Thesis: Cost Advantage and the Value Chain

Sample Thesis Paper

Value chain is considered to be the integral part of different organizations and if it is implemented properly then it can help the organization to achieve its long term and short term objectives. In order to create and sustain a competitive advantage in an industry an organization can either opt for cost leadership or differentiation strategy (Barney 2006). Similarly an organization must identify which activities are leading towards cost leadership and which towards differentiation. Similarly, cost advantage can be attained by reducing the cost of individual value chain activities or by transforming the entire value chain (Porter 2008). Once a value chain is defined and then it is designed then a proper cost analysis is performed by assigning different costs to the value chain activities.

The costs that are received from financial reports might be modified because it is allocated in a proper manner in the value creation activities.  Porter identified certain cost drivers that are related to value chain activities these cost drivers are: Learning, economies of scale, linkages among different activities, geographical location, timing of the market entry, capacity utilization, relationships among business units and firms policy of differentiation or cost (Porter 1998).

There are certain scopes that are linked with the competitive advantage of the value chain. These scopes are discussed below:

  • Segment Scope: The differences in the value chain that is required by different markets. These differences serve different product or buyer segment.
  • Vertical Scope: This scope contains the division of activities which are between a firm and its suppliers, buyers and different channels.
  • Geographic Scope: This scope caters and is related with the different geographic areas.
  • Industry Scope: The interrelationships among the business units are included in this scope.

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