Can you Analyse Your Value Chain?

Now I agree that the human mind absorbs learnings in different forms. While going through my course outline for Cost and Management Accounting, I came across the topic “value chain analysis”. For reasons I could not identify, I decided to read about the topic immediately. This was not the first time I came across this topic. In my quest to acquire knowledge, then I realized that what got my attention was how the faculty described the topic as one of the key learnings. So, I was curious to confirm my understanding of the subject matter since the level of importance I attached differs. A few minutes into my research, my appetite grew as this revealed that many companies as grown to pay attention to their value chain.

The research revealed that in recent times, it has become obvious that the market dynamics change so fast, and only businesses that have a good understanding of all activity stages involved in their process; can tell key process areas; know the associated costs to each activity, will easily make changes and be more competitive in the environment it operates. A company needs to react instantly to changing demands of the market and strives to deliver more value at a low cost.

Let’s refresh our minds and understanding of what a ‘value chain’ is. Value chain refers to various business activities and processes involved in creating a product or performing a service. As simple as it sounds, it has been a deal breaker for the big market players. This is because knowing how a company creates value will enable it to develop a better understanding of its competitive environment and while at it the Company needs to categorize its activities into primary and secondary activities. The whole essence is to know those activities that are key to income generation, that is, important to achieving the core objective of the business as well as the satisfaction of its customers. The primary activities are directly associated with the creation of a product or execution of services while the secondary activities help primary activities become more efficient. An example of primary and secondary activities are marketing and human resource management respectively. The knowledge of this topic enables a company to carve its space in a competitive environment.

Haven refreshed your understanding; you also will agree that value chain analysis is a useful tool for a company to gain competitive advantages as it helps to identify opportunities for improvement of profitability and efficiency. It also assists in easily identifying areas for quick cost reductions, optimizing effort, eliminating waste, and increasing profitability and gives an insight into elements that brings greater value to customers.

  However, there are concerns that the old value chain concept may not remain relevant as technology evolves on how businesses carry out operations and the reactions of customers to goods and services. Most companies struggle to adapt to fast changes as value chain analysis requires data gathering, which is time intensive, and sometimes, classifying activities between primary and secondary could be difficult.

Dear Executives, how well do you analyse your value chain?