“Value adding” Activities Value Chain Model

Competitive Advantage from:
(Porter, 1985)
Porter’s Value Chain model
“An Org. Chart on its side”
Receiving,
Storing &
Handling
Processing,
QC, Packaging
& Testing
Distribution,
Warehouses,
Delivery
Campaign,
sales force,
Coverage
Installation,
Repair,
training
Very
important
Capabilities are assessed by how activities
are efficiently done by firms: [Many Merged Resources] How do you deal with each and every component?
Value Chain Analysis?
[Primary Activities]
Capabilities from Primary Activities & Functions that
add value to the Firm / Customers. [Better than others]
 Inbound Logistics: Receiving, Storing & Handling raw material
Ex: Activities & tasks embedded in receiving & handling procured material
 Operations: Manufacturing / Processing raw material; Packing, Testing.
Ex: Assembly line activities, Faulty end-products; Quality testing
 Outbound Logistics: Distribution; Warehousing and Product
delivery
Ex: Location of warehouses; Trucks efficiency & transportation activities
 Marketing & Sales: In-Store operations, Salesforce; Geo-coverage.
Ex: Efficient promotional activities, measurement of effectiveness
 Services: Pre and post sales services
Ex: Delivery; Installation; Training; Repair ; Refund & Return activities.
Try to implement those activities in a unique way that
is distinguished from others with added value seeking
a source of competitive advantage.
Capabilities from Support Activities & Functions that
add value to the Firm / Customer. [Better than others]
 Infrastructure: Finance, System, Structure, Culture ..
Ex: Flexibility, coverage, investment capital; routines; Risks
 HR: Training, Control systems, Skills hunting; management, ..etc.
Ex: Appraisal system, scarce skills, follow up, HR management
 Technology: R&D, New design, New equip., Innovation; IT
Ex: R&D, Data mining, speed of performing complex activities
 Procurement: Internet Buying, Supplier relations, bargaining power…
Ex: Network of cheap suppliers, buying-power from suppliers
Value Chain Analysis?
[Support Activities]
Try to implement those tasks & activities in a unique
way that is distinguished from others with added
value seeking a source of competitive advantage.
Examples on:
Value chain components linkage
To which activities component,
customer satisfaction belongs?
Remember the goal:
Do things efficiently &
better than others.
System ; Service; Training & I.T could take part:
Check the relationship(ex)
Q2: What if you want to reach the
elderly segment in the market?
Value Chain Model
Analysis & Process
 Analysis of every single activity done by the firm.
 Check linkages between activities / components.
 Analyze whether it adds value to the customer &
done better than others.
 Compare the cost of performing such an activity
with its value adding result.
 Restructure / Re-Engineer / Outsource the costly
non effective value adding activities  This will
lower cost & hence increase your profit margin.
Haven’t you heard about “Restructuring”?
The quest for
Competitive advantage
Resources & Capabilities
[Merged, Acquired or Built]
“Competitive Advantage”
Exercise
 A good HRM software is a product produced by
merging the skillful programmer with Oracle
database. Does it grant competitive advantage?
 A complex Artificial Intelligence (A.I) software that
deals with Internet of Things (IoT) & solves critical
problems such as pinpointing health related issues
to patients.
 A known brand name, does it grant competitive
advantage? (Pepsi; Coke; MD, ..etc)
Capabilities & competitive
advantage identification
So, which “resources or capabilities”
grant firms Competitive Advantage ?
Barney’s VRIO model could be used to
test the sustainability of a capability.
Barney’s “VRIO” MODEL
In action
RC
However, most companies
reach that far.
AAnnyy eexxaammppllee??
The quest for sustainability of
the competitive advantage
Unique Product / Service
&
Sustainable competitive advantage
(Take the “Smart TV” , “Galaxy Note20 ”)
Do those products provide sustainable competitive advantage?
If the Resource or Capability is a unique “product / service” it
will diminish overtime as it could be Technologically copied,
imitated, substituted or redesigned by competitors.
So, Unsustainable
Capabilities need to be sustainable i.e. be a
permanent source for “competitive
advantage”.
So, which capabilities are sustainable?
Lesson learned
Those that don’t diminish over time –
What would they be?
Enter,
Prahalad & Hamel
Core Competencies
What the firm does well & better than others?
It is not about “Resources” or “Activities”
but, a matter of “Core Competencies”
(Prahalad & Hamel, 1990)
Sustainable Competitive Advantage from:
Note: Grant R. called them: “Distinctive Capabilities”
For instance, talent; ability to innovate, ..etc are CC
Another RBV theory
Definitions of
Core Competency
 Core competency is an area of “Specialized Expertise”
that is the result of harmonizing complex streams of
technology and work activity.“ (Prahalad & hamel, 1990)
Note:
 It focuses on & fueled by Learning, routine, staff skills &
behavior to create value.
Very few companies would have more than [4] core
competencies. The rest are operational capabilities.
Core Competencies [the 3-pillars]
(Hamel and Prahalad, 1990)
Strategic Intent: – Aggressive Vision that describes a desired
global leadership position. It represents an “Umbrella Strategy”
Ex: Cannon: Beat Xerox; Komatsu: Encircle Caterpillar
Core Competencies: The “collective learning in the
organization” that coordinates diverse production skills &
integrate multiple streams of technology. Competencies are
unlike resources-they do not diminish overtime. Simply, it is
what the firm does well as a result of specialized expertise.
Collaboration: Collaborate & outsource the non-core activities
which are waste of efforts & time. If they are not core then they
should be sold-off.
Core Competences test
(Hamel and Prahalad, 1990)
3 tests of Core Competences

1. Must give access to markets – be marketable; and
2. Must generate customer benefits – be worth
   something (value); and
3. Must be hard to imitate – competitors should
   not be able to easily copy
   Note:: Core Competencies are mostly intangible.
   Q: Is excellent marketing a Core Competency?
   Excellent marketing example test for
   Core Competency
   Using the 3
   Tests model
   for CC
   Marketable
   commercially
   Value to
   customers
   Hard to
   imitate
   Excellent
   Marketing
   Result
   Using the
   VRIN Test
   model
   Value to
   customers
   Rare Inimitable Non
   Substitutable
   Excellent
   Marketing
   Result:
   How about: LLooccaatitioonn ooff aa rreessttaauurraanntt??
   Examples of:
   Core Competencies
    Apple: Innovation capability shaping the industry
    Samsung: Speed development of products
    Honda: Quality engines.
    Google: Innovative Services, Search engine algorithm,
   skillful employees, visionary leadership. [note how
   some capabilities are acquired thru M&A]
    Kia & Hyundai: Quality & Efficiency (value for money)
    Sharaf DG: Network of suppliers [if we don’t get it for you in 24 hours,
   you get it for free]. Theme: Not only technology related, could be a complex /powerful service.
   Core Competencies could include: Quality, efficiency;
   staff innovative skills, knowledge & synergy; patent; and
   Complex process. Those competencies are unlike resources,
   they do not diminish over time – a capability that passes the
   3 tests of CC.
   How to preserve our
   Core Competencies
   Remember the Definition of Core Competency:
   Core competency is “an area of specialized expertise
   that is the result of harmonizing complex streams of
   technology and work activity.“ (Prahalad & hamel, 1990)
   Continuous Innovation
   Fueled by
   (Expertise, learning, Work activity & Technology)
   Those capabilities do not diminish over time