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Strategic SignificanceInformation t
Strategic Significance
Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers.
An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2
A company’s value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities to take place. Every activity employs purchased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the particular business. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management.
A company’s value chain is a system of interdependent activities, which are connected by linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create trade-offs in performing different activities that should be optimized. This optimization may require trade-offs. For example, a more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve such trade-offs, in accordance with its strategy, to achieve competitive advantage.
Linkages also require activities to be coordinated. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should function smoothly together. Good coordination allows on-time delivery without the need for costly inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have in perceiving them and in resolving trade-offs across organizational lines.
The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system” (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company’s value chain. The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who use it to perform one or more buyer activities.
Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links to the outside. For example, a candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through coordinating with suppliers and channels go far beyond logistics and order processing. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages.
Competitive advantage in either cost or differentiation is a function of a company’s value chain. A company’s cost position reflects the collective cost of performing all its value activities relative to rivals. Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly, a company’s ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company’s activities—not just its physical product or service—contribute to differentiation. Buyer needs, in turn, depend not only on the impact of the company’s product on the buyer but also on the company’s other activities (for example, logistics or after-sale services).
In the search for competitive advantage, companies often differ in competitive scope—or the breadth of their activities. Competitive scope has four key dimensions: segment scope, vertical scope (degree of vertical integration), geographic scope, and industry scope (or the range of related industries in which the company competes).
Competitive scope is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between the value chains serving different industry segments, geographic areas, or related industries. For example, two business units may share one sales force to sell their products, or the units may coordinate the procurement of common components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. By employing a broad vertical scope, a company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.
By selecting a narrow scope, on the other hand, a company may be able to tailor the value chain to a particular target segment to achieve lower cost or differentiation. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. If the target segment has unusual needs, broad-scope competitors will not serve it well.
Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers.
An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2
A company’s value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities to take place. Every activity employs purchased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the particular business. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management.
A company’s value chain is a system of interdependent activities, which are connected by linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create trade-offs in performing different activities that should be optimized. This optimization may require trade-offs. For example, a more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve such trade-offs, in accordance with its strategy, to achieve competitive advantage.
Linkages also require activities to be coordinated. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should function smoothly together. Good coordination allows on-time delivery without the need for costly inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have in perceiving them and in resolving trade-offs across organizational lines.
The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system” (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company’s value chain. The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who use it to perform one or more buyer activities.
Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links to the outside. For example, a candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through coordinating with suppliers and channels go far beyond logistics and order processing. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages.
Competitive advantage in either cost or differentiation is a function of a company’s value chain. A company’s cost position reflects the collective cost of performing all its value activities relative to rivals. Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly, a company’s ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company’s activities—not just its physical product or service—contribute to differentiation. Buyer needs, in turn, depend not only on the impact of the company’s product on the buyer but also on the company’s other activities (for example, logistics or after-sale services).
In the search for competitive advantage, companies often differ in competitive scope—or the breadth of their activities. Competitive scope has four key dimensions: segment scope, vertical scope (degree of vertical integration), geographic scope, and industry scope (or the range of related industries in which the company competes).
Competitive scope is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between the value chains serving different industry segments, geographic areas, or related industries. For example, two business units may share one sales force to sell their products, or the units may coordinate the procurement of common components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. By employing a broad vertical scope, a company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.
By selecting a narrow scope, on the other hand, a company may be able to tailor the value chain to a particular target segment to achieve lower cost or differentiation. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. If the target segment has unusual needs, broad-scope competitors will not serve it well.
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Strategic SignificanceInformation technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers.An important concept that highlights the role of information technology in competition is the "value chain."1 This concept divides a company's activities into the technologically and economically distinct activities it performs to do business. We call these "value activities." The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2A company's value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities to take place. Every activity employs purchased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the particular business. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management.A company's value chain is a system of interdependent activities, which are connected by linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create trade-offs in performing different activities that should be optimized. This optimization may require trade-offs. For example, a more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve such trade-offs, in accordance with its strategy, to achieve competitive advantage.Linkages also require activities to be coordinated. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should function smoothly together. Good coordination allows on-time delivery without the need for costly inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have in perceiving them and in resolving trade-offs across organizational lines.The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the "value system" (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company's value chain. The company's product often passes through its channels' value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who use it to perform one or more buyer activities.Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links to the outside. For example, a candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through coordinating with suppliers and channels go far beyond logistics and order processing. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages.Competitive advantage in either cost or differentiation is a function of a company's value chain. A company's cost position reflects the collective cost of performing all its value activities relative to rivals. Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly, a company's ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company's activities—not just its physical product or service—contribute to differentiation. Buyer needs, in turn, depend not only on the impact of the company's product on the buyer but also on the company's other activities (for example, logistics or after-sale services).In the search for competitive advantage, companies often differ in competitive scope—or the breadth of their activities. Competitive scope has four key dimensions: segment scope, vertical scope (degree of vertical integration), geographic scope, and industry scope (or the range of related industries in which the company competes).Competitive scope is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between the value chains serving different industry segments, geographic areas, or related industries. For example, two business units may share one sales force to sell their products, or the units may coordinate the procurement of common components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. By employing a broad vertical scope, a company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.By selecting a narrow scope, on the other hand, a company may be able to tailor the value chain to a particular target segment to achieve lower cost or differentiation. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. If the target segment has unusual needs, broad-scope competitors will not serve it well.
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Strategic Significance
Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers.
An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2
A company’s value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities to take place. Every activity employs purchased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the particular business. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management.
A company’s value chain is a system of interdependent activities, which are connected by linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create trade-offs in performing different activities that should be optimized. This optimization may require trade-offs. For example, a more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve such trade-offs, in accordance with its strategy, to achieve competitive advantage.
Linkages also require activities to be coordinated. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should function smoothly together. Good coordination allows on-time delivery without the need for costly inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have in perceiving them and in resolving trade-offs across organizational lines.
The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system” (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company’s value chain. The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who use it to perform one or more buyer activities.
Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links to the outside. For example, a candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through coordinating with suppliers and channels go far beyond logistics and order processing. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages.
Competitive advantage in either cost or differentiation is a function of a company’s value chain. A company’s cost position reflects the collective cost of performing all its value activities relative to rivals. Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly, a company’s ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company’s activities—not just its physical product or service—contribute to differentiation. Buyer needs, in turn, depend not only on the impact of the company’s product on the buyer but also on the company’s other activities (for example, logistics or after-sale services).
In the search for competitive advantage, companies often differ in competitive scope—or the breadth of their activities. Competitive scope has four key dimensions: segment scope, vertical scope (degree of vertical integration), geographic scope, and industry scope (or the range of related industries in which the company competes).
Competitive scope is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between the value chains serving different industry segments, geographic areas, or related industries. For example, two business units may share one sales force to sell their products, or the units may coordinate the procurement of common components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. By employing a broad vertical scope, a company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.
By selecting a narrow scope, on the other hand, a company may be able to tailor the value chain to a particular target segment to achieve lower cost or differentiation. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. If the target segment has unusual needs, broad-scope competitors will not serve it well.
Information technology is changing the way companies operate. It is affecting the entire process by which companies create their products. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers.
An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2
A company’s value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities to take place. Every activity employs purchased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the particular business. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management.
A company’s value chain is a system of interdependent activities, which are connected by linkages. Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create trade-offs in performing different activities that should be optimized. This optimization may require trade-offs. For example, a more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve such trade-offs, in accordance with its strategy, to achieve competitive advantage.
Linkages also require activities to be coordinated. On-time delivery requires that operations, outbound logistics, and service activities (installation, for example) should function smoothly together. Good coordination allows on-time delivery without the need for costly inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have in perceiving them and in resolving trade-offs across organizational lines.
The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system” (see Exhibit II). The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company’s value chain. The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who use it to perform one or more buyer activities.
Linkages not only connect value activities inside a company but also create interdependencies between its value chain and those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links to the outside. For example, a candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than in molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through coordinating with suppliers and channels go far beyond logistics and order processing. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages.
Competitive advantage in either cost or differentiation is a function of a company’s value chain. A company’s cost position reflects the collective cost of performing all its value activities relative to rivals. Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly, a company’s ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company’s activities—not just its physical product or service—contribute to differentiation. Buyer needs, in turn, depend not only on the impact of the company’s product on the buyer but also on the company’s other activities (for example, logistics or after-sale services).
In the search for competitive advantage, companies often differ in competitive scope—or the breadth of their activities. Competitive scope has four key dimensions: segment scope, vertical scope (degree of vertical integration), geographic scope, and industry scope (or the range of related industries in which the company competes).
Competitive scope is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between the value chains serving different industry segments, geographic areas, or related industries. For example, two business units may share one sales force to sell their products, or the units may coordinate the procurement of common components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. By employing a broad vertical scope, a company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.
By selecting a narrow scope, on the other hand, a company may be able to tailor the value chain to a particular target segment to achieve lower cost or differentiation. The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. If the target segment has unusual needs, broad-scope competitors will not serve it well.
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Strategic Significance
Information technology is changing the way companies operate. It is affecting the entire process. By which companies create their products. Furthermore it is, reshaping the product itself: the entire package of physical. ,, goods services and information companies provide to create value for their buyers.
.An important concept that highlights the role of information technology in competition is the "value chain." 1 This concept. Divides a company 's activities into the technologically and economically distinct activities it performs to do, business. We call these "value activities." The value a company creates is measured by the amount that buyers are willing to pay for. A product or service.A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive. Advantage over its rivals a company, must either perform these activities at a lower cost or perform them in a way that. Leads to differentiation and a premium price (more value). 2
A company 's value activities fall into nine generic categories. (see Exhibit I).Primary activities are those involved in the physical creation of the product its marketing, and delivery, to buyers and. Its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities. To take place. Every activity employs inputs purchased, resources human, a and combination of technologies, Firm infrastructure.Including such functions as general, work management legal, accounting supports and, the entire chain. Within each of these. Generic categories a company, will perform a number of discrete activities depending on, the particular business, Service,. For example frequently includes, activities such as installation repair adjustment,,,, upgrading and parts inventory management.
.A company 's value chain is a system of interdependent activities which are, connected by linkages. Linkages exist when. The way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create. Trade-offs in performing different activities that should be optimized. This optimization may require trade-offs, For example.A more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve. Such trade-offs in accordance, with, its strategy to achieve competitive advantage.
Linkages also require activities to. Be coordinated. On-time delivery requires, that operations outbound logistics and service activities (installation,,For example) should function smoothly together. Good coordination allows on-time delivery without the need for costly, inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have. In perceiving them and in resolving trade-offs across organizational lines.
.The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the value. " System "(see Exhibit II). The value system includes the value chains of suppliers who provide, inputs (such as, raw materials. Components and purchased, services) to the company 's value chain.The company 's product often passes through its channels' value chains on its way to the ultimate buyer. Finally the product,, Becomes a purchased input to the value chains of, its buyers who use it to perform one or more buyer activities.
.Linkages not only connect value activities inside a company but also create interdependencies between its value chain and. Those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links. To the outside, For example.A candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than. In molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through. Coordinating with suppliers and channels go far beyond logistics and order processing. The company suppliers,,And channels can all benefit through better recognition and exploitation of such linkages.
Competitive advantage in either. Cost or differentiation is a function of a company 's value chain. A company' s cost position reflects the collective cost. Of performing all its value activities relative to rivals.Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly a company, s ability. ' To differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company s. ' Activities - not just its physical product or service - contribute to differentiation. Buyer needs in turn,,Depend not only on the impact of the company 's product on the buyer but also on the company' s other activities (for, example. Logistics or after-sale services).
In the search for, competitive advantage companies often differ in competitive scope - or. The breadth of their activities. Competitive scope has four key dimensions: segment, scope vertical scope (degree of vertical. Integration),Geographic scope and industry, scope (or the range of related industries in which the company competes).
Competitive scope. Is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between. The value chains serving different, industry segments geographic areas or related, industries, For example.Two business units may share one sales force to sell their products or the, units may coordinate the procurement of common. Components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or. Domestic rivals. By employing a broad, vertical scopeA company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.
By. Selecting a, narrow scope on the other hand a company, may be able to tailor the value chain to a particular target segment. To achieve lower cost or differentiation.The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular, product varieties. Buyers or geographic, regions. If the target segment has unusual needs broad-scope competitors, will not serve it well.
.
Information technology is changing the way companies operate. It is affecting the entire process. By which companies create their products. Furthermore it is, reshaping the product itself: the entire package of physical. ,, goods services and information companies provide to create value for their buyers.
.An important concept that highlights the role of information technology in competition is the "value chain." 1 This concept. Divides a company 's activities into the technologically and economically distinct activities it performs to do, business. We call these "value activities." The value a company creates is measured by the amount that buyers are willing to pay for. A product or service.A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive. Advantage over its rivals a company, must either perform these activities at a lower cost or perform them in a way that. Leads to differentiation and a premium price (more value). 2
A company 's value activities fall into nine generic categories. (see Exhibit I).Primary activities are those involved in the physical creation of the product its marketing, and delivery, to buyers and. Its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary activities. To take place. Every activity employs inputs purchased, resources human, a and combination of technologies, Firm infrastructure.Including such functions as general, work management legal, accounting supports and, the entire chain. Within each of these. Generic categories a company, will perform a number of discrete activities depending on, the particular business, Service,. For example frequently includes, activities such as installation repair adjustment,,,, upgrading and parts inventory management.
.A company 's value chain is a system of interdependent activities which are, connected by linkages. Linkages exist when. The way in which one activity is performed affects the cost or effectiveness of other activities. Linkages often create. Trade-offs in performing different activities that should be optimized. This optimization may require trade-offs, For example.A more costly product design and more expensive raw materials can reduce after-sale service costs. A company must resolve. Such trade-offs in accordance, with, its strategy to achieve competitive advantage.
Linkages also require activities to. Be coordinated. On-time delivery requires, that operations outbound logistics and service activities (installation,,For example) should function smoothly together. Good coordination allows on-time delivery without the need for costly, inventory. Careful management of linkages is often a powerful source of competitive advantage because of the difficulty rivals have. In perceiving them and in resolving trade-offs across organizational lines.
.The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the value. " System "(see Exhibit II). The value system includes the value chains of suppliers who provide, inputs (such as, raw materials. Components and purchased, services) to the company 's value chain.The company 's product often passes through its channels' value chains on its way to the ultimate buyer. Finally the product,, Becomes a purchased input to the value chains of, its buyers who use it to perform one or more buyer activities.
.Linkages not only connect value activities inside a company but also create interdependencies between its value chain and. Those of its suppliers and channels. A company can create competitive advantage by optimizing or coordinating these links. To the outside, For example.A candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than. In molded bars. Just-in-time deliveries by the supplier may have the same effect. But the opportunities for savings through. Coordinating with suppliers and channels go far beyond logistics and order processing. The company suppliers,,And channels can all benefit through better recognition and exploitation of such linkages.
Competitive advantage in either. Cost or differentiation is a function of a company 's value chain. A company' s cost position reflects the collective cost. Of performing all its value activities relative to rivals.Each value activity has cost drivers that determine the potential sources of a cost advantage. Similarly a company, s ability. ' To differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Many of a company s. ' Activities - not just its physical product or service - contribute to differentiation. Buyer needs in turn,,Depend not only on the impact of the company 's product on the buyer but also on the company' s other activities (for, example. Logistics or after-sale services).
In the search for, competitive advantage companies often differ in competitive scope - or. The breadth of their activities. Competitive scope has four key dimensions: segment, scope vertical scope (degree of vertical. Integration),Geographic scope and industry, scope (or the range of related industries in which the company competes).
Competitive scope. Is a powerful tool for creating competitive advantage. Broad scope can allow the company to exploit interrelationships between. The value chains serving different, industry segments geographic areas or related, industries, For example.Two business units may share one sales force to sell their products or the, units may coordinate the procurement of common. Components. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or. Domestic rivals. By employing a broad, vertical scopeA company can exploit the potential benefits of performing more activities internally rather than use outside suppliers.
By. Selecting a, narrow scope on the other hand a company, may be able to tailor the value chain to a particular target segment. To achieve lower cost or differentiation.The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular, product varieties. Buyers or geographic, regions. If the target segment has unusual needs broad-scope competitors, will not serve it well.
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