Value Chain

Strategy is a theory about how to gain competitive advantage. An efficient strategy is a strategy that generates advantages. Strategy is also a set of means of action used jointly to achieve certain objectives. Strategy is a conflictual notion directed at enemies that are competition or potential competition.

In fact, when an enterprise has to face competitors and wants to ensure its sustainability, it has to seek for a competitive advantage. According to Michael Porter, competitive advantage is the element that fundamentally differentiates a company’s supply from its competitors, and thus constitutes its differentiating power. The strategy put in place by a company must contribute to the creation and then the sustainability of this advantage. To get or assess potential advantages, several concepts have been proposed by M. Porter in 1985, one of them is the value chain.

What is the value chain and which changes does it have to face during last decades?

All of the functions of a company have been grouped in the concept of value chain, which represents primary activities and secondary activities of an enterprise. First, primary activities symbolize the design, creation, delivery of the product and also its marketing, support and after-sales service. This several functions can be divided in four representative points: research and development, production, marketing and sales, and customer service.

The research and development (R&D) revolves around product design and production processes. However, R&D is not only associated with the design of physical products and production processes in manufacturing firms. Indeed, R&D activity is also important in service companies. For instance, Apple company invests a lot in R&D to propose new version of its products every year and to keep its image of innovative brand.

By creating better products, R&D increases the functionality of products, making them more attractive to consumers, adding value. Instead, R&D can result in more efficient production processes, thus reducing production costs.

The R&D function can help reduce costs or increase the usefulness of a product and enable a company to charge higher prices.

Innovative firms gain additional market gains. Because inventing better ways to meet the needs of consumers ensures a leading position, media visibility ans creating new types of consumers more loyal to the brand. It is also R&D that makes it possible to evolve the internal methods and procedures of the company (Strategic Management Theory: An Integrated Approach, 9th Edition, Charles W. L. Hill and Gareth R. Jones).

Production represents the creation of a product that can be a good or a service. Goods tend to be tangible, whereas services are mostly intangible, even though you can usually see or feel the results. Indeed, tangible aspects such as the appearance of facilities, the equipment and the staff affect the perception of service. Then, the service is affected by the ability to perform the service, and the knowledge and courtesy of staff. Also, the service is simultaneous and non-storable unlike the good that can be consumed in a timely manner (Innovation and Entrepreneurship, 3rd Edition, Jonh Bessant and Joe Tidd). An efficient production allows a company to increase its productivity by reducing production, supply and working time to produce in order to reduce production costs.

Then, the marketing and sales are functions also contribute to value creation. Indeed, the marketing function can improve the perception of the brand with the customer and add value while demonstrating that the product would be useful to them. This function also determines and anticipates the needs of the consumer. This data can also be transferred to R&D in order to be able to design products that are most useful to the customer.

Then, the purpose of a company’s service function is to provide support and after-sales service. This function increases the value of a product to the consumer. In fact, being able to solve the problems that a customer encountered or having a return on his part allows the company to retain or correct certain malfunctions. A customer who gives us his opinion is a customer that allows the company to improve and retain, while a customer who does not give back in case of a problem is often a lost customer (Strategic Management Theory: An Integrated Approach, 9th Edition, Charles W. L. Hill and Gareth R. Jones).

Secondly, “the support activities of the value chain provide inputs that allow the primary activities to take place. These activities are broken down into four functions: materials management (or logistics), human resources, information systems, and company infrastructure.” (Strategic Management Theory: An Integrated Approach, Charles W. L. Hill and Gareth R. Jones, 2011, p.84).

The logistics function consists of managing everything related to the transport and storage of the company’s products by optimizing their circulation to minimize costs and delays. Aldi company, for example, is an organization based on a logic of economy of scales and a full-fledged logistic: rigorous negotiation, direct management from central warehouses, systematic hunting to any superfluous expense.

Concerning the human resources, in the creation of value, this function enables the company to set realistic, observable and measurable objectives over time, to demonstrate strong leadership on the part of management and teams management, and to communicate assiduously, to all departments of the organization (Strategic Management Theory: An Integrated Approach, 9th Edition, Charles W. L. Hill and Gareth R. Jones).

“Information systems are largely electronic systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquiries, and so on.” (Strategic Management Theory: An Integrated Approach, Charles W. L. Hill and Gareth R. Jones, 2011, p.84).

Information Systems function allows the company to improve its communication and value creation through better management of its activities.

Then, the company infrastructure includes all the necessary services for a company such as administration, quality control, finance, etc. The way the enterprise is managed can influence the infrastructure and all its other value-creation activities.

The concept of value-chain allows a company to develop its competitiveness through the establishment of a coherent strategy that aims to obtain competitive advantage. In fact, firms often combine all the elements of the value chain to access to significant scale advantages or quality improvements.

Over the past few decades, companies have increasingly

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