Look for discrete activities. These create value in different ways. They will
include different costs, different cost drivers, separable assets, and
different personnel involved. For example, contrast product design activities with advertising activities.
Identify structural, procedural, and operational activities. Structural activities determine the basic economic nature of the company. Procedural activities include all aspects of the firm's operations and reflect the company's ability to carryout the processes efficiently and effectively.
Focus on structural and procedural activities. Most companies emphasize operational activities, but proponents of value chain analysis say that focus is too narrow and only deals with the short run and will not be able to give the company an overall competitive advantage.
To determine which activities are strategic a company must identify which
product characteristics are valued by existing customers.
A company should then find characteristics that it can exploit, and thereby create value for future customers. Examples of these characteristics are quality, service, or any tangible or intangible product features.
The company needs an accounting technique that traces costs to different value chain activities. This is important for a company to focus on these value-added processes, so they will be able to manage them more efficiently.
To achieve a competitive advantage a company must manage their value chain better than their competitors. This means reducing a company's total cost while enlarging the competitive advantage. This does not however mean that all costs have to be reduced, it means that all costs that do not adversely affect the competitive advantage can and should be reduced.
1. Is there a market for the output of this link in the industry value chain, or can a market price be determined objectively?
2. Are there any companies that produce and sell only within this link of the chain?