VALUE CHAIN communicated to the target group through the

Value promotional mix.

- is the total amount (i.e. total revenue) that buyers are Services. After the product/service has been sold what
willing to pay for a firm's product. The difference support services does the organisation offer customers?
between the total value and the total cost of This may come in the form of after sales training,
performing all of the firm's activities provides the guarantees and warranties.
margin. Margin implies that organizations realize a
Support Activities
profit margin that depends on their ability to manage
Support activities assist the primary activities in helping
the linkages between all activities in the value chain. In
the organisation achieve its competitive advantage.
other words, the organization is able to deliver a
There are four main areas of support activities:
product / service for which the customer is willing to
procurement, technology development (including R&D),
pay more than the sum of the costs of all activities in
human resource management, and infrastructure
the value chain.
(systems for planning, finance, quality, information
Value Chain management etc.).
- concentrates on the activities starting with raw
Firm infrastructure. Every organisation needs to ensure
materials till the conversion into final goods or services.
that their finances, legal structure and management
The sources of the competitive advantage of a firm can
structure work efficiently and helps drive the
be seen from its discrete activities and how they
organisation forward. Inefficient infrastructures waste
interact with one another. 
resources, could affect the firm's reputation and even
Value chain analysis  leave it open to fines and sanctions.
- a way to visually analyze a company's business
Human resource management. The organisation will
activities to see how the company can create a
have to recruit, train and develop the correct people for
competitive advantage for itself. 
the organisation to be successful. Staff will have to be
- helps a company understand how it adds value to
motivated and paid the 'market rate' if they are to stay
something and subsequently how it can sell its product
with the organisation and add value. Within the service
or service for more than the cost of adding the value,
sector such as the airline industry, employees are the
thereby generating a profit margin. In other words, if
competitive advantage as customers are purchasing a
they are run efficiently, the value obtained should
service, which is provided by employees; there isn't a
exceed the costs of running them i.e. customers should
product for the customer to take away with them.
return to the organisation and transact freely and
willingly. Technology development. The use of technology to
- ultimate goal: to maximize value creation while also obtain a competitive advantage is very important in
monitoring and minimizing costs. today's technological driven environment. Technology
can be used in many ways including production to
Originated in the 1980s by Michael Porter, value chain
reduce cost thus add value, research and development
analysis is the conceptual notion of value-added in the
to develop new products and the internet so customers
form of a value chain. He suggested that an organisation
have 24/7 access to the firm.
is split into 'primary activities' and 'support activities'.
Procurement. This department must source raw
Primary Activities
materials for the business and obtain the best price for
Primary activities are directly concerned with creating
doing so. The challenge for procurement is to obtain the
and delivering a product. They can be grouped into five
best possible quality available (on the market) for their
main areas: inbound logistics, operations, outbound
budget.
logistics, marketing and sales, and service. Each of these
primary activities is linked to support activities which Although, primary activities add value directly
help to improve their effectiveness or efficiency; and to the production process, they are not necessarily
According to Porter (1985), the primary activities are: more important than support activities. Nowadays,
competitive advantage mainly derives from
Inbound logistics. Refers to goods being obtained from
technological improvements or innovations in business
the organisation's suppliers and to be used for
models or processes. Therefore, such support activities
producing the end product.
as ‘information systems’, ‘R&D’ or ‘general
Operations. Raw materials and goods are manufactured management’ are usually the most important source of
into the final product. Value is added to the product at differentiation advantage. On the other hand, primary
this stage as it moves through the production line. activities are usually the source of cost advantage,
Outbound logistics. Once the products have been where costs can be easily identified for each activity and
manufactured they are ready to be distributed to properly managed.
distribution centres, wholesalers, retailers or There are two different approaches on how to
customers. Distribution of finished goods is known as perform the analysis, which depends on what type of
outbound logistics. competitive advantage a company wants to create
(cost or differentiation advantage). The table below lists
Marketing and Sales. Marketing must make sure that all the steps needed to achieve cost or differentiation
the product is targeted towards the correct customer advantage using VCA.
group. The marketing mix is used to establish an
effective strategy, any competitive advantage is clearly Cost advantage Differentiation
 advantage Five Fundamentals but interlinking areas:
This approach is used when The firms that strive to  Money usually measured as profit
organizations try to create superior products  Output-Input relationships or Productivity
compete on costs and want or services use  Customer emphasis such as quality
to understand the sources differentiation  Innovation and adaptation to change
of their cost advantage or advantage approach.  Human resources
disadvantage and what (good examples: Apple,
Within the operations area, standard individual
factors drive those costs. Google, Samsung
performance measures could be productivity measured,
(good examples: Electronics, Starbucks)
quality measures, inventory measures, lead-time
Amazon.com, Wal-Mart,
measures, preventive maintenance, performance to
McDonald's, Ford, Toyota)
schedule, and utilization. Specific measures could
Step 1. Identify the firm’s Step 1. Identify the
include:
primary and support customers’ value-
Cost of quality- measured as budgeted versus actual
activities. creating activities.
Variances- measured as standard absorbed cost versus
Step 2. Establish the relative Step 2. Evaluate the
actual expenses
importance of each activity differentiation strategies
Period Expenses- measured as budgeted versus actual
in the total cost of the for improving customer
expenses
product. value.
Safety- measured on some common scale such as
Step 3. Identify cost drivers Step 3. Identify the best
number of hours without an accident
for each activity. sustainable
Profit Contribution- measured in dollars or some
Step 4. Identify links differentiation.
common scale
between activities.
Inventory Turnover- measured as actual versus
Step 5. Identify
budgeted turnover
opportunities for reducing
costs. While financial measures of performance are
often used to gauge organizational performance, some
firms have experienced negative experiences from
PERFORMANCE MEASUREMENT
relying solely on these measures. Traditional financial
It is a numeric outcome of an that indicates how measures are better at measuring the consequences of
well an organization is at achieving its objectives. These yesterday's actions than at projecting tomorrow's
measurements can be used to examine the performance.
performance of all aspects of a business, including the Therefore, it is better that manager not only
accounting, engineering, finance, marketing, materials rely on one set of measures to provide a clear
management, production, research and sales performance target. Many firms still rely on measures
departments. of cost and efficiency, when at times, such indicators as
Examples of performance management are: time, quality and service would be more appropriate
 Tracking the ability of the accounting measures. To be effective, performance yardsticks
department to collect overdue accounts should continuously evolve in order to properly assess
receivable performance and focus resources on continuos
 Tracking the speed with which the engineering improvement and motivating personnel. In order to
department can design new products incorporate various types of performance measures,
 Tracking the liquidity of funds administered by some firms develop performance measurement
the finance department frameworks.
 Tracking the amount of inventory maintained
by the materials management department ORGANIZATIONAL PERFORMANCE
 Tracking the amount of scrap produced in the
It involves analyzing a company’s performance
production department
against its objectives and goals. Organizational
 Tracking the ability of the sales staff to bring in
performance comprises real results or outputs
new sales from existing customers
compared with intended outputs. It relates to how
Performance measurements are typically compiled into successfully an organized group of people with a
a summary sheet that is distributed to the management particular purpose perform a function.
team on a regular basis. Any measures falling below a
Main Models of Organizational Effectiveness
trend line or not meeting a standard will be subject to
/Performance
enhanced management attention.
The Goal Approach. The first extensively used approach
Types of Performance Measures
in organizational effectiveness is the goal approach. Its
 Relate to results- outputs or outcomes such as
focus is on the output to figure out the essential
competitiveness or financial performance
operating objectives like profit, innovation and finally
 Focus on the determinants of result- i puts
product quality (Schermerhorn, Hunt, R. N. Osborn, & R.
such as quality, flexibility, resource utilization,
Osborn, 2004). There are some basic assumptions for
and innovation
the goal approach. One of them is that there should be
This suggests that performance measurement
a general agreement on the specific goals and the
frameworks can be built around the concepts of results
people involved should feel committed to fulfilling
and determinants.
them. The next assumption is that the number of goals
is limited and achieving them requires certain  Structural Decisions -physical arrangement and
indispensable resources (Robbins, 2003). configuration of resources.
The System Resource Approach. The second approach  Infrastructural Decisions - activities that takes
is named the system resource approach which pays place within the operation’s structure.
attention to the input of the figure. It explains the Thus, the resource-based view of strategy is that
effectiveness from the point of view of the ability to operations takes a more active role in providing long-
obtain necessary resources from the environments term competitive advantage.
outside the organization (Schermerhorn et. al., 2004).
What makes the development of operation strategy
The application of system resource can be effective if a
particularly challenging is that not only should the
vivid relation exists between the resources which an
market-based and resource-based views of strategy
organization receives and the goods or services it
need to be considered at a point in time, but the
produces (Cameron,1981). This approach invites
changing characteristics of markets and the need to
managers to consider the organization not only as a
develop operations capabilities over time means a
whole but as a part of a larger group as well.
dynamic as well as a static views of strategy required..
The Process Approach. The third approach is known as Operations Strategy Formulation
the process approach which pays attention to the Hill Framework for Operation Strategy Formulation Hill
transformation process and is dedicated to seeing to provides an iterative framework that links together the:
what extent the resources are officially used to give  Corporate Objectives- which provide the
services or produce goods (Schermerhorn et. al., 2004). organizational direction.
By effectiveness, it is meant that the organization is  Marketing Strategy- which defines how the
internally healthy and efficient and the internal organization will compete in its chosen markets.
processes and procedures in that place are quite well-  Operations Strategy- which provides capability
oiled. In an effective organization, there is no trace of to compete in those chosen markets.
stress and strain. The members are completely part of
the system and the system itself works smoothly. The The framework consists of five steps:
relationship between the members is based on trust, Step 1. Define Corporate Objectives
honesty, and good will. It involves establishing corporate objectives that
The Strategic Constituency Approach. The fourth provide a direction for the organization and
approach is the strategic constituency approach. It deals performance indicator that allow progress in achieving
with the effect of the organization on the main those objectives to be measured.
stakeholders and their interests (Schermerhorn et. al., Step 2. Determine Marketing Strategies to meet these
2004). Based on this approach, effectiveness refers to objectives
the minimal satisfaction of all of the strategic This involves identifying target markets and how to
constituencies of the organization. Strategic compete in these markets.
constituency involves all the people that are somehow
Step 3. How do products win orders in the market
connected to the organization. These people may have
place?
different roles such as the users of the services or
This provides the link between corporate
products of the organization, the resource providers,
marketing proposals and the operations processes and
the facilitators of the organization’s output, the main
infrastructure necessary to support them. This achieves
supporters and the dependents of the organization
by translating the market strategy into a range of
(Cameron, 1981). This approach assumes an exhaustive
competitive factors on which the product or service
attitude toward effectiveness and evaluates the factors
wins orders. Hill distinguishes between the following
both in the environment and within the organization.
types of competitive factors which relates to securing
costumer orders in the marketplace.
A FRAMEWORK FOR OPERATING Order-Winning Factors- key reasons for costumers
STRATEGY purchasing the goods or services and raising the
Operation Strategy is the total pattern of decisions performance or the order-winning factors may secure
which shape the long--term capabilities of any type of more business.
operation and their contribution to overall strategy, Qualifying Factors- must be at a certain level to
through the reconciliation of market requirements with gain business from costumers, but performance above
operations resources. this level will not necessarily gain further competitive
- It is concerned with the reconciliation of market advantage.
requirements with operations resources. It does this by: Step 4. Establish the most appropriate mode to deliver
- Satisfying market requirements by setting these sets of products
appropriate performance objectives for operations Concerns aspects of the organization’s physical
- Taking decisions on the deployment of operations resources such as a service delivery systems and
resources which effect the performance objectives capacity provision.
operations Step 5. Provide the infrastructure requires to support
A resource-based view of operations strategy works operations
from the inside-out of the firm, rather than outside-I This describes the systems, policies and practices
perspective of the market-based approach. Here there that determine how the structural elements covered in
is an assessment of the operations decisions regarding: step 4 are managed.
 with clients quickly and clearly. When customers use
UNDERSTANDING TECHNOLOGY IN technology to interact with a business, the business
benefits because better communication creates a
OPERATIONS AND IT'S IMPORTANCE stronger public image.
The application of scientific knowledge for practical
Efficiency Of Operations
purposes, especially in industry. The tools and machines
Technology also helps a business understand its
that help to solve problems or do new things. Using
cash flow needs and preserve precious resources such
resources to solve a problem (such as knowledge, skills,
as time and physical space. Example, Warehouse
processes, techniques, tools and raw materials).
inventory technologies let business owners understand
Technology and Operations Management how best to manage the storage costs of holding a
Technology has changed the way organization product.
conduct their business. Advent of technology in
Business Culture And Class Relations
operation management has increased productivity of
Technology creates a team dynamic within a
the organization.
business because employees at different locations have
The scope of Technology and operation
better interactions.
management has evolved over a period of time and has
moved from development of products into design, Security
management and improvement of operating system Technology can be used to protect financial
and processes. data, confidential executive decisions and other
proprietary information that leads to competitive
With the use of technology in operations the
advantages. By having computers with passwords, a
management has ensured that organizations are able
business can ensure none of its forthcoming projects
to:
will be copied by the competitors.
 reduce the cost
 improve the delivery process Research Capacity
 standardize and improve quality A business that has the technological capacity
 focus on customization to research new opportunities will stay a step ahead of
 create value for customers. its competition. For a business to survive, it must grow
and acquire new opportunities. The Internet allows a
Integration Of Technology With Production System business to virtually travel into new markets without
Technology drives efficiency in organization and the cost of an executive jet or the risks of creating a
increases’ productivity of the organization. However, factory abroad.
bringing technology in the production system is highly
complex process, and it needs to following steps:
TECHNOLOGY IN VALUE CHAINS
Step 1. Technology Acquisition. Technology acquired
should align with overall objectives of the organization What Are Value Chains, And Who Uses Them?
and should be approved after elaborate cost-benefit A value chain includes the activities that take place
analysis. within a company in order to deliver a valuable product
Step 2. Technology Integration. Technology affects all or service to their market. Each stage of the value chain
aspects of production i.e. capital, labour and customer. adds more value. The value chain provides a tool to
Therefore, a solid technology integration plan is visualize a firm's productivity by identifying the
required. thousands of discrete activities involved.
Step 3. Technology Verification. Once technology Value chain analysis is used by business analysts,
integrated, it is important to check whether technology project managers, and administrators to evaluate which
is delivering operational effectiveness and is been used activities provide the greatest opportunities to
to its fullest. maximize profitability and achieve a competitive
advantage. 
Challenges In Using Technology In Operations
Technology can be facilitating factor in bringing Value Chain Definitions
about change in operations and production Value Chain. The activities that take place within a
management. But it may not be feasible to use company in order to deliver a valuable product or
technology in all aspects with challenge coming through service to their market.
high initial cost of investment, high cost of maintenance Value Chain Analysis. A tool for analyzing activities to
and mismanagement. find those that are most valuable.
Porter’s Value Chain. A framework, created by Michael
Importance Of Technology In Operations Porter, that helps identify specific activities that
Technology has important effects on business contribute value and create competitive advantage.
operations. Technological infrastructure affects the Value Chain Management. The process of identifying
culture, efficiency and relationships of a business. It also and organizing the activities that add value in the
affects the security of confidential information and production of goods and services in an effort to increase
trade advantages. collaboration, increase competitive advantage, and
Communication With Customers improve customer satisfaction.
Technology affects a firm’s ability to Porter’s Value Chain Model
communicate with customers. In today’s busy business
The goal of these activities is to offer the
environment, it is necessary for employees to interact
customer a level value that exceeds the cost of the
activities, thereby resulting in a profit margin. As Procurement: This activity includes purchasing raw
technology is employed to some degree in every value materials, equipment and supplies, as well as vendor
creating activity, changes in technology can impact qualification, building or leasing, and info systems.
competitive advantage by incrementally changing the The value chain model is a useful analysis tool for
activities themselves or making possible new defining a firm’s core competencies and the activities in
configuration of the value chain. which it can pursue a competitive advantage as follows:
The primary value chain activities are: Cost advantage: by better understanding costs and
Inbound Logistics: The receiving and warehousing of squeezing them out of the value-adding activities.
raw materials, and their distribution to manufacturing ( either reducing the cost of individual value chain
as they required. activities or by reconfiguring the value chain)
Differentiation: by focusing on those activities
Inbound Logistics Technologies: transportation, associated with core competencies and capabilities in
material handling, material storage, communications order to perform better than the competitors. ( stems
testing and information systems. from uniqueness and can be achieved either by
Operations: The process of transforming inputs into changing individual value chain activities to increase
finished products and services. uniqueness in the final product or by reconfiguring the
value chain)
Operations Technologies: process, materials, machine
tools, material handling, packaging, maintenance, Linkages between Value Chain Activities
testing, building design & operation and information Value chain activities are not isolated from one
systems. another. Rather, one value chain activity often affects
the cost or performance of other ones. Linkage may
Outbound Logistics: The warehousing and distribution
exist between primary activities and support activities.
of finished goods.
Outsourcing Value Chain Activities
Outbound Logistics Technologies: transportation,
A firm my specialize in one or more value chain
material handling, packaging, communications and
activities and outsource the rest.
information systems.
To decide which activities to outsource, manger
Marketing and Sales: The identification of customer must understand the firm’s strengths and weaknesses in
needs and the generation of sales activities include each activity, both in terms of cost and ability to
branding, advertising, promotion, sales force diiferentiate.
management, pricing, and quoting. Managers may consider the following when
Marketing & Sales Technologies: media, audio/video, selecting activities to outsource:
communications and information systems.  Whether the activity can be performed cheaper
Service: The support of customers after products and or better by suppliers.
services are sold to them such as maintenance of the  Whether the activity is one of the firm’s core
product, installation, repair, and training are all part of competencies from which stems a cost
this function. advantage or product differentiation
 Whether the outsourcing of an activity can
Service Technologies: testing, communications and
result in business process improvements such
information systems.
as reduced lead time, higher flexibility, reduced
 Note: Many technologies are used across the inventory, etc.
value chain such as information systems that
can be seen in every activity to the extent that
these technologies affect cost drivers or
uniqueness, they can lead to a competitive
advantage.
These primary activities are supported by:
Firm Infrastructure: These are the activities that are
interwoven throughout the entire business structure
including finance, legal, quality, government affairs,
general management, and accounting.
Human Resources Management: HR is responsible for
providing methods of hiring, training, compensation,
and motivation for personnel in all areas of the
business.
Technology Development: This area is more than
research and development to support value- creating
activities. It includes uses of technology for overall
business support such as phones and plans, office
automation, order processing methods, and
procedures.