Value Chain Competitive Advantage - 1444 Words

Value Chain as Competitive Advantage If a firm sustain profits that exceed the industry average, said firm is said to have a competitive advantage. The goal of any given business strategy is to achieve a competitive advantage. Moreover, the goal of a successful business strategy is a sustainable competitive advantage. The question is how does a firm create that competitive advantage? According to Michael Porter, to achieve a competitive advantage, a firm must perform one or more value creating activities in a way that creates more overall value than competitors (1985). The purpose of this paper is to examine how the value chain creates competitive advantages. It will review the concepts of the value chain, the inter-relationship of these†¦show more content†¦Value Chain First suggested by Michael Porter, the value chain is defined as internal processes or activities a firm performs â€Å"to design, produce, market, deliver and support its product† (IMA, 1996, p.1). How the firm’s value chain performs its activities is a reflection of â€Å"its history, its strategy, its approach to implementing its strategy, and the underlying economies of the activities themselves† (p.1). Achieving a competitive advantage starts with a clear view of the current performance of the value chain. Porter’s value chain approach aid firms in identifying the areas in which they can derive the most benefit from analytics and operations research. By dividing the firm’s activities into two main categories (primary and support activities), a firm can analyze the interdependent activities as well as the linkages that connect these activities. According to Porter, â€Å"careful management of linkages is often a powerful source of competitive a dvantage because of the difficulty rivals have in perceiving them†¦Ã¢â‚¬  (Poppelaars, 2013). The net result of the value chain is the creation of margin potential which translates into a competitive advantage. Competitive Advantage Competitive advantages are created in several forms; differentiation, low costs or both. Differentiation refers to products or services with a perceived higher quality, fewer risks and outperforms competitor products. Differentiation strategies include cost leadership, customer experience,