Value Chain Analysis and SWOT

Week 7

Dr Surja Datta

Learning Outcomes

Develop an understanding of Value Chain Analysis (VCA)

Understand the inter-linkages between VCA, resource and capabilities and competitive strategies

Understand how to bring together the different analyses under one framework (SWOT) and develop strategic implications out of it

Where are we now?

Existing business model

External Analysis: Opportunities and Threats

Internal Analysis: Strengths and Weaknesses

Strategic Position: SWOT

Strategic choice

Implementation

Feedback

Value Chain Analysis

Recap: Generic Strategies

We have learnt last week that according to Porter (1985), there are only a few strategic choices available to the firm- Differentiation and Cost Leadership with Broad or Narrow focus

Question: How to reconcile these static choices with the dynamic nature of competition and the external environment?

Question: How can a firm maintain a particular strategic choice (cost leadership or differentiation) over a long period of time?

Activity System as the source of competitive advantage Porter (1991) argues that the strategic choices of cost

leadership, differentiation and scope should be further decomposed into ‘activities’

To understand how firms achieve their strategic position, we have to investigate their activity system

A firm can be viewed as a collection of discrete, but interrelated economic activities such as products being assembled, salespeople making sales visits and orders being processed

A firm’s strategy define its configuration of activities and how they interrelate.

Competitive advantage results from a firm’s ability to perform the required activities at a collectively lower cost than its rivals or perform some activities in unique ways that create buyer value and thus command a premium price

Activity as a source of profits is not a new idea- it dates back to Adam Smith!

(Porter 1991)

To take an example ..of the trade of pin-maker....(the profits arise) from the way in which this business is carried on and is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving, the head…..; the important business of making a pin is, in this manner, divided into about eighteen distinct operations

(Adam Smith 1776)

Inbound

logistics

Operations Outbound

logistics

Marketing

and

sales

Service

Procurement

Technology development

Human resource management

Firm infrastructureM

a r g I n

M a

r g

I nPrimary

activities

Support

activities

The value chain within an organisation

CustomerService

Marketing& Sales

ProductionResearch &DevelopmentIn

put

Outp

ut

Companyinfrastructure

Informationsystems

Humanresources

Finance

Support Activities

Primary Activities

The Value Chain:

Do you recognise this?

Where is value added?

CustomerService

Marketing& Sales

ProductionResearch &DevelopmentIn

put

Outp

ut

Companyinfrastructure

Informationsystems

Humanresources

Finance

Support Activities

Primary Activities

The Value Chain:

Where is value added here?

CustomerService

Marketing& Sales

ProductionResearch &DevelopmentIn

put

Outp

ut

Companyinfrastructure

Informationsystems

Humanresources

Finance

Support Activities

Primary Activities

The Value Chain:

Now, what is this all about?

CustomerService

Marketing& Sales

ProductionResearch &DevelopmentIn

put

Outp

ut

Companyinfrastructure

Informationsystems

Humanresources

Finance

Support Activities

Primary Activities

The Value Chain:

Recognise this logo?

CustomerService

Marketing& Sales

ProductionResearch &DevelopmentIn

put

Outp

ut

Companyinfrastructure

Informationsystems

Humanresources

Finance

Support Activities

Primary Activities

The Value Chain:

Uses of Value Chain Analysis

Provides a comprehensive template to enable better understanding of component activities in complex value adding processes.

Facilitates detailed scrutiny of activities to ensure they are as consistent as possible with the organisation’s strategic intent.

Facilitates scrutiny to maximise consistency between different elements of the chain.

Class workshop

Watch the video

Identify the competitive strategy

Develop a Value Chain Analysis of the company

Identify the activities that form the basis of the competitive strategy of the company

Specify the resources that underpin these activities

SWOT Analysis

An analysis of the organisation, the market(s) it operates within, and the external environment

into practical proposals for the future

SWOT is about converting:

Understanding how changes in society, both nationally and internationally, impact on the industry and the organisation

Understanding how structure and competitive dynamics of an industry affect performance and profitability

Identify key drivers of change within the industry

Identifying opportunities that can be taken advantage of

Identifying threats that endanger integrity and profitability

Identify possible actionable responses

Why do an external analysis?

Environment

Analysing the environment

PESTEL/ SCENARIO

5-FORCES

STRATEGICGROUPS

LIFE CYCLE

Understanding the key resources that shape our business

Understanding how these key resources are co-ordinated and combined to form strategic capabilities

Identifying the strategic capabilities that differentiate the firm from its competitors and deliver economic advantage – Core Competences

Identifying how the core competences link to the key drivers for change and the critical success factors identified from the external analysis

Identifying strengths that will enable the firm to take advantage of environmental changes

Identify weaknesses that need to be resolved

Why do an internal analysis?

Internal Analysis: Resource audit- Unique/ Threshold

Capability analysis- Core/ Threshold

Value chain analysis – separating the activities of the firm and identifying the linkages where the most value is created

Helps in

Identification of core competences

SWOT analysis

SWOT stands for Strengths – internal characteristics favourable to our

meeting our goals Weaknesses – internal characteristics that will hinder

or limit our reaching our goals. Opportunities –features in the environment that

favour us if we can take advantage of them Threats – features in the environment that will cause

us to miss our goals if we cannot resist or avoid them

What SWOT is used for (1)

SWOT brings together all the key findings from the environmental and organisational analyses

SWOT analysis can be used to: Synthesise strategic review findings Diagnose key issues

SWOT brings together all the key findings from the analysis. Aim is to understand the implications of the analysis for

future strategy The key issues is whether and how we can take advantage

of the opportunities and offset the threats using our strengths and in the light of our weaknesses

SWOT Analysis

Opportunities:shown here as bullets in priority order

Strengths:shown here as bullets in priority order

Weaknesses:shown here as bullets in priority order

Threats:shown here as bullets in priority order

Using SWOT A powerful presentation of the position found through

external and internal analysis A tool for competitor comparison by constructing SWOTs of

key competitors and considering whether our strengths might enable exploitation of their weaknesses (or vice versa!)

A direct source of strategic ideas by considering e.g. how the strengths we have might enable taking the opportunities (being proactive) and whether weaknesses might worsen threats and how we might respond to the latter (competitive aggressiveness)

Further analysis of SWOT

Strengths listed here

Weaknesses listed here

Opportunities listed here

Threats listed here

Optimise trade off – invest to strengthen or abdicate opportunity to competitors?

Defensive strategy allowing focus elsewhere

Bad situation – if survival at stake react proactively to fix weakness else maybe divest to focus elsewhere

Good – build on existing competitive advantage and leverage to bolster weaknesses

Internal

External

In each box list possible strategie

s showing

the factors to which it refers

Limitations of SWOT Can tend become the end in itself but it does not show how to

achieve a competitive advantage

Apparent strengths may not lead to an advantage e.g. if they turn out not to be appropriate to the needs of the market or the mission or strategy of the firm

Focus of SWOT on the external environment tends often to be too narrow; missing the need or opportunity to redefine an industry boundary

It is a snapshot of a point in time – need to keep it up to date

SWOT can overemphasise a single element of strategy without identifying its downside e.g. excessive reliance on strength in low cost production may result in poor press and labour problems.

SWOT - overview

SWOT analysis has much to offer but is just a starting point

Crucially it must be kept up to date requiring that we undertake environmental scanning

This is a continuous process of conducting audits of both our resources and our micro and macro environments – keeping our eyes open, not resting on our laurels!

A Critical Perspective on Strategy The charge of ‘hyper rationality’

Mintzberg’s critique of ‘Strategic Positioning’

The Ultimatum Game- A counterpoint to the assumption of rationality Two players bargain (anonymously) to divide

a fixed amount between them. P1 (proposer) offers a division of the “pie” P2 (responder) decides whether to accept it If accepted both player gets their agreed

upon shares If rejected players receive nothing.

Ultimatum Game (2)

The ‘rational strategy’ is that proposer should offer the smallest possible share and responder would accept it.

Reality does not agree

Güth, Schmittberger, Schwarze (1983) They did the first experimental study on this game. The mean offer was 37% of the “pie”

Since then several other studies has been conducted to examine this gap between experiment and theory.

Almost all show that humans disregard the rational solution in favor of some notion of fairness*. The average offers are in the region of 40-50% of the pie About half of the responders reject offers below 30%

Briefing for Week 8

The session will be organised in the reverse order

We will start with a presentation and discussion session. You will present an internal analysis of GSK in your groups

Each group will present for 10 mins followed by feedback and Q&A by the seminar leader for 5 mins (1.5 hours)

After the P&D session, I will recap the module and provide some tips for you to excel in your individual coursework

The session is going to be vital for your coursework- so do not miss it!

Internal Analysis Presentation- What it should cover An analysis of resources and capabilities of

GSK using appropriate framework(s)

An analysis of the business strategy of GSK using appropriate framework(s)

An analysis of ‘Strategic Fit’ of GSK

You should take this an final opportunity to check whether your analyses are on the right track and the feedback should be taken on board to sharpen your

Individual coursework

Seminar Activity

Develop a Value Chain Analysis of GSK

Develop a SWOT analysis of GSK