Value Chain as Competitive Advantage

Value Chain as Competitive Advantage

An efficient value chain means that your company has the upper hand in getting your products first to market. When you beat the competition to market with functional and ground-breaking products, then your company becomes known as an industry leader. (Christopher, 1998). Being recognized as one of the top companies in your industry because of your ability to be the first to market with new technology gives you a significant marketing edge. It also helps to attract new suppliers that may be able to help you make your supply chain more efficient and increase your competitive advantage. The purpose of this paper is to explain why an effective value chain creates competitive advantage.

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving competitive advantage; For example, a business who wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition and/or competition (Value Chain Analysis & Competitive Advantage, 2010). By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.

Linkages between Value Chain Activities

Value chain activities are not isolated from one another. Rather, one value chain activity often affects the cost or performance of other ones. Linkages may exist between primary activities and also between primary and support activities. Consider the case in which the design of a product is changed in order to reduce manufacturing costs. Suppose that inadvertently, the new product design results in increased service costs; the cost reduction could be less than anticipated and even worse, there could be a net cost increase. Sometimes however, the firm may be able to reduce cost in one activity and consequently enjoy a cost reduction in another, such as when a design change simultaneously reduces manufacturing costs and improves reliability so that the service costs also are reduced. Through such improvements, the firm has the potential to develop a competitive advantage.

Review of Concepts

Value Chain

According to Ilyas, Banwet and Shankar, "the primary objective of value chain management is the integration of the value chain partners leading to improvement in efficiencies and resulting in value creation to the stakeholders" (Iyas, 2007, p. 61). The value chain is a way to tell how business should be conducted.

A value chain is an integrated management activity that first explores and understands markets that appear attractive; second, through processes such as market opportunity analysis identifies industry drivers and resource requirements; third, considers the potential organizational alternatives that are available and likely to be successful in achieving realistic financial and marketing objectives. These three steps bring forth an important outcome: a model of customer value expectations and an understanding of customer value drivers (Iyas, 2007). Together these provide an understanding of customer demographics and socio-economics, and these in turn provide the basis for planning an effective marketing strategy from which a value proposition can be developed.

Competitive Advantage

What is competitive advantage? Competitive advantage gives a company an edge over its rivals and the ability to generate greater value for the firm as well as its shareholders. Competitive advantage can also be defined as the "position of enduring superiority over competitors in terms of customer preference" (Donaldson, 1995, p. 120). The more sustainable the competitive advantage is, the more difficult it is for its competitors to neutralize the advantage. "The competitiveness of an individual firm depends upon the competitiveness of the value chain to which it belongs". (Hung, 2010, p. 1155). With that in mind, a firm is just as successful as the value chain. Without the competitiveness of the value chain, the firm cannot rise. From that, this means that the business cannot succeed without the chain; the firm is as successful as the value chain. The more effective a firm is the more competitive edge it has over its competitors. Target and Wal-Mart are good examples of different but similar companies creating competitive advantage with a value chain.

Customer Delight

What is customer delight? To put yourself in touch with the spirit of what the client wants to accomplish is the heart of the value and principle of "customer delight" (Johnson, 2001-2010).

The most successful businesses have discovered a formula that goes beyond product and service. Their business provides delight to their customers by understanding their specific personal interests, anticipating their needs, exceeding their expectations, and making every moment and aspect of the relationship a pleasant and exhilarating experience.

Customer delight is creating a feeling of "WOW"!!! Delighted customers are those where you anticipate their needs; provide solutions to them before they ask and where you are observing to see if new or additional expectations are about ready to be required (Johnson, 2001-2010). What's wrong with just providing customer service? The answer to that is that only providing good customer service is not cost effective. It misses the opportunity to provide the rewards. When you create the "WOW", you've planted a special prompt in the memory of the customer that is very easy to remember (Johnson, 2001-2010). It creates the possibility of that customer telling their story about their "WOW" experience to all of their friends and family as well as their associates