Value Chain for Competitive Advantage

Topics: Value chain, Value, Supply chain Pages: 17 (6510 words) Published: August 18, 2008
Corporate and operational managers strive to create more value by optimizing the supply-chain activities. Optimization of supply chain activities means competition from other firms, primarily on cost-efficiency. However, optimization of supply chain activities alone cannot always yield a source of competitive advantage. This is for the simple reason that value chain not only seeks to do away with the activities that do not add value, but establishes the importance of other support activities, including infrastructure, technology, and so on, that play a vital role in providing the foundation for competitive advantage. Value chain's primary activities are similar to the primary functions of the supply chain. Where supply chain focuses on efficiency of every function, value chain focuses on the functions that are critical to be effective. Although efficiency can be termed as the hygiene factor, it is this effectiveness that has the potential to provide a scope for competitive advantage. The primary and secondary elements of the value chain and their interrelationships make the value chain behave as a complex system, where the system mostly remains in a seemingly critical state of instability. This instability can be seen as the opportunity for the strategic managers to provide a basis for competitive advantage. Value chain can be seen as a collection of activities that a firm undertakes in order to provide the offering to the market; with the attributes that the market wants, and with the price that the market is willing to pay. The methodology in the author's earlier paper embraces Analytic Induction technique, but the methodology adopted in this paper is Grounded Theory. This paper extends the findings of the author's previous paper across two dimensions: With an addition of a totally different case from India that exemplifies how value chain is used to achieve competitive advantage; and with reaching similar findings with the help of a different methodology. This difference in methodology is expected to highlight possible assumptions that may be critical to the subject. The lessons learnt from the Indian experience and its comparison with the Chinese experience may be seen as an effort to make the subject-value chain to achieve competitive advantage-empirical. This paper aims to achieve two fundamental things. First the critical understanding of the value chain and the differentiating factor from the supply chain, is essential, to appreciate the benefits of value chain. This is achieved here by theoretical review and analytical constructs of past research and seminal works, drawing largely from the author's previous research (Patnaik, 2007). Second, the benefits of the value chain that are realized in companies are exemplified through the cases of a Chinese company: Li and Fung, and an Indian company: Infosys. The case of Li and Fung is taken from my previous work and the idiosyncratic configuration of value chain is extended by taking another case—Infosys. Benefits of value chain obtained in the two companies (Li and Fung, and Infosys) cannot be treated as merely anecdotal, when they confirm Porter's (1985) statement, "Opportunities to achieve dramatic levels of differentiation often result from reconfiguring the value chain". Radical or dramatic levels of differentiation can naturally be termed as a strong source to achieve competitive advantage. This paper builds heavily on the concepts and practices proposed by Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance (1985). Porter proposes that its is the value chain through which a company can create and offer value to its customers by efficiently utilizing costs and effectively offering the product or services through a lower cost or a higher differentiation. Introduction

Modern managers find efficiency in supply chain as an essential factor to achieve efficiency in operations. Efficiency in operations leads to lowering of the cost...
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