Hi. Welcome back. Understanding the external environment, competitors, and customers is important for designing successful strategies. The four corners analysis is very powerful to understand the capabilities and intentions of the companies that affect your business. But sometimes you need the deeper analysis to understand how companies generates value. An analysis of how a company generates value, enables you to identify opportunities and threats. This technique can be used to understand your own firm, your competitors and your customers. Value chain analysis is a break down technique in which processes that generate value and analyze individually and then collectively. The goal is to gain insights and identify opportunities to reduce costs or generate greater value which can be translated into competitive advantage. This model was designed with an industrial organization in mind but it can also be applied to service like banks, insurance companies, schools, et cetera. In order to do that, you need to you understand how this organization generates value. The inputs, the process of value creation and the outputs. Every company has two basic types of activities. Primary activities and support activities. Primary activities are directly related to the generational value and includes inbound logistics, inventory, warehousing and handling. Operations; transformations of of inputs into final product or service. Outbound logistics; basically, distribution. Marketing and sales; marketing communications, pricing, channel management, et cetera. Service. Wholesale support. Secondary activities are those that support primary activities. Without secondary activities, there can be no primary activities. They include firm infrastructure without administrative supports like accounting, legal, planning, stakeholder relationship et cetera. Human resources; we're talking about hiring, incentive systems, motivation, training, promotion, labor relations, et cetera. Technology development; we're talking about engineering, R&D, information technology, et cetera. Procurement, which is responsible for ensuring the supply of inputs, both parts and ingredients and services in order to avoid the risk of discontinuity and to negotiate fair prices. Use the tool to understand your firm's operation. This tool is helpful to understand and improve the operation of your own firm. This analysis is important because often, the salespeople do not have a very clear idea on how their own process work and how your own products are generated. The advantages or disadvantages of the process and the products being produced. The advantages you identify with this technique can be incorporated into the sales pitch. If your sales personnel know their competitors value chain, the sales pitch will be even more effective. Use of the tool to understand the value chain of competitors is also good. Knowledge of the value chain of key competitors is important because it allows a detailed analysis of the strength and weaknesses of your competitors processes. This comparison can be used to generate sales arguments. For example, if the customer has a very strong ecological concern, a comparative analysis may indicate that your firm generates less waste than the competitor's processes. This will create goodwill in your favor. Considering that you cannot visit the process of your competitors, you may use indirect way of collecting the information. Generally, the people who works for your company, the common suppliers and some clients can give you a useful batch of information. In addition, the internet often has very good information. One of the uses of value chain analysis to understand the competitors is to estimate costs, margins, and resilience to external events. Using the tool to understand the value chain of your current or potential client's client is also very good. This type of analysis can be done to understand the customer's operation. According to the client's operation, the firm may introduce changes in the outputs and services, offer to reduce the time, cost, complexity of the client's operation. For example, in the food industries, the players need to carefully weigh the ingredients of the formulation which requires the physical space for storage, equipment, and personnel. If you know the manufacturing processes, your firm can send the ingredient in plastic containers with the exact weight that will allow the customers to totally eliminate the waiting processes reducing cost, time, and complexity. If you're able to adjust your internal processes economically, you can charge a little bit more for the product or increase your market share. It is important to realize that this type of solution generates only take very competitive advantage because adjusting production in this way is easy and it can be easily copied. For this kind of analysis, to understand the nature of the competitive advantage in which you identify a factor from any company that generates a competitive advantage is the topic of an analysis called VRIO. We're going to talk about that in our next video. Thank you for watching and I'll see you in our next video.
