Value Chain : Competitive Advantage

In order for a firm to create competitive advantage, it needs to create a set of activites that can deliver value to the specific product and services it offers to its customers. To start talking about my life as a “value chain”, I may need to compare it to a specific product”. This is going to take precedence both in my personal life and professional life.

The value chain is one of the critical elements of a company’s strategy in today’s competitive world, because company’s profit depends on how the successful and efficient it runs its operations and how the end product appeals to the customers at a price that covers all the expenses of the company.

Effective value chain as a competitive advantage can contribute significantly to the prosperity of a firm in the competitive arena, but it can cause dire situations if not operated properly (Guy, 2011). However, there are conflicts among companies as to how stakeholders think they gain competitive advantage. Porter (1996) suggests: A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at lower cost or do both.

A significant strategic tool is the Value Chain Analysis, organizations can use this to articulate competitive strategies. It allows organizations to understand the foundation of competitive advantage and to recognize and create

A company gaining a competitive advantage, through their Value chain, supermarket like Aldi has to differentiate itself through performing their value chain activities better than the competitors. Aldi to add value to their customer, the value obtained by these activities should exceed the cost of running their operations.

Conducting a value chain analysis provides a snapshot for identifying a firm’s relative competitive performance, core competencies, and for focusing on customer centric activities. Costco’s customer driven focus allows primary and support business activities to work in unity creating a stronger competitive advantage and thereby increasing profitability. Profitability and shareholder value rely on coordination of both sets of business activities to create a firm’s competitive advantage.

A company or an organization can create competitive advantage only when it is able to distinguish itself from the rivals by implementing value creating strategy over a longer period of time. It is said to have sustainable competitive advantage when other rival firms are unable to duplicate the value creating strategy of firm which has led to achievement of

To achieve a low-cost edge over rivals, a firm’s cumulative costs across its overall value chain must be lower than competitors’ cumulative costs. There are two major avenues for accomplishing this: 1. Performing essential value chain activities more cost-effectively than rivals 2. Revamping the firm’s overall value chain to eliminate or bypass some cost-producing activities.

One of Porter’s main contributions was Porter’s value chain. The value chain is all the activities an organization undertakes to create value for a customer. According to Porter, there are two ways to gain an edge over competitors. A firm must provide comparable but value but perform the activities on the chain at a lower cost, or; Perform services in a unique way

“Competitive Advantage introduces the concept of the value chain, a general Framework for thinking strategically about the activities involved in any business and assessing their relative cost and role in differentiation”. Michael Porter, (1985).

The value chain analysis (shown in appendix) was also generated by Michael Porter. This model is referred to “identifying ways to increase the efficiency of the chain” (Investopedia, n.d.). Furthermore, the overall objective is to produce maximum value with minimum total cost and establish a competitive advantage.

In order to achieve competitive advantage, a firm must perform one or more value-creating activity that is more superior compared to other competitors. Superior value is created through lower costs or superior benefits to the buyers.

The value chain is a temporary competitive advantage for Zara. The major reason why it is not a sustainable advantage is that it is not rare. Barney stated that it is not a sustainable resource if a large number of other firms can also gain benefit from the same resource. It is clearly that Zara’s competition also get their global value chain. Therefore, no firm could get a competitive advantage on the common strategy. Nevertheless the value chain is difficult for new entrants to imitate cause it is costly in capital and time. Further, there is not another way

Competitive advantage cannot be assessed by a mere holistic look at the organisation. One has to look deep into every activity performed in the organisation to comprehend the differentiating factors and cost position. Michael Porter’s Value chain helps us to look into each and every aspect of the firm and hence we are better equipped to determine the areas of improvement as well as the activities which give us an edge over others. (Porter, 1985)

In this following section aims to analysis how Alibaba build its competitive advantage. Alibaba will be analyzing using value chain and then carried out VRIN evaluation.