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Summary Unit 1 - Chapter 10 - Value Chain Management
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Part A: Organising and Controlling OBS 124Unit 1: Chapter 10
Value chain management:
Functional strategies for competitive advantage
Learning Objectives:
✓ Explain the role of functional strategy and value chain management in achieving
superior quality, efficiency and responsiveness to customers.
✓ Describe what customers want, explain why it is so important for managers to be
responsive to their needs.
✓ Explain why achieving superior quality is so important and understand the
challenges facing managers and organisations that seek to implement total
quality management.
✓ Explain why achieving superior efficiency is so important and understand the
challenges facing managers and organisations that seek to implement TQM.
✓ Differentiate between two forms of innovation and explain why innovation and
product development are crucial components for competitive advantage.
Introduction
Organizations must constantly evaluate their business practices in an effort to
remain successful.
Some organizations may adopt the latest research and methods, while others find
different ways to stay competitive.
Functional Strategies, the Value Chain, and Competitive Advantage
Managers use two basic business-level strategies to add value to an organization’s
products and achieve a competitive advantage over industry rivals:
1. Pursue a low-cost strategy and lower the costs of creating value to attract
customers by keeping product prices as low as or lower than competitor’s price.
2. Managers can pursue a differentiation strategy and add value to a product by
finding ways to make it superior in some way to the products of other companies.
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, If successful and customers see greater value in the product, then, like Apple,
they can charge a premium or higher price for the product.
Four specific ways in which
managers can lower costs
and/or increase
differentiation to obtain a
competitive advantage:
1. Achieve superior efficiency
• Efficiency is a measure of the amount of inputs required to produce a given
amount of outputs.
• The fewer the inputs required to produce a given output, the higher is
efficiency and the lower costs of outputs.
2. Achieve superior quality
• Quality means producing goods and services that have attributes – design,
styling, performance, and reliability – that customers perceive as being
superior to those found in competing products.
• Providing high-quality products creates a brand-name reputation for an
organization’s products, and this enhanced reputation allows it to charge
higher prices.
3. Achieve superior innovation, speed and flexibility
• Anything new or better about the way an organization operates or the goods
and services it produces is the result of innovation.
• Successful innovation gives an organization something unique or different
about its products that rivals lack – more attractive, useful, sophisticated
products or superior production processes that strengthen its competitive
advantage.
, • Innovation adds value to products and allows the organization to further
differentiate itself from rivals and attract customers who are often willing to
pay a premium price for unique products.
4. Attain superior responsiveness to customers
• An organization that is responsive to customers tries to satisfy their needs
and give them exactly what they want.
• An organization that treats customers better than its rivals do also provide a
valuable service some customers.
Functional Strategies and Value Chain Management
Functional-level strategy is a plan of action to improve the ability of each of
an organization’s functions or departments – manufacturing or marketing – to
perform its task-specific activities in ways that add value to an organization’s
goods and services.
A company's value chain is the coordinated series or sequence of functional
activities necessary to transform inputs such as new product concepts, raw
materials, component parts, or professional skills into the finished goods or services
customers value and want to buy.
Each functional activity along the chain adds value to the product when it lowers
costs or gives the product differentiated qualities that increase the price a company
can charge for it.
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