Final answer:
Value chain analysis allows companies to identify and understand their value-adding activities and costs, distinguish between primary and support activities, extend value creation to supply partners, and realize the impact of decisions on value and costs across the value system.
Step-by-step explanation:
Value chain analysis is a strategic tool used for analyzing a company's activities to identify where value is added to products and services and what costs are involved. Engaging in value chain analysis allows a company to:
- a. Distinguish between primary and support activities, which make up the entirety of a company's processes, from direct production to ancillary services.
- b. Extend value creation to supply partners, thus optimizing the entire supply chain for better efficiency and competitiveness.
- c. Understand how decisions affect value creation and costs across the entire value system, leading to more informed decision-making when it comes to enhancing profitability.
- d. Internalize costs to the firm, allowing for a comprehensive view of how resources consumed internally contribute to the firm's output.
Chain analysis is essential when considering globalization and the fragmentation of the production process. It helps firms understand and optimize their portion of the global value chain. For example, producing an iPhone involves various stages like design, supplying parts, assembly, and marketing spread across the globe. This splitting of the value chain into specialized segments allows firms to focus on their core competencies and innovate, thereby creating economic gains.