INMA_A01.QXD

From this review of the competitive forces, it should be apparent that the extent of

the threats will be dependent on the particular market a company operates in. Generally,

the threats are greatest for companies that currently sell through retail distributors and

have products that can be readily delivered to customers across the Internet or by parcel.

Value creation and value chain analysis

How businesses create value within their markets is fundamental to their success. Digital

technologies have a significant role in changing the balance of value creation within a

market, so the extent of this change and how well it has been implemented must be eval-

uated as part of environment analysis. Value delivered is dependent on the difference

between the consumer benefit created by the business and the costs incurred in produc-

ing or delivering the value as suggested by Figure 2.4. You can see that arguably the

biggest impact of the Internet is the capability to reduce costs through reducing interme-

diaries such as physical stores and also through changing the intangible benefits.

Together, these combine to form the online value proposition, as explained in Chapter 4.

To pass on the reduced costs of dealing direct it will be necessary for retailers, banks and

other companies to change their structure and accounting practices to isolate online

channels as a separate profit centre.

Michael Porter’s value chain(VC) is a well-established concept for considering key

activities that an organisation can perform or manage with the intention of creating

value for customers (Porter, 1980). We can identify an internalvalue chain within the

boundaries of an organisation and an externalvalue chain where activities are performed

by partners. By analysing the different parts of the value chain managers can redesign

internal and external processes to improve their efficiency and effectiveness. Traditional

value chain analysis (Figure 2.5(a)) of the internal value chain distinguishes between pri-

mary activitieswhich contribute directly to getting goods and services to the customer

(such as inbound logistics, including procurement, manufacturing, marketing and deliv-

ery to buyers, support and servicing after sale) and support activitieswhich provide the

inputs and infrastructure that allow the primary activities to take place.

MARKETPLACE

Figure 2.4 Value creation model

Intangible benefits

• Brand value


• Purchase experience
  (content, customisation,
  choice, ease of use)

Tangible benefits

• Product quality


• Product range and
  customisation


• Service quality


• Fulfilment

Value

created

Con

sumer

surplu

s

Bu

sine

ss

surplu

s

Business

costs

Retail

price

Co

st

s

Consumer

benefit

Intangible

Tangible

Value chain
A model that considers
how supply chain
activities can add value
to products and
services delivered to
the customer.