Module 2 (Contd.

)
 Value Chain Model
• A value chain is the full range of activities needed to create a
product or service.
• A series of consecutive steps that go into the creation of a finished
product, from its initial design to its arrival at a customer’s door.
• The chain identifies each step in the process at which value is added,
including the sourcing, manufacturing, and marketing stages of its
production.
 Business Value Chain
• A value chain is a step-by-step business model for transforming a
product or service from idea to reality.
• Value chains help increase a business’s efficiency so the business can
deliver the most value for the least possible cost.
• The end goal of a value chain is to create a competitive advantage
for a company by increasing productivity while keeping costs
reasonable.
• The value chain framework encompasses five primary activities --
inbound operations, operations, outbound logistics, marketing and
sales, and service -- and four secondary activities -- procurement
and purchasing, Human Resource Management (HRM),
technological development and company infrastructure.
 Components of Value Chain
• Primary Activities
• Primary activities consist of five components, all essential for adding
value and creating competitive advantage:
1.Inbound logistics include functions like receiving, warehousing, and
managing inventory.
2.Operations include procedures for converting raw materials into a
finished product.
3.Outbound logistics include activities to distribute a final product to a
consumer.
4.Marketing and sales include strategies to enhance visibility and target
appropriate customers—such as advertising, promotion, and pricing.
5.Service includes programs to maintain products and enhance the
consumer experience—like customer service, maintenance, repair,
refund, and exchange.
 Support Activities
• The role of support activities is to help make the primary activities more efficient.
• When we increase the efficiency of any of the four support activities, it benefits
at least one of the five primary activities.
• These support activities are generally denoted as overhead costs on a company’s
income statement.
1.Procurement concerns how a company obtains raw materials.
2.Technological development is used at a firm’s research and development (R&D)
stage—like designing and developing manufacturing techniques and automating
processes.
3.Human Resources (HR) management involves hiring and retaining employees
who will fulfill the firm’s business strategy and help design, market, and sell the
product.
4.Infrastructure includes company systems and the composition of its management
team—such as planning, accounting, finance, and quality control.
 Value Chain Example: Amazon
• Inbound logistics
Amazon's primary inputs can be identified as products sold through its own
fulfillment services, as well as data center resources that fuel Amazon Web
Services (AWS) cloud offerings. Here, Amazon can use its size as a large operation
to lower the costs per unit of items it purchases from external suppliers.
• Operations
Amazon transforms its inputs into outputs by its online marketplace, offering a
secure platform that makes e-commerce easy for both customers and sellers.
Because Amazon's fulfillment and logistics can offer two-day shipping to Prime
members, the result is a secure, user-friendly customer experience with
dramatically lower shipping times than competitors for a similar price point.
Amazon's AWS unit transforms inputs into outputs by creating and maintaining
cloud servers, storage and other data center resources into a streamlined service
for client organizations to host applications and other data.
 Outbound logistics
• E-commerce and direct-to-consumer focus. With the shift toward online shopping,
Amazon's fulfillment centers are crucial in enabling quick, direct-to-consumer delivery.
• Advanced fulfillment centers. Amazon operates numerous fulfillment centers globally,
using advanced robotics and automation technology to enhance warehouse efficiency and
reduce delivery times.
• Prompt shipping. Amazon's commitment to fast shipping, including two-day and, in some
areas, same-day delivery for Prime members, sets a high standard in e-commerce logistics.
• Digital delivery expansion. Has expanded its digital delivery offerings,
including streaming services, e-books and cloud services through AWS. This expansion
represents a shift toward digital products and services, aligning with the increasing
consumption of digital content.
• Customer-centric returns and services. Amazon has streamlined its return process, offering
easy return options. This enhances the overall consumer experience, encouraging repeat
business and loyalty.
 Marketing and Sales
• According to Statista, Amazon spent $13.5 billion on
marketing and advertising in 2022, seeking to maintain its
role as one of the world's most recognizable brands.
 Value Webs
• Internet technology has made it possible to create highly
synchronized industry value chains called value webs.
• A value web is a collection of independent firms that use information
technology to coordinate their value chains to produce a product or
service for a market collectively.
• It is more customer driven and operates in a less linear fashion than
the traditional value chain.
Strategic Management Information Systems
• A firm is organized financially as a collection of strategic business units.
• The returns to the firm are directly tied to the performance of all the
strategic business units.
• Information systems can improve the overall performance of these
business units by promoting synergies and core competencies.
• Synergies: The added success, energy, or power gained by two
organizations working together, which is better than the result
achieved by them working separately.
Eg. Merging few banks like Allahabad Bank merged with Indian
Bank to strengthen its financial position and expand its footprint.
Information systems would help the merged companies consolidate
operations, lower retailing costs, and increase cross-marketing of
financial products.
 Core Competencies
• Enhancing Core Competencies is another way to use information systems
for competitive advantage.
• A core competency is an activity for which a firm is a world-class leader.
• A core competency relies on knowledge that is gained over many years of
practical field experience with a technology.
• Any information system that encourages the sharing of knowledge across
business units enhances competency.
• For eg., Procter & Gamble, a world leader in brand management and
consumer product innovation, uses a series of systems to enhance its
core competencies.
 Management Checklist: Performing a Strategic
Systems Analysis
• To identify the types of systems that provide a strategic advantage to
their firms, managers should ask the following questions:
1. What is the structure of the industry in which the firm is located?
- What are some of the competitive forces at work in the industry?
- Are there new entrants to the industry?
- What is the relative power of suppliers, customers, and
substitute products and services over prices?
- Is the basis of competition quality, price, or brand?
- What are the direction and nature of change within the industry?
- How is the industry currently using information technology?
- Is the organization behind or ahead of the industry in its
application of information systems?
2. What are the business, firm, and industry
value chains for a particular firm?
• How is the company creating value for the customer—through lower prices
and transaction costs or higher quality? Are there any places in the value
chain where the business could create more value for the customer and
additional profit for the company?
• Does the firm understand and manage its business processes using the best
practices available? Is it taking maximum advantage of supply chain
management, customer relationship management, and enterprise systems?
• Does the firm leverage its core competencies?
• Is the industry supply chain and customer base changing in ways that
benefit or harm the firm?
• Can the firm benefit from strategic partnerships and value webs?
• Where in the value chain will information systems provide the greatest
value?
 3. Have we aligned IT with our business strategy
and goals?

• Have we correctly articulated our business strategy and goals?