Introduction

It is important for an organization to analyze the specific activities performed in order to measure how it creates a competitive advantage over other organizations within the industry. In order to conduct this analysis, it is useful for an organization to model the organization as a chain of value generating activities that is identifiable as the value chain analysis approach created by Michael Porter (1985).  The objective of the value chain activities is to generate value that exceeds the actual cost of providing the actual product or service. Technology development plays an important role in the support of creating value along the chain within the organization.  This includes research and development, process automation, and other information systems creation that is utilized to support the overall value chain activities.

Concept of Value Chain Analysis

Value chain analysis is a sequential process of value creating type of activities which is in essence the amount that the buyers will be willing to pay for the product or service that an organization provides.  An organization is profitable only to the extent that the value it has received will exceed the total costs required to create its product or service to the customer.

Porter (1985) discussed the inbound logistics is the first of the primary activities within the value chain and deals with the receiving, storing, and distributing of inputs to the final product or service (raw materials).  One would measure the efficiency and effectiveness of the material and inventory control systems. The operations activity is associated with the actual transformation of the inputs into the final product or service by ensuring efficient plant operations, appropriate level of automation, quality control systems, and efficient workflow design.  The outbound logistics are associated with the collection, storing, and distribution of the final product or service to the ultimate buyer.  This is done by evaluating the effectiveness of the shipping process and quality material handling equipment. The marketing and sales activity deals with the purchases of products and services by the end users and the inducements involved in an effort to get the customers to actually purchase the product or service.  The final primary activity is the area of service, which is associated with the provision of service to enhance or maintain the overall value of the product or service.

Role of Information Systems in the Value Chain

Technology has played an important role in the value chain in many factors, according to Saran (2007, October 20). The information systems group is one of the four support activities within the value chain is related to a wide range of activities.  Dess, Lumpkin, & Eisner (2007) indicate that these include activities that may be personified in the actual processes, equipment, and the product itself.  The effectiveness and efficiency of the information systems and technology activities are measured by: (a) effective research and development activities for processes and product or service initiatives, (b) positive collaboration between research and development with other departments within the organization, (c) organizational culture to enhance creativity and innovation, (d) top IT professional qualifications, and (e) the ability to meet deadlines and quality on the delivery of software and technical development projects.

Donlan (2007, March) indicates the importance of the relationships of information systems among the value chain activities is urgent as both the technical side of the organization and business side must be aligned in order to achieve overall mission and vision of the organization in their strategic initiatives.  The information systems are often the phenomena within an organization (internal analysis perspective) and the involvement within the industry and its competitive environment (external analysis perspective).  The technological side of the activities often will be involved in trade secrets, innovative production processes, patents, copyrights, and trademarks, which are all tangible resources within an organization.  For example, Carnival Cruise Lines has a reservations core system that is surrounded by state-of-the-art systems that generates a competitive edge with its innovative production and service processes. 

Evolution of the Value Chain Analysis Concept

According to Pil & Holweg (2006), the evolution of the value chain analysis concept was first described and promoted by Michael Porter in 1985 when he wrote a book about building competitive advantage. It started as concept that categorized the generic value adding primary and support type of activities within a particular organization.  However, the concept has been extended to move beyond individual organizations as it is often now applied to the whole supply chain and distribution networks affecting an organization. The actual delivery of products and/or services to the end user will involve several different economic factors and having its own value chain to manage.  According to Buss (2007, March), these synchronized interactions within the industry’s value chain can even move away from the typical local value chains in the past and extend world wide spanning across the globe, becoming a larger interconnected system of value chains.  This is called a value system and will include the value chain of the organization, the supplier, the distribution channel, and the customers buying the product or service from the organization. Information systems will play an important role in the new approach of the value chain by the determination of methods to exploit the upstream and downstream information flowing along the value chain as an effort for organizations to bypass the intermediaries creating processes to improve the overall value system, as stated by Pil & Holweg (2006).

Conclusion

Value chain analysis is utilized to recognize the probable sources of an organization economic advantage within its own industry. The value chain analysis involves a deep understanding of the interrelationships of the business and technology units, linkages between the primary and support activities, and how the performance of one activity affects other activities along the chain of value within the organization. Technology development plays an important role in the support of creating value along the chain within the organization.  This includes research and development, process automation, and other information systems creation that is utilized to support the overall value chain activities. As the value chain analysis has evolved over the years since first introduced by Michael Porter in 1985, the success will depend on an understanding of how the organization’s own value chain relates to and interacts with the value chains of competitors, suppliers, and customers. . Information systems will play an important role in the new approach of the value chain by the determination of methods to exploit the upstream and downstream information.

Reference Listing

Buss, Dale (2007, March). Winning with global value chains. Chief Executive, 28-32.

Dess, G. G., Lumpkin, G. T., & Taylor, M. (2007). Strategic management (3^rd ed.).  Boston: McGraw Hill Irwin.

Donlon, J. P. (2007, March). Ensuring a healthy value chain. Chief Executive, 224, 34-39.

Pil, F. K. & Holweg, M. (2006). Evolving from value chain to value grid. MIT Sloan Management Review, 47, 4, 72-80.

Porter, Michael (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press, a division of Simon and Schuster, Inc.

Saran, Cliff (2007, March 20). Big changes come from small steps. Computer Weekly, 26.