2. Industrial organization & resource-based models
The value chain describes the internal activities a firm engages in when transforming inputs into outputs.23 Each activity the firm performs along the chain adds incremental value—raw materials and other inputs are transformed into components that are finally assembled into finished products or services for the end consumer. The value chain concept can be applied to basically any firm, from those in old-line manufacturing industries to those in high-tech ones or even service firms.
Primary and Support Activities.In the value chain perspective, resources and capabilities are needed to perform the firm’s activities. While the RBV model helps to identify the integrated set of resources and capabilities that are the building blocks of core competencies, the value chain perspective helps managers to see how competitive advantage flows from the firm’s system of activities. In the value chain perspective, the distinct activities a firm engages in are therefore the basic units of competitive advantage. It is important to note, however, that competitive advantage at the firm level is the outcome of the interplay among all of the firm’s activities, not just a selected few. To create competitive advantage, a firm must be operationally efficient and also able to leverage its unique system of activities. Michael Porter emphasizes that the essence of strategy is to choose what activities to engage in and, more importantly, what not to do.24 Companies that attempt to be too many things to too many customers often will be at a competitive disadvantage. The goal is to combine activities into a complex system that creates competitive advantage and also protects from imitation.
As an example, let’s again look at the question, “What core competency underlies Southwest Airlines’s superior performance?” To answer that question through the lens of the value chain perspective, we need to identify (1) a set of activities and (2) how SWA coordinates and orchestrates them to form a
Primary and Support Activities.In the value chain perspective, resources and capabilities are needed to perform the firm’s activities. While the RBV model helps to identify the integrated set of resources and capabilities that are the building blocks of core competencies, the value chain perspective helps managers to see how competitive advantage flows from the firm’s system of activities. In the value chain perspective, the distinct activities a firm engages in are therefore the basic units of competitive advantage. It is important to note, however, that competitive advantage at the firm level is the outcome of the interplay among all of the firm’s activities, not just a selected few. To create competitive advantage, a firm must be operationally efficient and also able to leverage its unique system of activities. Michael Porter emphasizes that the essence of strategy is to choose what activities to engage in and, more importantly, what not to do.24 Companies that attempt to be too many things to too many customers often will be at a competitive disadvantage. The goal is to combine activities into a complex system that creates competitive advantage and also protects from imitation.
As an example, let’s again look at the question, “What core competency underlies Southwest Airlines’s superior performance?” To answer that question through the lens of the value chain perspective, we need to identify (1) a set of activities and (2) how SWA coordinates and orchestrates them to form a