The Value Chain

A tool to identify resources and capabilities Chain of activities transforming inputs into outputs that customers value The transformation process Primary and Support activities Add value to the product

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THE GENERIC VALUE CHAIN

SUPPORT

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT

MARGIN

ACTIVITIES

TECHNOLOGY DEVELOPMENT PROCUREMENT

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKET-ING & SALES

SERVICE
MARGIN

PRIMARY ACTIVITIES

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The Value Chain: Primary and Support Activities

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Primary Activities of Toyota

Inbound Logistics: Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organization. Toyota motors purchase their raw material from all around the world. In order to maximize their availability of raw material Toyota motors maintain good relationship with their suppliers. Toyota use JIT (Just In Time) approach for handling of raw material.

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Operations:
This is where goods are manufactured or assembled. Individual operations could include organizing the parts to make new cars & the final tune for a new car's engine. Toyota motors are known for their reliability which comes from efficient operations.

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Outbound Logistics:
The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Toyota motors manage their own Showrooms in different countries. Toyota motors make their product easily assessable.

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Marketing and Sales:

Toyota motors prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.
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Service:
This includes all areas of service such as final checking, after-sales service, complaints handling, training and so on.

Toyota value their customers.

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Support Activities
Procurement: This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. Toyota motors will be responsible for outsourcing (co mponents or operations that would normally be done in-house are done by other organizations), and e-Purchasing (using IT and web-based technologies to achieve procurement aims).

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Technology Development:
Technology is an important source of com petitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. Toyota motors implemented Production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), a nd many other technological developments.

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Human Resource Management (HRM):

Employees are an expensive and vital resource. Toyota motors manage recruitment and selection, training and development, and rewards and remuneration. Toyota motors consider their employees as HUMAN CAPITAL. The mission and objectives of the Toyota motor is the driving force behind the HRM strategy.

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Toyota motors uses following techniques to retain their employees: Recruitment Selection Training and development Compensation Maintenance

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Firm Infrastructure:
This activity includes and is driven by corporate or strategic planning. Toyota motors implemented Management Information Syste m (MIS), and other mechanisms for planning and control in different department

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Differentiation and Cost Structure: Roots of Competitive Advantage

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The Generic Building Blocks of Competitive Advantage

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Efficiency
The quantity of inputs it takes to produce a given output Productivity greater efficiency and lower costs
Employee productivity Capital productivity
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Quality
Superior quality = customer perception of greater value in a specific products attributes
Form, Features, Performance, Durability, Reliability, Style, Design

Quality products G&S reliable

Greater efficiency and lower unit costs are associated

with reliable products

differentiated by attributes that customers perceive to have higher value

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A Quality Map for Groceries

Spencers Daily Big bazaar

Spar market

Kirana

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Innovation
-Product innovation- More valuable products

-Process innovation- Creates value by lowering production costs

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Responsiveness to Customers
Doing a better job than competitors of identifying and satisfying customers needs
Superior quality and innovation Customizing goods and services

Sources of enhanced customer responsiveness

Customer response time, service, after-sales service and support

Differentiates a company/its products leads to brand loyalty and premium pricing

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Analyzing Competitive Advantage and Profitability

Benchmarking company performance & competitors and the companys own historic performance Return on invested capital
ROIC Net profit Invested capital

Net profit = Total revenues Total costs

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Suggest the ways to improve profit?

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Ways to Increase ROIC

Increase the companys return on sales

Increase sales revenues from invested capital

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The Durability of Competitive Advantage

Barriers to Imitation
Imitating Resources Imitating Capabilities

Capability of Competitors Industry Dynamism

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Sustaining Competitive Advantage

Focus on the building blocks
Institute continuous improvement in learning Track best industrial practice in use benchmarking Overcome inertia
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Internal Analysis- Approaches

Functional Strategies Value Chain Approach Critical Success Factor

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CRITICAL SUCCESS FACTOR

4 major sources of CSF in general. CSF relevant to individual company determined by a variety of
Environmental Firms specific considerations

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 Each industry has a set of CSF determined by the chars of that industry.

(1)Industry characteristics

Eg: Supermkt chains: product mix, inventory turnover, pricing

Airlines: fuel efficiency, load factors, Excellent reservation sys.
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Prepared by Ms.S.Sangeetha, Faculty, KCTBS

The Industry
An industry's set of characteristics define its own CSFs. Different industries will thus have different CSFs, for example research into the CSFs for the business services, health care and education sectors showed each to be different after starting with a hypothesis of all sectors having their CSFs as market orientation, learning orientation, entrepreneurial management style and organisational flexibility (Barrett, Balloun and Weinstein, 2005). An example of industry and company CSFs was presented by Rockart and Bullen (1981) in their research paper and is included here to illustrate their ideas (see figure 1). Further details on company CSFs are discussed in the next point. Figure 1: Industry and company CSFs (source: Rockart and Bullen, 1981)

The example presented by Rockart and Bullen was meant to illustrate that companies would have different CSFs and would not be completely similar. It can be seen though that many aspects of the CSFs could end up being similar for organisations in an industry.

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(2)Competitive position
Major Co.s often produce few & significant problems. Eg: Caterpillar Co
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 Organisational culture: "creating a culture that engaged employees, while focusing on safety and diversity" Quality control: "accelerating the pace of quality improvement for its products, while focusing on improving new product introduction and continuous product improvement processes" Cost focus: "implementing processes to become the highest-quality, lowest cost producer of our highvolume products in each hemispheric currency zone"

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(3)General environment
Oil resources- Gulf countries HR- China & India Eg: Taxation policies, bilateral and multi lateral cooperation India permits FDI from Pakistan (2012, April)

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(4) Organisational development

Rebuilding

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