Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages 93

3-3b Value Chain Analysis

Value chain analysis allows the firm to understand the parts of its operations that cre-
ate value and those that do not.^86 Understanding these issues is important because the
firm earns above-average returns only when the value it creates is greater than the costs
incurred to create that value.^87
The value chain is a template that firms use to analyze their cost position and to
identify the multiple means that can be used to facilitate implementation of a chosen
strategy.^88 Today’s competitive landscape demands that firms examine their value chains
in a global rather than a domestic-only context.^89 In particular, activities associated with
supply chains should be studied within a global context.^90
We show a model of the value chain in Figure 3.3. As depicted in the model, a firm’s
value chain is segmented into value chain activities and support functions. Value chain
activities are activities or tasks the firm completes in order to produce products and

Table 3.5 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage

Is the Capability

Valuable?

Is the Capability

Rare?

Is the Capability

Costly to Imitate?

Is the Capability

Nonsubstitutable?

Competitive

Consequences

Performance

Implications

No No No No • Competitive disad-

vantage

• Below-average
  returns
  Ye s No No Yes/no • Competitive parity • Average returns
  Ye s Ye s No Yes/no • Temporary com-
  petitive advantage


• Average returns
  to above-average
  returns
  Ye s Ye s Ye s Yes/no • Sustainable com-
  petitive advantage


• Above-average
  returns

Figure 3.3 A Model of the Value Chain

Support

Functions

Supply-Chain

Management

Operations Follow-Up

Service

Customer

Value

Value Chain

Activities

Distribution

Finance

Human Resources

Management Information Systems

Marketing

(Including

Sales)

Value chain activities

are activities or tasks the

firm completes in order to

produce products and then

sell, distribute, and service

those products in ways that

create value for customers.