A value chain is an extensive range of activities (design, manufacturing, marketing, and distribution) that companies implement for bringing a service or product from its initial conception to being delivered to customers. When speaking of companies that produce goods, their value chain begins with raw materials used for production and is then followed by all other processes that occur before the product is being sold to customers (Arline, 2015). The main objective of value chain management is to make sure that those workers in charge of each process of the value chain are connected to one another so that the end product is reaching customers as smoothly and as quickly as possible (Arline, 2015).
The competitive advantage of a company relies on how the value of goods or services is created while the competitive strategy is being carried out (Ensign, 2001). The value of the product depends on the unique combination of product attributes that customers perceive as important. A first example of how the value chain helps companies become competitive is associated with different car brands. If to take, for instance, Ferrari and Fiat, the value is determined by customers’ perception: while value exceeds the cost of the firm for its development, it is added in the form of specific value chain activities performed for delivering the product to customers. Therefore, because Ferrari value chain is greater and includes a larger list of processes to be delivered to customers, it is considered more valuable.
Competitive strategies should also be connected with how companies manage and sustain a competitive position for achieving long-term profitability. When it comes to developing a competitive strategy, a company should make a choice on grounding its competitiveness on either cost leadership or specialization. The choice of competitive strategy is usually differentiated into three generic strategies such as cost leadership, differentiation, and focus, according to Ensign (2001). Nevertheless, it is important to mention that one generic strategy usually does not lead to enhanced performance unless it is a “sustainable vis-à-vis with the firms-competitors” (Ensign, 2001, p. 20).
Therefore, whether the competitive advantage of a company is sustainable is defined by whether it possesses barriers that prevent other firms from imitating the strategy, and the value chain management plays a large role in it. The second example is the Apple, Inc. value chain analysis that ensures sustainable competitive advantage. The company gets suppliers to compete to work with the company; by doing so, it managed to reduce the number of suppliers and only work with the most reliable ones (Dudovskiy, 2017), which other companies simply cannot afford.
Starbucks ‘ value chain management is the third example for this discussion. The company focuses on adding value during each step of the value chain in order to gain a competitive advantage and ensure that the overall value gets enhanced for achieving greater profit margins (Bajpai, 2014). For instance, during the procurement stage, Starbucks builds strategic relationships with suppliers after communicating the company’s standards. If suppliers’ values do not align with the company’s standards, Starbucks does not collaborate with them and thus maintains standards of high quality. Overall, value chain management is a procedure that companies can use to achieve and maintain the competitive advantage as well as provide unique value that other firms cannot provide because of the high barriers value chain management develops.
Arline, K. (2015). What is a value chain analysis.
Bajpai, P. (2014). Starbucks as an example of the value chain model.
Dudovskiy, J. (2017). Apple value chain analysis.
Ensign, P. (2001). Value chain analysis and competitive advantage: Assessing strategic linkages and interrelationships. Journal of General Management, 27(1), 18-42.