Eleonora Escalante, MBA - MEng · HUMAN TALENT DEVELOPMENT AND MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS Purchasin g, Inventory, Materials handling OPERATION

Eleonora Escalante, MBA - MEngStrategic Corporate Advisory Services

Creating Corporate Integral Value (CIV)

Leg 6. Value Chain Analysis

Value Chain Methodology Approach

Competitive Differentiation Analysis. Steps 1 to 4.

18 Feb 2018

Cartoon Source: Rethinking the Value Chain. http://www.futurevaluenetwork.com/cartoons/

http://www.futurevaluenetwork.com/cartoons/

OUTLINE Leg 6. Value Chain Analysis

Leg 6. From Hong Kong to Auckland.

Eleonora Escalante MBA-MEng, Strategic Corporate Advisory Services

© 2017 Eleonora Escalante-all rights reserved

01Key Concepts

Value Chain

Analysis

06Summary and

Conclusions

02Value Chain

Methodology

Approach

18 Feb2018

03Who Uses Value

Chain Analysis?

04Advantages and

Disadvantages

Value Chain

05Innovating

through Value

Chain Analysis

2

https://support.office.com/es-ES/article/b89770f1-deb1-4a19-94ef-342aa15a4689

OUTLINE Leg 6. Value Chain Analysis




01Key Concepts

Value Chain

Analysis

06Summary and

Conclusions

18 Feb2018

03Who Uses Value

Chain Analysis?

04Advantages and

Disadvantages

Value Chain

05

Innovating

through Value

Chain Analysis

We are here!

3

02Value Chain

Methodology

Approach




© 2017 Eleonora Escalante-all rights reserved 18 Feb2018

We are

here!

The Competitive Differentiation Analysis using the Value Chain can be simplified

in the next 8 main steps:

4


02Value Chain

Methodology

Approach 1. Determine who the real buyer is

2. Identify the buyer´s value chain and the

firm´s impact on it.

3. Determine ranked buyer purchasing criteria.

4. Assess the existing and potential sources of

uniqueness in a firm´s value chain

5. Identify the cost of existing and potential

sources of differentiation

6. Choose the configuration of value activities

that creates the most valuable

differentiation for the buyer relative to cost

of differentiating.

7. Test the chosen differentiation strategy for

sustainability

8. Reduce cost in activities that do not affect

the chosen forms of differentiation.

FIRM INFRASTRUCTURE

HUMAN TALENT DEVELOPMENT AND MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND

LOGISTICS

Purchasin

g,

Inventory,

Materials

handling

OPERATION

S

OUTBOUN

D

LOGISTICS Warehousing

and

Distributio

n

Sales

and Marketin

g

Dealer

Support

and

Custome

r Service

Pri

mary

Act

ivit

ies

Su

pp

ort

Act

ivit

ies

2. Second Use of VCA: From the Customer Point of View: Competitive Differentiation Analysis

Next

Post

Today

Post





We are

here!

The Competitive Differentiation Analysis using

the Value Chain can be simplified in the next 8

main steps:

4A


02Value Chain

Methodology

Approach

Today

Post

Wh

o T

he

Real

Bu

yer

is?

Iden

tify

th

e

bu

yer´

s va

lue

chain

an

d t

he

firm

´s im

pact

on

it.

Dete

rmin

e r

an

ked

bu

yer

pu

rch

asi

ng

crit

eri

a

Ass

ess

th

e e

xist

ing

an

d

po

ten

tial so

urc

es

of

un

iqu

en

ess

in

a f

irm

´s

valu

e c

hain

Iden

tify

th

e c

ost

of

exi

stin

g a

nd

po

ten

tial so

urc

es

of

dif

fere

nti

ati

on

Ch

oo

se t

he c

on

fig

ura

tio

n o

f va

lue

act

ivit

ies

that

create

s th

e m

ost

valu

ab

le d

iffe

ren

tiati

on

fo

r th

e b

uyer

rela

tive t

o c

ost

of

dif

fere

nti

ati

ng

.

Test

th

e c

ho

sen

dif

fere

nti

ati

on

str

ate

gy f

or

sust

ain

ab

ilit

y

Red

uce

co

st in

act

ivit

ies

that

do

no

t aff

ect

th

e

cho

sen

fo

rms

of

dif

fere

nti

ati

on

.

Next

Post

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 8

Step 7




Leg 4. From Melbourne to Hong Kong.


518-Feb-2018

We are

here!

STEP 1. Determine who the real buyer is.

02Value Chain

Methodology

Approach• This step is “REALLY IMPORTANT” for us to precis.

• Uniqueness does not lead to differentiation unless it is valuable to the buyer.

• The key to be unique is to FOCUS on the buyer, the question is who is our real buyer? what makes our

firm UNIQUE to the buyer?

• A successful differentiator finds ways of creating value for buyers that yield a price premium in excess

of the extra cost incurred by the firm to be different.

• We need to focus on what makes attributes valuable to buyers, and how the firm aggregate activities

can create value TO THE BUYER.

• As we saw it in Leg 2, Buyers are different: industrial, commercial, institutional or individuals-

households.


Industrial Commercial InstitutionalIndividuals or

Households






618-Feb-2018

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02Value Chain

Methodology

Approach


• A firm creates value for a buyer that justifies a

premium price through two mechanisms:

1. By lowering the buyer cost

2. By raising buyer performance

• For Industrial, commercial and institutional

buyers, differentiation requires that our beautiful

business be UNIQUELY able to create

competitive advantage for them in ways besides

a lower price.

• Example: What was DeVinci offer to Citi-Bike?

Raising buyer performance for end consumers?

This implied to raise the level of satisfaction of

bikes to meet the needs of the bike-riders.

Company: Cycles DeVinci from Quebec.

This company has produced the bicycles used in NYC since year

2013, under the brand Citi bike.

The buyer of the Cycles DeVinci is Bikeshare Holdings LLC.

Cycles Devinci were able to enhance the competitive advantage

for the buyers by upgrading the bike whole system in the year

2013.

Source: https://www.citibikenyc.com/


https://www.citibikenyc.com/





718-Feb-2018

We are

here!


02Value Chain

Methodology

Approach

• The principle applies for households and

individual consumers.

• The way we measure the buyer cost and buyer

performance is more subtle.

• Through Differentiation we wish to maximize

the VALUE for individual buyers.

• For household buyers: The Price of a product

includes:

• Example: The Buyer´s Value of Fresh Salmon

Filet in New York.


Total Price: Economic Price + Time Price + Convenience Price

Buyer´s Value = Utility – Total Price

US$14.99/pound US$8.74/pound

Location:

DÁgostino 54st,

Manhattan

In Store Pickup

Location: Walmart

Supercenter, North Bergen,

NJ. Product can be bought

only in store.

Product: Fresh Salmon Filet

Buyer: A Financial Executive who lives in

the Westport (500 West 56th Street, NY).

Where does the Financial Executive buy the fresh

salmon for his dinner?

The buyer will invite his boss and the wife of him, and a

couple of colleagues.

vs






818-Feb-2018

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here!


02Value Chain

Methodology

Approach


US$14.99/pound US$8.74/pound

Location:

DÁgostino 54st,

Manhattan

In Store Pickup

Location: Walmart

Supercenter, North Bergen,

NJ. Product can be bought

only in store (No online)

Product: Fresh Salmon Filet

Buyer: A Financial Executive who lives in

the Westport (500 West 56th Street, NY).

• The price of fresh salmon filets at DÁgostino is higher than Walmart

(North Bergen) by 42%.

Why did the buyer decide to buy it at DÁgostino 54th St?

• The buyer home is located just 1 block walking distance from DÁG

store.

• Buyer´s Profile: He has a busy schedule, lack of time and doesn´t want

to incur in costs associated to transportation, neither the annoyance

of leaving Manhattan to go to North Bergen. In addition the buyer

wishes to cook himself a ”safe” recipe which can delight his invitees.

Salmon is a good option.

• The BUYER “subjectively” sets a Utility higher than the price he will

pay by buying the DÁg salmon.

• The Price Premium he is willing to pay is higher too.

• Other Supermarket competitors around DÁg 54 Street do not have

the same reputation of “high quality and freshness” salmon.

• With this example, DÁgostino Supermarket can define who ARE the

real buyers. Differentiate itself in adding VALUE by analyzing every

single value activity of the Buyer Value Chain, to innovate against its

competitors such as Whole Foods Columbus Circle and other

competitors with different value propositions as Fresh Direct, etc.

The buyer decided to buy the Salmon

at DÁgostino 54st Store.






918-Feb-2018

We are

here!


02Value Chain

Methodology

Approach


Buyer value increases as (1) the utility increases (raising

buyer performance and level of satisfaction or prestige) , or

the price paid reflects a (2) reduction of other costs such as

time costs, cost of frustration, annoyance or exertion.

PLEASE REMEMBER:

• A firm or household does not purchase a product. Individuals

who are decision makers do.

• The Buyer´s VALUE and signals of value are assessed and

interpreted by these individuals.

•

The identity of the specific person who make the purchase

decision will influence, if not determine the VALUE attached

to a product.


An oven for a “mom” who

loves to bake pastries which

uses less electricity than other

ovens. The value is reflected in

reduction of the electricity bill.

A vacuum cleaner that

saves vacuuming time and

reduces exertion is valuable

to the household buyer.

The Value is reflected in

time saving.

A new touch display of 75” that

has better picture quality, 3

years guarantee. The school

will be willing to pay a

premium because it leads a

valuable satisfaction.


In industrial, commercial or institutional buyers:

Different decision makers VALUE different things

about a supplier and use different signals to assess

them.

Examples:

A purchasing agent can value:

• To keep cost of purchase to a minimum.

• Reliability as higher as possible

• Outstanding quality

The process to identify the REAL BUYER is an art. It

takes a lot of observation: Other factors to consider

are brand prestige, personal relationships with

supplier personnel, desire to avoid risks, expertise

and sources of information used, etc.





1018-Feb-2018

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here!


02Value Chain

Methodology

Approach


• In industrial, commercial or institutional buyers, in

addition it is so important to understand the

difference between the decision maker who

purchases and who the real buyer is.

• The identity of the specific person or persons who

make the purchase decision will influence, if not

determine, the value attached to a product.

• Example: The doctor who acts as a purchasing agent

chooses the medicines, not the patient.






We are

here!

11


02Value Chain

Methodology

Approach

STEP 2. Identify the buyer´s value chain and the firm´s impact on it.


A firm reduces buyer price or raises buyer utility through the impact of its value chain on the

buyer´s value chain.

FIRM INFRASTRUCTURE



PROCUREMENT

INBOUND

LOGISTICS

OPERATIONS OUTBOUND

LOGISTICS

Sales

and Marketing

AFTER

SALES

SERVICE

Pri

mary

Act

ivit

ies

Su

pp

ort

Act

ivit

ies

BUYER INFRASTRUCTURE



PROCUREMENT

INBOUND

LOGISTICS

OPERATIONS OUTBOUND

LOGISTICS

Sales

and Marketing

AFTER

SALES

SERVICE

Pri

mary

Act

ivit

ies

Su

pp

ort

Act

ivit

ies

Buyer´s Value ChainOur Company Value Chain






We are

here!

12


02Value Chain

Methodology

Approach



• Buyers have value chains consisting of the activities they perform just as the

firm does.

• The buyer´s needs are the underpinnings of buyer value and differentiation.

• The buyer´s value chain determines the way in which a firm´s product is actually

used as well as the firm´s other value activities affect on the buyer´s activities.

• Each buyer (industrial, commercial, institutional or individual consumer) has

their own value chain.

Buyer´s Value ChainOur Company Value Chain

FIRM INFRASTRUCTURE



PROCUREMENT

INBOUND

LOGISTICS

OPERATIONS

OUTBOUND

LOGISTICS

Sales

and Marketi

ng

AFTE

R

SALES

SERVI

CE

BUYER INFRASTRUCTURE



PROCUREMENT

INBOUND

LOGISTICS

OPERATIONS

OUTBOUND

LOGISTICS

Sales

and Marketi

ng

AFTE

R

SALES

SERVI

CE

For example a firm product or service

is a purchased input to its buyer´s

value chain: The eggs, flour and

ingredients used at Anna Olson´s

Cooking Programs are inputs for her

own value chain


HP Spectre x360 (13-inch, 2017) Cnet

review:

A laptop weight and size is important for a

consultant that travels from place to place

though it is not relevant if we see the buyer

activity simply as “delivering solutions to

clients”




We are

here!

13


02Value Chain

Methodology

Approach



• A firm product will have both direct and indirect impact on the buyer´s chain

that go beyond the activity in which the product is actually used. The firm has

to check how the product is ACTUALLY USED, which can differ in how was

intended to be used.

• A firm impacts the buyer not only through the product but also through other

value activities such as the logistical, system, order entry system, sales force,

after sales services and applications operations group.

• In consequence, the value a firm creates for its buyer is determined by the

whole array of links between the firm´s value chain and its buyer´s value chain.

• A firm´s overall level of differentiation is the cumulative value to the buyer of

the uniqueness throughout its value chain.

• This cumulative value can be calculated and provides the upper limit of the

price premium the firm can command relative to its competitors.





We are

here!

14


02Value Chain

Methodology

Approach


STEP 3. Determine ranked buyer purchasing criteria.


What is the Buyer Purchase Criteria?

It is the specific attribute or set of attributes of a firm

which create actual or perceived value for the buyer. The

buyer purchase criteria can be: Use Criteria, or Signaling

Criteria.

What is an Attribute: It is a quality or

feature regarded as a characteristic or

inherent part of someone or something.

Synonyms:

characteristic, trait, feature, element, aspect

, property, sign, hallmark, mark, distinction.

Informal: X factor

Buyer Purchase

Criteria

Use CriteriaSignaling

Criteria





We are

here!

15


02Value Chain

Methodology

Approach




Buyer Purchase

Criteria

Use CriteriaSignaling

Criteria

• The use purchase criteria comes from the way in which

the firm affects the buyer VALUE through raising

utility or through lowering costs.

• Use Criteria are specific measures that create Buyer´s

value: product quality, product features, delivery time,

applications production support.


• The signaling purchase criteria comes from signals of

Utility drivers that enhance the buyer´s VALUE, or

means used by the buyer to infer or judge what a

supplier´s actual value is. Signaling criteria might include

factors such as advertising, the attractiveness of facilities

and reputation.

• Signaling criteria are subjective measures of how

buyers perceive the presence of value.

Use Criteria

Signaling Criteria





We are

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16


02Value Chain

Methodology

Approach




Use Criteria

The physical features of the product

System used by the firm to deliver and support the product

Specifications achieved by a firm´s product (or value activities)

Conformance. Consistency with which it meets those

specifications

Intangibles: style, prestige and perceived status, brand

connotation

Characteristics of distribution channels (Downstream value)

Any factor that improve the chances that a product is used as

intended.

Example: Owning a

Gulfstream Business

Jet can lead to

considerable prestige

for executives with

respect to their peers.





We are

here!

17


02Value Chain

Methodology

Approach




Signaling Criteria

Reputation or image of the firm

Cumulative Advertising

Weight or Outward appearance of the product

Packaging and labels

Time and Experience in business: installed base, parent company

identity, visibility top management, after sales reinforcement-

training and detailed support

Customer list

Market Share

PWC pays close attention to

office décor and appearance of

employees.

Steinway Pianos has

recognized the use of pianos by

concert pianist is a powerful

signaling criteria. Steinway

maintains a Piano Artist

Databank.LBS pays close attention to

MBA Alumni by offering

worldwide alumni celebrations

and continuous training.


Identify the decision

maker buyer and

other influencers to

the buyer (channels)

Identify and make a

list of use criteria

precisely

Identify and make a

list of signaling

criteria by

understanding the

buyer psychological

judgements

Make a ranking and

sorting of purchase

criteria by end-user or

channel in a matrix.




We are

here!

18


02Value Chain

Methodology

Approach




Now that we have understood the use criteria of value and the signaling criteria of

value, the process of ranking buyer purchasing criteria is:





We are

here!

19


02Value Chain

Methodology

Approach




Ranked Buyer Purchase Criteria for a Carrot Cake

End Buyer

Channels

Use Criteria Signaling Criteria

• Taste

• Moisture

• Texture

• Appearance

• Price

• Freshness

• Size

• Cake Shop

Advertising

• Shelf Positioning

• In-Store Display

• Availability

• Speed of order

Processing

• Channel Margin

• Reliability of

Service

• Delivery

• Reputation of

the distribution

channel (if

applicable)

• Market Share of

the Cake ShopCan we classify the criteria for

attributes of a carrot cake?

Of course, Yes!





We are

here!

20


02Value Chain

Methodology

Approach




Relationship between Use Criteria and Buyer Value

Lower

Buyer Price

Raise Buyer

Utility

Readily

Measurable

Difficult to Measure

(or quantify before buying it)

• ?

• Differentiation that lowers buyer price provides

a more persuasive justification for paying a

sustained price premium than differentiation

that raises Buyer Utility.

• Differentiation with a readily measurable

connection to buyer value is also more

translatable into a price premium than

uniqueness that creates value in ways that are

hard to measure or perceive.

• Differentiation that is difficult to measure

tends to translate into a price premium primarily

in situations where the buyer perceives a great

deal to be at stake: Ex: The case of our Fresh

Salmon Buyer who wants to be safe in terms of

buying excellent quality for his invitees.

• Differentiation at the right hand side of the

matrix is expensive to explain and requires

high levels of investment in signaling.

• Freshness

• Moisture

• Texture

• Price

• Size

• Appearance

• Appearance

• Freshness

• Delivery

• Reliability of

Service

This is what the

buyer wishes






We are

here!

21


02Value Chain

Methodology

Approach


STEP 4. Assess the existing and potential sources of uniqueness in a firm´s

value chain

A firm´s uniqueness in each value activity is determined by a series of basic drivers which

I have prepared in advance.

See the set of

slides ANNEX

Uniqueness

Drivers.




© 2017 Eleonora Escalante-all rights reserved 16 Feb2018 22

Thank you!

On my next post we will continue sailing with

the steps 5 to 8 of the Differentiation Analysis.All the material

shared today is

from the book

“Competitive

Advantage,

Creating and

sustaining

Superior

Performance”,

From Michael

Porter.

We are

here!

02Value Chain

Methodology

Approach



Wh

o T

he

Real B

uyer

is?

Iden

tify

th

e b

uyer´

s

valu

e c

hain

an

d t

he

firm

´s im

pact

on

it.

Dete

rmin

e r

an

ked

bu

yer

pu

rch

asi

ng

crit

eri

a

Ass

ess

th

e e

xist

ing

an

d p

ote

nti

al

sou

rces

of

un

iqu

en

ess

in

a f

irm

´s

valu

e c

hain

Iden

tify

th

e c

ost

of

exi

stin

g a

nd

po

ten

tial so

urc

es

of

diffe

ren

tiati

on

Ch

oo

se t

he c

on

fig

ura

tio

n o

f valu

e a

ctiv

itie

s th

at

create

s th

e m

ost

valu

ab

le d

iffe

ren

tiati

on

fo

r th

e

bu

yer

rela

tive t

o c

ost

of

diffe

ren

tiati

ng

.

Test

th

e c

ho

sen

diffe

ren

tiati

on

str

ate

gy f

or

sust

ain

ab

ilit

y

Red

uce

co

st in

act

ivit

ies

that

do

no

t aff

ect

th

e c

ho

sen

fo

rms

of

diffe

ren

tiati

on

.

Today

Post

Next

Post


Documents

Eleonora Escalante, MBA - MEng · HUMAN TALENT DEVELOPMENT AND MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS Purchasin g, Inventory, Materials handling OPERATION