Value Chain Analysis

509 Words3 Pages
Illustrate the importance of utilizing value chain analysis in strategic decision-making, clearly justifying why an understanding of the value chain’s core elements is so important in management costs and gaining or sustaining competitive advantage. All organizations consist of activities and functions that are link together to deliver value of its customers. A firm value chain shows links between it functions, activities and business process. A firm’s value chain consist of two elements of activities Primary activities where the most of the value is created for the customers and Support activities where support is given to help the primary activities to be effective and efficiently executed. The value chain key factor is to manage cost; this can be achieved through an analysis of a strategic cost analysis. This enables a firm to focus on its cost when compared to that of its competitors. For example a firm can identify which activities are better undertaken by the business or which can be better outsourced. Therefore it is important that a considerable amount of judgment is used when performing the value chain analysis because different items along the value chain can affect other items negatively or positively. So it important to look at your cost drivers , this helps a firms to analysis critical cost for example whether it be economic of scale, capacity utilization, learning, geographical location so as to maintain them better than its competitor. The value chain is therefore linked to the Business Model because its speak to how a firm is going to generate revenues and keep the cost down while making a profit. Hence, the value chain helps to identify ways in which you can create value for your customers, and also help you to think of strategies to maximize this value; whether it is through products, service or a job well done. For example two very

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