The Value Chafrt

Michael 1'orter of Harvard has proposed the value chain as a tool for ideniitying ways to create more customer value (see figure 2.2} J' According to this model, every firm is a synthesis of actiiities perfottped to design, produce, market, deliver, and support its product, the value chain identifies nine strategically relevant activities that create value and cost in a specific business. These nine va I u l-- erea t ing act ivi lies consist of five primary activities and four support activities.

The primary activates cover the sequence of bringing materials into the business inbound logistics], converting them into final products (operations), shipping Out final products (outbound logistics), marketing them (marketing and sales], and servicing them (serviced '(he support activities—procurement, technology development, human resource management) and firm infrastructure -are handled in certain specialized departments, as wfcll as else where. Several departments, for example, may do procure merit ;uid hiring. The firm's infrastructure covers I lie cos is of general management, planning, finance, accounting, legal, and govcrnmeni affairs.

The firm's task is to examine its costs and performance in each value<creatlr>g activity and to look for ways to improve it.The firm should estimate iis competitors' costs and performances as b&tcliijiarks against which to compare its own costs and performance, li should go further and study the "best of class" practices of the worlds best companies.''

The firm's success depends not only on how well each depanmcnt performs its work, but also on how well the various departmental ^clEviiicii.arc coordinated to conduct core btisi? rii'ss prwjtfe.f,fl These core business processes include:

h The market seining process. All the activities involved in gathering market Intelligence, disseminating it within the organization, and acting on the information.

the ojjerfjii,' realization process. All the activities involved in researching, developing, and launehing mew hi rIi-quality offerings quickly and within budget.

u The customer acquisition process. All (he activities involved in de lining target markets and prospecting for new customers.

The customer rvtaftonshfp manfigtaient process. .Ml the activities involved in building deeper understanding, relationships, and offerings to individual customers.

The fulfillment management process, All the activities involved in receiving and approving orders, shipping the goods on time, a nil collect inj; payment.

Strong companies develop superior capabilities in managing and linking their core busi-Hess processes. l:or example, Wal-Mart has superior strength in its stock replenishment process. As Wal-Mart stores sell their goods, sales informal ion flows via computer not only to Wal-Mart's headquarters, but also to Wal-Mart's suppliers, w!to ship replacement mer-

developing marketing strategies and plans chapter Z

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