Page 125 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes Human resource management is the activities of recruiting training and rewarding people.
Firm infrastructure: The systems of planning, finance etc. are activities which Porter believes
are crucially important to an organisation’s strategic capability in all primary activities.

Furthermore, in addition to the categories, described above, Porter identifies three other
ways of categorizing activities.

Direct activities are concerned with the adding value to inputs.
Indirect activities enable direct activities to be performed e.g. maintenance.
Quality assurance: This type of activity monitors the quality of other activities and includes
inspection; review and audit.

Linkages connect the interdependent elements of the value chain together. They occur when one
element of the value chain affects the cost or effectiveness of another.
The value chain contains an element of margin. This is the excess of the amount that the customer
is prepared to pay over the costs of the resource inputs and value activities. Firms can gain
competitive advantage by conceiving of new ways to conduct activities, employing new
procedures, implementing new technologies, or using different inputs and by exploiting linkage
effectively.

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Caution A company’s value chain is not bounded by a company’s border. It is connected to
what Porter describes as a value system.

As well as managing its own value chain, a firm can secure competitive advantage by managing
the linkage with its suppliers and customers. A company can create competitive advantage by
making best use of these links and this means considering the value chain of these suppliers and
customers.

The value chain is also a useful model for analyzing a firm’s competitive and also further on in
the planning process for designing strategies. A firm’s value chain is not always easy to identify
nor are the linkages between the different elements. However, it is an important analytical tool
because it helps people:
To see the retail business as a whole

To identify potential sources of competitive advantage.
Self Assessment

Fill in the blanks:
13. .............................. are the means by which a firm creates value in its products.
14. .............................. are those activities involved with receiving, handling and storing inputs
to the production system.
15. .............................. refers to those activities which acquire the resource inputs to the primary
activities.

16. A company’s value chain is connected to what Porter describes as a ..............................

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