Value Chain as Competitive Advantage Essay
Value Chain as Competitive Advantage
Customer-centric businesses focus on consistently delivering a differentiated experience designed to satisfy the customer. The ultimate goal is to sustain competitive advantage in the marketplace. The purpose of this paper is to demonstrate why an effective value chain creates competitive advantage.
Review of Concepts
The value chain is a concept developed by recognized Harvard business management expert Michael Porter in his book “Competitive Advantage (1985).” It breaks up the various elements of producing and delivery value to customers into key components. The development of value for the customer begins with inbound logistics, with subsequent components that include operations, outbound logistics, marketing and sales, and customer service. The culmination of optimizing performance in each of these key elements is the establishment of product margin, which is the difference between what the market will pay for a product and the cost basis for the provider (Iyas et all, 2007).
Porter (1985) identified firm infrastructure, human resources management, technology development and procurement as key support elements of the value chain. In-depth customer and industry research, value chain analysis, and effective linkage of the stated elements making up the value chain lays the groundwork for creating Porter’s two competitive advantages: differentiation advantage and cost advantage (1985).
Competitive advantage means a company is performing better than rivals by doing different activities or performing similar activities in different ways. It can give a company an edge over competitors, along with an ability to generate greater value for the firm and its shareholders. Porter (1985) insists there are two types of competitive advantages: cost advantage (comparative advantage) and differential advantage. Cost advantage is a company’s ability to produce a product or service at a lower cost than its competitors, giving the company the ability to sell its goods or services at a lower price than its competition or to generate a superior margin on sales. “A differential advantage is created when a firm’s products or services differ from its competitors and are seen as better than a competitor’s products by customers. The more sustainable the competitive advantage, the more difficult it is for competitors to counterbalance the advantage (Investopedia.com).”
Customer delight is considered part of the culture and make-up of a customer-focused business. It surpasses customer expectations and satisfaction. Six ingredients said to make up this customer value are: (1) it creates a ‘wow’ reaction, (2) it appears spontaneous or unexpected, (3) it is personal, (4) it makes the customer feel valued, (5) it is genuine, and (6) it creates a talking point. ‘Delighted’ customers feel it, they remember it, they talk about it and they come back for more of it! According to the 2011 Brand Key Customer Loyalty Engagement Index, customer delight is a key factor for long-term business success (Hanselman, A. (2012).
Inter-relationship of Concepts
An analysis of the customer’s distinct values, intentions, and preferences enables companies to create services, products, and offers that are relevant to the most valuable segments. Once differentiated customer treatment has been formulated, the organization can deliver the experience using a synchronized approach across marketing, sales, and service, and supported by a supply chain that readily adapts to changing opportunities and customer requirements. These activities make up the value chain, which is the framework for successfully creating marketplace competitive advantage and ensuring market sustainability by practicing the customer delight approach.
Examples of Successful Companies
IKEA successfully reinvented itself, changing from a local Swedish mail order furniture operation to one of the biggest home goods and furnishing retailers in the world. The key success of the company focused upon value elements of low costs, low prices, and the business innovation of the firm. IKEA’s desire was and is to convey to the customer that the function of its business is to create value, not use it. Successful linkage of IKEAs value chain activities served as a framework for developing customer delight, thus creating a sustainable competitive advantage (Guy 2011).
Hewlett Packard integrates the inbound and outbound logistics, operation and service, marketing and sales, and a series of supporting activities as its main competitive advantages and cooperates with partners in a value delivery model, which not only maximizes its own profit but also benefits its customers and partners. HP successfully discovers its value proposition and continues developing and reinforcing its value production and coordination. By the establishment of alliances, using of product platform, continuous concentrate in service improvement, R&D and brand building, HP has successfully delivered values to meet customers’ and other stakeholders’ expectations creating a sustainable competitive advantage (Zhang 2010).
Example of Unsuccessful Company
Mitsubishi in Australia is an example of an unsuccessful company. By the time Ford strategized industry drivers necessary for success, it was too late (Walters, 2007).
The value chain is the organizational framework for the creating of competitive advantage. Efficient integration of activities within this framework involving the supply and demand chains is detrimental to the longevity of a competitive business. Successful organizations are those that can provide goods and services to the customers who want it, where they want it and in the quantity and at the price they want it, thereby delighting rather than merely satisfying customers. Customer delight leads to loyalty that sustains competitive advantage in the fiercely competitive business market of today.
Guy, A. (2011). Entrepreneurship and the value chain: Importance, risks and suggestions. Advances in Management, 4(6), 63-65.
Investopedia.com(2012). Terms: Competitive advantage. Retrieved September 24, 2012 from
lyas, R., Mohammed, Banwet, D. K., & Shankar, R. (2007). Value chain relationship: A strategy matrix. Supply Chain Forum: International Journal, 8(1), 56-72.
Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York
Walters, D., & Rainbird, M. (2007). Strategic operations management: A value chain approach. New York: Palgrave Macmillan.
Zhang, H. (2010). Research Hewlett Packard through its value chain. International Journal of Business and Management, 5(8), 179-190.