Value Chain Analysis

A companys value chain consists of linked set of

value creating activities the company performs
internally
Disaggregating a companys operation into primary and
secondary activities exposes the major elements of
company cost structure. Each activity in the value chain
gives rise to costs and tie up assets ; assigning the
companys operating costs and assets to each individual
activity in the chain provide cost estimates and capital
requirements. Quite often there are links between
activities such that the manner in which one activity is
done can affect the costs of performing other activities.
For instance japanese producers of VCRs were able to
reduce prices from around $1300 in 1977 to under $ 300
in 1984 by spotting the impact of an early step in value
chain on a later step
The combined costs of all the various activities in
a companys value chain define the companys
internal structure. Further the cost of each
activity contributes to whether the companys
overall cost position relative to rivals is favorable
or unfavorable. The task of value chain analysis
and bench marking are to develop data for
comparing a companys costs activity by activity
against the costs of key rivals and to learn which
activities are a source of cost advantage and
disadvantage
Benchmarking the costs of company activities
against rivals provides hard evidence of a
companys cost competitiveness
Accenture
A.T.Kearney
Best practices bench marking and consultin
Towers Perrin