Criteria for Effective Planning• Situation analysis and competitive

assessment• Evaluation of strategic options• Dynamic allocation of resources

The purpose of strategic planning is to add value to the firm by adding new customers, new products or services, new markets, new locations, or new breakthrough technology.

If the plan does not add value, it is worthless

Value Chain Analysis• The concept of Value Chain Analysis is

described by Michael Porter who notes that: “Every firm is a collection of activities that are performed to design, produce, market, deliver and support its products or services. All these activities can be represented using a value chain. Value chains can only be understood in the context of the business unit”.

Value Chain Analysis• The value chain of the business unit is

only one part of a larger set of value-adding activities in an industry- the industry value chain or value system

• The value chain of any firm needs to be understood as part of the larger ‘system’ of related value chains

IS and Value Chain• Information systems are used to enable

better information exchanges through the industry value chain, significant benefits can be obtained from the improved links. These benefits should enable a firm to spend more of its business energy in outperforming its real competitors rather than competing with its trading partners for profit.

Internal Value Chain• The purpose of Internal Value Chain analysis is

to divorce what the company does from how it does it.

Two types of business activity:• Primary activities; those that enable it to fulfill its

role in the industry value chain and hence satisfy its customers. They must be linked together effectively.

• Support activities; those which are necessary to control and develop the business over time and thereby add value indirectly.

Primary Activities• Inbound logistics — Procuring, receiving and

warehousing raw materials.• Operations — Machining, assembly and

manufacturing products.• Outbound logistics — Getting the product to

the customer.• Marketing and sales — Advertising, marketing

and selling.• Service — Providing customer support and

product repairs.

Support Activities• Procurement: The purchasing of materials used

to create value for the firm.• Technology Development: Any technology

used to support the firms value chain activities.• Human Resource: The Activities surrounding

the Recruiting, Hiring, Training and compensation of an organizations employees.

• Firm Infrastructure: The activities and functions that support a firm’s ability to create value such legal, accounting, management, strategy, etc.

Cont..• The term, Margin implies that

organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. In other words, the organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain.

Value Chain: An ExampleINFRASTRUCTURE - Legal, Accounting, Financial Management

HUMAN RESOURCE - Personnel, Pay, Recruitment, Training,MANAGEMENT Manpower Planning, etc.

PRODUCT AND TECHNOLOGY - Product and Process Design, R&D,DEVELOPMENT Production Engineering, IT, etc.

PROCUREMENT - Supplier Management, Funding, Subcontracting, Specification

INBOUNDLOGISTICSeg.

Quality ControlReceivingRaw Material Controletc.

OPERATION

eg.

ManufacturingPackingProduction ControlQuality ControlMaintainaceetc.

OUTBOUNDLOGISTICSeg.

Finished GoodsOrder HandlingDespatchDeliveryInvoicingetc.

SALES ANDMARKETINGeg.

Customer MgmtOrder TakingPromotionSales AnalysisMarket Researchetc.

SERVICES

eg.

WarrantyMaintenanceEducation/ TrainingUpgradeetc.

PRIMARY ACTIVITIES

VALUEADDED- COST= MARGIN

A manufacturing company's value chain. Many activities cross the boundaries, especiallyinformation based activities such as sales forecasting, capability planning, resource scheduling,pricing etc.

SUPPORT ACTIVITIES

Alternative Value ‘configuration’ Models

• The traditional value chain model was essentially based on manufacturing/retail view of industry and works well for ‘physical goods’. But does not really represent what the business does or its relationships with customers and suppliers in many other businesses.

• 2 alternatives: Value Shops and Value Networks

The Use of Value Chain Analysis• The main objective is to represent the main

activities in the business and their relationships in terms of how they add value so as to satisfy the customer and obtain resources from suppliers.

• The information that flows throughout the industry and how critical that information is to the functioning of the industry and the success of the firms in it, by determining where and when that information is available, who has it and how it could be obtained and turned to advantage or used against the firm.

The Use of Value Chain Analysis• The information that is or could be

exchanged with customers and suppliers throughout the chain to improve the performance of the business or lead to mutually-improved performance by sharing the benefits.

• How effectively the information flows through the primary processes and is used by them:– Within each activity to optimize performance– To link the activities together and avoid unnecessary

costs and missed opportunities; and– To enable support activities to contribute to the value-

adding processes, not hinder them.