Businesses use value chain and resource-based analyses to identify internal activities and assets that contribute to competitive advantage. The value chain approach targets business processes as drivers of customer value and competitive differentiation. The resource-based view focuses on the firm’s collective assets and competencies as drivers of economic performance and competitive market advantage.
Value Chain Analysis
Value chain analysis provides insight into how different activities within the firm contribute to customer value. The activities are considered to be primary or supportive to the creation and delivery of the firm’s product or service. Primary activities include operations, logistics, sales and service. Supportive activities provide infrastructure and assistance for the primary activities and include functions such as human resources management, procurement and technology development. During value chain analysis, each activity is evaluated in terms of the value it adds on its own as well as its contributions to other value-added activities in the firm’s overall value chain.
The two main approaches to value chain analysis target either cost advantage or differentiation advantage. The cost advantage approach is used when a firm seeks to compete on a cost basis and wants to find out which activities provide cost benefit or disadvantage and what factors influence costs. The differentiation approach is used when a firm aims to compete in the market based on superiority or uniqueness of its product or service.
Resource-based analysis views the business as a unique combination of resources and competencies that propel the firm’s economic performance. The distinctive asset mix typically includes physical resources such as finances and facilities, organizational capabilities such as corporate structure and human capital, and intangible assets such as brand recognition and reputation. When bundled together, the resources drive economic performance and form the basis of the company’s competitive advantages. During research-based analysis, the firm considers each asset in respect to its competitive value in the market context, natural rarity, difficulty to duplicate or substitute and sustainability as an ongoing resource.
There are two primary assumptions behind resource-based analysis. The first is that different firms have different resources, or resource heterogeneity. Even when firms have similar resources, the ways in which they are bundled together can create resource diversity that delivers a competitive advantage. The second assumption, known as resource immobility, is that the unique resources of a firm that generate competitive advantage are unlikely to be acquired or developed by other firms due to cost factors.
Shari Parsons Miller has been a business writer since 1992. Her work has appeared in “Business Innovators-Internet & Computer Technology,” “Dallas Business Journal” and “Encyclopedia of Small Business.” Parsons Miller holds a Master of Arts in journalism from Cardiff University, Wales, U.K.
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