Relationship between benchmarking and value chain analysis

relationship between benchmarking and value chain analysis

Value chain analysis can be used to formulate competitive strategies, .. linkages seems applicable: 'linkages are relationships between the way one value. a significantly high positive relationship between benchmarking and supply .. attributes are characteristics of the supply chain that permit it to be analyzed. In this paper the value chain analysis and benchmarking can help . The linkages in the value chain express the relationships between the.

Benchmarking

Still, benchmarking remained the 4th top used tool by businesses in the world in Managers use this type of benchmarking to identify the best way to compete in the market.

During the process, the companies identify the winning strategies usually outside their own industry that successful companies use and apply them to their own strategic process. It is also common to compare the strategic goals in order to spot new strategic choices. Performance benchmarking determines how strong our products and services are compared to our competition.

It requires to look at other companies that engage in similar activities and to identify the best practices that can be applied to your own processes in order to improve them. Process benchmarking is a separate type of benchmarking, but it usually derives from performance benchmarking. This is because companies first identify the weak competing points of their products or services and then focus on the key processes to eliminate those weaknesses.

Then the company determines, which processes add the most to the cost of the product and seek how to improve them by looking at similar, but less cost heavy processes in other companies. Approaches In addition to the types, there are four ways you can do benchmarking.

Value Chain Analysis | SMI

In large organizations, which operate in different geographic locations or manage many products and services, same functions and processes are usually performed by different teams, business units or divisions. This often results in processes performed very well in one division but poorly in another. Internal benchmarking is used to compare the work of separate teams, units or divisions to identify the ones that are working better and share the knowledge throughout the company to other teams to achieve higher performance.

External or competitive benchmarking. Some authors use these terms interchangeably but there are a few differences between them. First, competitive benchmarking refers to a process when a company compares itself with the competitors inside its industry. Whereas external benchmarking looks both inside and outside the industry to find the best practices, thus, including competitive benchmarking.

Besides, external benchmarking is a more beneficial approach to use due to higher possibilities of finding the best practices. Managers of functional departments find it useful to analyze how well their functional area performs compared to functional areas of other companies. It is quite easy to identify the best marketing, finance, human resource or operations departments, in other companies, that excel in what they do and to apply their practices to your own functional area.

This way the companies can look at a wide range of organizations, even unrelated ones, and instead of improving separate processes, they can improve the whole functional areas. This gives you an idea to implement the data collecting and analysis team in your own company to significantly improve its overall performance.

The other example of generic benchmarking would be to compare your processes against generally accepted best standards. For example, every organization strives to become a learning organization, because such an organization is better equipped to overcome challenges and adapt to the market changes. By comparing your company to some general standards, which would indicate that your company is a learning organization, you would be using generic benchmarking.

The following diagram summarizes the types and approaches to benchmarking: Advantages Easy to understand and use. Brings innovative ideas to the company. Provides you with insight of how other companies organize their operations and processes. Increases the awareness of your costs and level of performance compared to your rivals.

Benchmarking | SMI

Facilitates cooperation between teams, units and divisions. Disadvantages You need to find a benchmarking partner.

relationship between benchmarking and value chain analysis

It is sometimes impossible to assign a metric to measure a process. You might need to hire a consultant.

relationship between benchmarking and value chain analysis

If your organization is not experienced at it, the initial costs could be huge. Managers often resist the changes that are required to improve the performance. Using the tool Benchmarking is used extensively by organizations, but no universal process of how to conduct it is established. Each organization designs its own way of using the tool. Before revealing some of the examples, we provide you with the guidelines[3] to make the process easier.

Only choose the products, services or processes, which perform poorly. Its goal is to recognize, which activities are the most valuable i. 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.

Porter introduced the generic value chain model in 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. 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.

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. The more activities a company undertakes compared to industry's VC, the more vertically integrated it is. Below you can find an industry's value chain and its relation to a firm level VC. Using the tool There are two different approaches on how to perform the analysis, which depend on what type of competitive advantage a company wants to create cost or differentiation advantage.

The table below lists all the steps needed to achieve cost or differentiation advantage using VCA. Competitive advantage types Cost advantage Differentiation advantage This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs.

Establish the relative importance of each activity in the total cost of the product. Identify cost drivers for each activity. Identify links between activities. Identify opportunities for reducing costs. Evaluate the differentiation strategies for improving customer value. Identify the best sustainable differentiation.

Cost advantage To gain cost advantage a firm has to go through 5 analysis steps: All the activities from receiving and storing materials to marketing, selling and after sales support that are undertaken to produce goods or services have to be clearly identified and separated from each other.

The managers who identify value chain activities have to look into how work is done to deliver customer value.