59. Creating and Capturing Value

Question 1

Describe the two fundamental challenges of strategy and business success.

Answer 1

• Creating value: Organizations need to identify what is valued in the marketplace. The three basic approaches organizations can take to create value is to provide a low-cost product, provide a differentiated (innovative) product, or target a subset of the market that is being underserved and provide a low-cost or differentiated product to that market.
• Capturing value: The price on the product must be high enough and the cost must be low enough for the organization to sustain profits.

Question 2

What is the difference between primary and support activities in an organization’s value chain?

Answer 2

Primary activities: Primary activities add value directly to the production process as they are focused on the logistics of receiving inputs, converting them, delivering and marketing a finished product, and supporting the product with after-sales service.
•Support activities: Because an organization’s competitive advantage derives mainly from technological improvements or innovations in business models or processes, support activities such as information systems, human resources processes, or general management can be the most important source of the organization’s differentiation strategy.

Question 3

Describe what a value chain analysis is and the role it plays in an organization.

Answer 3

• Value chain analysis is a careful review of all primary and support activities to determine how each activity relates to the organization’s strategy and how it contributes to the organization’s profit margin.
• Primary and support activities are identified as either being central to the organization’s strategy or secondary. The central activities become the focus of the organization’s investment and improvement efforts while the secondary activities are managed for the greatest efficiency possible and are candidates for outsourcing to a third-party vendor

Question 4

What are the five steps involved in a benchmarking process?

Answer 4

1. Identify and prioritize the areas for improvement and organize the benchmarking team.
2. Document the current strategy, process, or product.
3. Identify and research the benchmarking target(s) who currently demonstrate(s) business practices that should be studied.
4. Analyze benchmarking data to establish the performance gap to be addressed, identify causes for the gap, and determine future attainable performance.
5. Implement the recommendations and track progress to evaluate when the benchmark data and standards for performance should be recalibrated.

Question 5

What is business process reengineering (BPR)?

Answer 5

• The focus of BPR is to remove unproductive management layers, wipe out redundancies, and radically remodel processes.
• BPR starts with a high-level assessment of the organization’s mission, strategic goals, and customer needs.
• With a focus on the high-level assessment items, the organization reviews every process, activity, and employee role in the organization using the BPR cycle of identifying a process, reviewing and analyzing the process, designing a new process, and testing and implementing the new process.