Electronic Business (MGT-485) Lecture 22 Electronic Business (MGT-485)

Recap – Lecture 21 E-Business Strategy: Formulation Internal Assessment Nature of Internal Audit Key Internal Forces Internal Audit Integrating Strategy and Culture Technology Audit Internal Analysis

Contents to Cover Today E-Business Strategy: Formulation Internal Assessment Value Chain Analysis Linkages within the Value Chain Value Chain Linkages in the Supply Chain Linkages with Supplier Value Chain The Buyer’s Value Chain

The Value Chain A framework for identifying core competencies Inside the firm In the supply chain Can be used to Identify strengths and weaknesses Identify sources of competitive advantage Identify market opportunities

The Value Chain MARGIN MARGIN Firm Infrastructure Human Resource Management MARGIN Supporting Activities Technological Development Procurement Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Activities Primary MARGIN Relationship with Suppliers Relationship with Buyers Elapsed Time - Value added time cost

The Value Chain The Value Chain, or value plate illustrates how to break down the functions of a company into its activities. The bottom half of the figure contains the primary activities that the firm conducts. These include inbound logistics, or the way in which the company receives, stores, etc. its inputs. Operations is the basic activity of producing your product. Outbound logistics are the activities associated with storing and distributing your final product.

The Value Chain Marketing and sales are all of the activities associated with attracting and keeping customers for your products. Service is the activities associated with providing support to your customers for your products including users manuals, help lines, warranties, etc. Inbound logistics and Operations relate to your suppliers. Outbound logistics, marketing and sales and service relate to buyers.

The Value Chain As you move from left to right the primary activities move through time and adding further value to the end product. Linking these five primary activities together forms a chain. The top half of the graph represents a set of activities that are conducted to support the primary activities of the firm. These would include procurement which are all of the activities associated with negotiating, financing, and paying for all inputs necessary for the business from raw inputs used in the final product to pencil used in the accounting office.

The Value Chain Technology development is the activities associated with research and development and included R&D in all phases of the primary activities not just R&D associated with new product development (things like process improvement research, distribution improvement research, market research activities to support marketing, etc. Human resources are the support activities associated with hiring, firing, compensating, retaining, and training personnel for the company. Finally firm infrastructure is the top management activities of the firm which include, negotiating with the government, negotiating with competitors, developing the firms long-term strategy, development and maintenance of information systems for assessing firm performance, etc.

The Value Chain: What do you do with this figure? That is, what support and primary activities do you do better than your competitors and which ones do you not do so well relative to your competitors. This is a great tool for helping you assess your strengths and weaknesses in a more structured way. It helps think about ALL of the activities that you conduct in your business and critical assess whether you are doing each activity as well as you can. This figure helps you focus on specific activities that you do well relative to your competitors so that you can determine what your core competencies are relative to your competitors.

Primary Activities in the Value Chain Inbound Logistics Materials handling, warehousing, inventory control used to receive, store and disseminate inputs to a product Fertilizer and chemical storage, delivery of inputs, application of inputs Operations Take inputs from inbound logistics and convert to final products Plowing, planting, spraying, harvesting, feeding, medicating, weighing etc. Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed in the production. Goods are moved around the organization. Operations This is where goods are grown or produced. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer – whatever the next step in the industry chain.

Primary Activities in the Value Chain Outbound Logistics Collecting, Storing, and physical distribution of the final product. Crop storage, finished hog handling, Processing and determining delivery dates, delivery to the packer or elevator etc. Marketing and Sales Provide means through which customers can purchase products and to induce them to do so Advertising, communicating with buyers, developing customer relationships, pricing products (futures, hedging, forward contracting, etc.), delivery scheduling Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed in the production. Goods are moved around the organization. Operations This is where goods are grown or produced. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer – whatever the next step in the industry chain.

Primary Activities in the Value Chain Service Activities designed to enhance or maintain a product’s value Timely delivery, identity preservation, ISO9000, certifying as organic, etc. Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed in the production. Goods are moved around the organization. Operations This is where goods are grown or produced. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer – whatever the next step in the industry chain.

Supporting Activities in the Value Chain Procurement Activities to purchase the inputs needed to produce products Negotiating with suppliers, standard timing of replenishing parts and tools, setting up buying groups, etc. Technological Development Activities that improve the firm’s products and/or processes Volunteering for test plots, being a part of feeding trials, attending technology seminars/field days, designing equipment to make specific production tasks more efficient, etc. 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. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations). Technology Development Technology is an important source of competitive advantage. Farms need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, and many other technological developments. Human Resource Management (HR) Employees are an expensive and vital resource. An organization would manage recruitment and selection, training and development, and rewards and compensation. The mission and objectives of the organization would be driving force behind the HR strategy.

Supporting Activities in the Value Chain Human Resources Recruiting, hiring, training, developing, and compensating all personnel Firm Infrastructure General Management, planning, finance, accounting, legal support, governmental relations, etc. Establishment of accounting practices, management information systems, compliance with environmental regulations, tracking and reporting for government programs, etc. Where strategy development takes place identifying opportunities and threats, resources and capabilities, and support of core competencies 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. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations). Technology Development Technology is an important source of competitive advantage. Farms need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, and many other technological developments. Human Resource Management (HR) Employees are an expensive and vital resource. An organization would manage recruitment and selection, training and development, and rewards and compensation. The mission and objectives of the organization would be driving force behind the HR strategy.

The Result of the Value Chain Margins Capture the value from performing value-creating activities as cheaply as possible The basic idea is that the consumer is willing to pay a certain amount for the value you create. This is depicted as the size of the overall pentagon. The size of the individual activity boxes represents the cost of performing those particular activities. Thus, the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay, the greater the MARGIN will be for the firm. The customer has to be willing to write a check for what you do.

Value Chain Analysis A firm’s value chain must be compared to competitors’ value chains to determine where competitive advantages exist. To be a source of competitive advantage a resource or capability must allow a firm to: Perform an activity in a manner that is superior to competitor’s performances Perform a value-creating activity that competitors cannot complete The analysis is helpful to you as you think about what you do well and what you can improve on. Benchmarking your performance to what your competitors do well is an important part of knowing if you are performing on par.

Linkages within the Value Chain Optimization and coordination of activities in the value chain Linkages exist between support activities and primary activities and between separate primary activities Generic causes for linkages Same function can be performed in different ways Efforts in indirect activities Activities performed inside the firm reduce the need for activities in the field Quality Assurance can be performed in different ways some farm examples brought into the discussion?? Eric Akins? Same functions can be performed in different ways.

Value Chain Linkages in the Supply Chain The value chain a firm has for a product is just a part of the industry. The supplier sells to a buyer and buys from a supplier, each of which have their own value chains. Buyer Chain Supplier Chain Buyer Chain Firm Chain Supplier Chain Buyer Chain

Linkages with Supplier Value Chain Linkages between suppliers’ value chains and a firms chain provide opportunities for the firm to enhance competitive advantage. Division of benefits between firm and its suppliers is a function of supplier’s bargaining power and reflecting in supplier’s margins. Both coordination with suppliers and hard bargaining are important to competitive advantage. Who gets the value? It depends on the bargaining power.

The Buyer’s Value Chain A firm’s differentiation stems from how its value chain relates to its buyer’s chain. Differentiation derives fundamentally from creating value for the buyer through a firm’s impact on the buyer’s value chain. Value is created when a firm creates a competitive advantage for its buyer. The buyer must perceive the value to pay a premium price. For instance, the supplier’s Marketing Support Function relates directly to the buyer’s Procurement Function.

Summary E-Business Strategy: Formulation Internal Assessment Value Chain Analysis Linkages within the Value Chain Value Chain Linkages in the Supply Chain Linkages with Supplier Value Chain The Buyer’s Value Chain