities necessary to one unit of the value chain. As the customer service department of Latureae needs trained professionals and good product knowledge and awareness of marketing activities to correctly communicate with its customers (Latureae, 2016)
Latureae should keep in mind that no activity of the value chain is independent. There is a number of linkages and interrelationships between all the actions in each department. It is very important for management to make sure that coordination and strong communication exists to implement business strategies. Information technology has enabled cognizance and integration between the entire value chain (Kanter, 2000). Any business competitive advantage depends on the unison of its business strategies. Latureae is recommended to keep strong inter-unit relationships through different organizational process and mechanisms. All these actions will lead to identifying firms’ abilities and limitations, making Latureae flexible to opportunities and threats of the market. The marketers have recently suggested that there exists a term called “social value chain” (Barnatt, 2000). Which means Latureae needs to arrange social relationships in the community to create value. Hence we conclude on this report that value chain analysis is a strong tool which has to use to develop strategies.
“Though linkages within the value chain are crucial to competitive advantage, they are often subtle and go unrecognized. ... Identifying linkages is a process of searching for ways in which each value activity affects or is affected by others” (Porter, 1985)
Barnatt, C. (2000). e-Legacy: The IP Systems Challenge. Journal of General Management, Vol. 25, No. 4, 1-16.
E.Porter, M. (1985). Competitive Advantage. Canada: The Free Press.
Ensign, P. C. (2001). semanticscholar. Retrieved from https://pdfs.semanticscholar.org/d0cd/9f9a36d579afe611f12db0385788f28aadf5.pdf
Kanter, R. (2000). Knowledge Exchange. Executive Excellence, Vol. 17. No. 11, 3-4.
Latureae (2016, March).,Torerens University Australia
you, B. t. (2018, March 15). Business to you. Retrieved from http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Porter%27s%20value%20chain%20model.aspx
Porter, 1985, op. cit., p. 48
Porter, 1985, op. cit., p. 50.
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