Value Chain Analysis (VCA)

1. VCA is a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do. If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits. M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly.

2. Although, primary activities add value directly to the production process, they are not necessarily more important than support activities. Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed.

3. Firm’s VC is a part of a larger industry VC. The more activities a company undertakes compared to industry VC, the more vertically integrated it is. Below you can find an industry value chain and its relation to a firm level VC.

Porter's Five Forces Model

1. Competitive rivalry. 

This force examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each is capable of doing. Rivalry competition is high when there are just a few businesses equally selling a product or service, when the industry is growing and when consumers can easily switch to a competitors offering for little cost. When rivalry competition is high, advertising and price wars can ensue, which can hurt a business's bottom line. Rivalry is quantitatively measured by the Concentration Ratio (CR), which is the percentage of market share owned by the four largest firms in an industry.

2. Bargaining power of suppliers. 

This force analyzes how much power a business's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business's profitability. In addition, it looks at the number of suppliers available: The fewer there are, the more power they have. Businesses are in a better position when there are a multitude of suppliers. Sources of supplier power also include the switching costs of firms in the industry, the presence of available substitutes, and the supply purchase cost relative to substitutes.

3. Bargaining power of customers. 

This force looks at the power of the consumer to affect pricing and quality. Consumers have power when there aren't many of them, but lots of sellers, as well as when it is easy to switch from one business's products or services to another. Buying power is low when consumers purchase products in small amounts and the seller's product is very different from any of its competitors.

5. Threat of new entrants. 

This force examines how easy or difficult it is for competitors to join the marketplace in the industry being examined. The easier it is for a competitor to join the marketplace, the greater the risk of a business's market share being depleted. Barriers to entry include absolute cost advantages, access to inputs, economies of scale and well-recognized brands.

5. Threat of substitute products or services. 

This force studies how easy it is for consumers to switch from a business's product or service to that of a competitor. It looks at how many competitors there are, how their prices and quality compare to the business being examined and how much of a profit those competitors are earning, which would determine if they have the ability to lower their costs even more. The threat of substitutes are informed by switching costs, both immediate and long-term, as well as a buyer's inclination to change.

Mission Statement Components

Function

The mission statement needs to include some description of the function of the business. For example, "to promote industrial excellence," tells customers and employees nothing. A more effective description would be "To provide management consulting services."

Target Consumers

An effective mission statement sets out, in broad terms, the target market. A manufacturer that makes nuts and bolts might set its target market as retail hardware stores, machine manufacturers, or both.

Target Region

The business must determine what region it serves best and relay that information by way of the mission statement. A garage, for example, might limit its target region to the community while a magazine company might target an entire country.

Values

Mission statements typically include a statement of company values. Values such as customer service, efficiency and eco-consciousness often appear on lists of company values. At their best, company values should express principles the company explicitly tries to affirm in day-to-day operations.

Technology

For businesses that rely heavily on technology, the mission statement should include a description of the essential technology the company does or plans to employ. If nothing else, this directs purchasing agents toward the appropriate vendors for goods and services.

Employees

Every company has a policy regarding its relationship with employees. A mission statement provides an opportunity to describe that policy in brief so employees know the essentials of where they stand.

Strategic Positioning

Effective mission statements also include a brief description of the business's strategic position within the market. For example, the company might excel at serving residential clients and seek to maximize that strategic advantage.

Financial Objectives

For for-profit ventures, businesses require clear financial objectives. A start-up company might set one of its financial objectives as making an initial public offering of common stock within two years. This lets the employees and potential investors know the company intends to go public, with all of the legal and record keeping ramifications that entails.

Image

Like people, companies develop public images. Careful companies craft the public image they want to establish and lay out the major features of it in the mission statement. This helps managers direct employees that stray from the sanctioned public image.

Importance Of Vision and Mission

The importance of an organization to develop a vision, mission, and values is important for strategic direction. Without the individual foundations of strong values illustrated by a vision to be undertaken by a mission, an organization cannot become an overly successful organization. Without developing a mission, vision, and values to assist in developing a strategy, an organization cannot identify, distinguish or explain itself to its employees and customers alike. This paper will discuss the importance of developing a vision, mission, and values for the business of water turbine induction systems.

The Mission Statement

A mission statement is important for an organization because it defines the business, products or services, and customers. In addition, a mission statement allows the organization to differentiate itself form competitors by answering three key questions: What do we do, for whom do we do it, and what is the benefit?. Mission statements build and identify the relationships between employees and the mission, the organization itself, the customer, suppliers, and co-workers. According to Crans, Gaich, and Hisscock (2009), “For the truly committed, the mission statement becomes a mantra that is imprinted on his or her heart, against which every possible course of action is weighed and measured. It becomes the litmus test for future actions”.

The mission statement for my water turbine induction system is as follows. We are in the business of developing, building, and selling water turbine induction systems for power generating and desalination plants along the United States coastal regions. Our organization, employees, and suppliers are proud to offer a unique underwater dual purpose design made with high quality environmentally friendly components made in the USA. As a result, our customers can expect long-lasting equipment providing efficient operations. 

The Vision Statement

A vision statement describes how the future will look if the organization achieves its mission. An organizations vision or preferred future must contain information that is realistic, credible, and attractive for the organization in the future. According to Payne (2008) “Strategists try to focus the energies of the workforce on the corporate vision”. A realistic, credible, and attractive vision statement attracts commitment and energizes people, while creating meaning in workers’ lives. In addition, a well thought out vision statement bridges the present with the future while establishing a standard for excellence.

The organizations vision statement is as follows. The organizations vision is to provide the tools and equipment necessary to alternative fuel providers to minimize if not eliminates the need for imported natural resources for consumption in the United States.

Benefits Of Strategic Management

Strategic management allows and organization to be more proactive than reactive in shaping its own future; it allows an organization to initiate and influence activities and thus to exert control over its own destiny.Small business owners, chief executive officers,presidents and managers of many for-profit and non-profit organizations have recognized and realized the benefits of strategic management. 

Historically, the principle benefit of strategic management has been to help organizations formulate better strategies through the use of the more systematic,logical and rational approach to strategic choice.

Financial Benefits: 

1. Improvement in sales. 
2. Improvement in profitability. 
3. Improvement in productivity. 

Non-Financial Benefits: 

1. Improved understanding of competitors strategies. 
2. Enhanced awareness of threats. 
3. Reduced resistance to change. 
4. Enhanced problem-prevention capabilities.