 The last class I just ended up saying that in any organization or a firm it is possible to disaggregate various activities and I am talking about activities that have the potential to create value. And value our understanding is that something that makes a customer to pay more. Understanding that can add uniqueness is what we consider to be valuable. So from that perspective we are able to identify all those sets of activities in a firm and put them under two broad categories being primary activities and support activities. And that each of these activities has a cost to it and can be done in a way that is different from the competition and these are the two predominant sources of gaining competitive advantage. So those activities which were the primary activities and support activities will provide a structure, a framework that is very popularly called as the value chain model and we look at every firm to have these sets of activities and the primary activities being the inbound logistics, operations, outbound logistics, sales and marketing, service and support while the support activities are the firm's infrastructure, the human resource management, the technology development and the procurement practices. And as I said before each of these activities will have a cost to it and the customer value or the end user value is a measure of that incremental margin that the firm makes. Remember I said it was the willingness of the end user to pay more is the quantifiable indicator of the value that is being delivered. So from that perspective if you are able to see the total value as the total cost or the total price that somebody is willing to pay and you are able to remove the collective cost of these activities that generate the value then that is the margin that is from the profitability point of view and that is the incremental customer value or the end user value that one gets by using this product or availing a particular service. So that is why the willingness to pay that incremental is can rightly be a measure of the value proposition that gets delivered. So that is an understanding that has to be embedded before we proceed further and this is the broad framework that is very popularly called the value chain model and any firm or organization you can do this and we will see examples of that also. The primary activities as I said before starts with inbound logistics those that form the inputs that get into the making of the output those activities that deal with inputs the activities that receive the raw material that store the raw material that make sure that the raw material arrives just at the time that we need it or the inventory control mechanisms. Now all these activities that relate to the acquisition and use of input from the inbound logistics the next would be the operations which is the process that converts the input into the finish good the output. So that is typically your shop floor if you are a manufacturing firm or even for different types of firms you will have different sets of operations that converts one form of input to a usable end form that gets process later or just gets transferred to a different entity before it reaches an end user. But all firms and organizations will have a different process and that is those set of activities that come under the heading operations. All that converts input to output and all activities that are related within this period is the operation then once it is available in the finish good format it has to be sent outside. So which includes activities that relate to transportation get stored in a warehouse and following a particular conception pattern that defines the scheduling gets distributed to a retailer before it reaches end end user. So till that point is the outbound logistics and after that some activities that have to generate the interest level amongst the potential end user are the ones that get categorized as marketing and sales. And these are more end user related issues which includes the promotional activities the advertising campaigns the various pricing tools shelf space management retail management. So these are issues which are coming under the marketing and sales it is more distribution related retail related and after it reaches the end user some firms and organizations also need to have certain set of activities especially if there is intensive after sales service that is required which means you need to have a good maintenance team or if there are product updates we need to update those that have already been used by an end user or after it has been sold to an end user if it needs installation by the firm then training to be provided by the end user or spare parts to be given later. So these are issues that are coming under the category of service. Now assume that we do not we did not know about this value chain model then these are things that we would easily dismiss them saying that these are activities that are very much in all firms in all organizations but the beauty of this model is to characterize and identify identical activities and classify them under different headings these five headings as primary activities. The reason that we are doing is because that we can have a clarity in identifying key activities that can generate value and some activities will be important for certain set of industry some activities will not be as important as it is for a different set of industries we will talk about that later. Now just as we had something that was primary to the conversion of input to output to sales and after sales within the organization there are a set of activities that support these primary activities as a name such as these are the support activities which is got to do with the firm's own infrastructure the corporate affairs the general manager the legal team the accounts the support facilities like a canteen or all these are the support activities. Supports could be a Google provides play area recreation area or a university bookstore for student is a big support activity so these are the firm's infrastructure which is also a good source of generating value or the human resource which is got to deal with the way in which people get recruited they are trained various retention strategies the pay package these are all unique set of activities which has some intrinsic inherent value creating propensity and if you are able to create value out of that and that is an additional value a classic example would be the HCL's employees first customers second that is a very good human resource that was in fact it took the entire corporate world by stop because it was something that was very radical but the organization felt that it is generating some value out of it likewise technology development which is internal let us say there is an in house R and D or we are able to change some of the process using some technology development design new products and some need not necessarily relate to the end product itself technology development R and D does not come under the input to output primary activities chain it is something that is external to it but definitely a critical input in the making of the product you have technology intense firms like Intel or IBM or the procurement which is the support activity that deals with various activities that are required to procure raw materials or deploy service personnel or make supplies to the infirm's infrastructure so this need not be necessarily confused this need not be confused as though it is for only those that are related to the raw material the Japanese manufacturing companies they revolutionize the procurement part of the support activities so just as we have a set of activities that are primary we also have a set of activities that are support activities to the firm but what we need to understand is that all these activities have some significant value that is embedded inside them and this could be significant for a certain set of industries and insignificant because the industry characterize industry characteristic is that way for example the distribution industry the activities where we feel that more value can be created would naturally be the inbound and outbound logistics because we are talking about distribution so you need a good warehouse you need good raw material control inventory control mechanisms you need good transportation you need good shelf space management so in the distribution business will have to make sure that you are able to create value as much as possible in the inbound and outbound activities in a retail or a banking industry it is the operations that is key how the teller is able to transact a banking service operations hold the key in fast moving consumables though distribution is also important but you find that the sales and marketing is so intense so sales and marketing as a value creating proposition is very intense if you are talking about FMCG likewise if you are talking about domestic electronics or the electronics that we appliances that we use at home after sales services of course I am not saying that the other activities are not important but we find that there is a possibility to deliver that incremental value if we are able to concentrate our resources on certain set of value activities which are key to that particular industry so if for domestic appliances and after sales service is definitely a critical part and hence if you are able to provide some extra value on that then we are able to deliver that uniqueness to the end user so as I said before I am not saying that other values are not important they are all relevant and important but the weightage that we give to each of the values will differ across industries so we need to concentrate on those set of activities where we think that the end user also expects that the value will be delivered from those set of activities there is no point in concentrating on inbound and outbound logistics when we are dealing with healthcare equipment where for every time that we use the healthcare equipment we need somebody to assist the usage and this is very typical in surgical healthcare equipment where we need somebody qualified from the firm to assist the healthcare professionals in the use of the equipment and if you are able to deliver some value in that after sales service then that is perceived to be more unique then the fact that you had you have good inbound and outbound logistics in place because that is very insignificant because the healthcare industry is characterized in this particular fashion so all values are important but the weightage of the relevance and the importance differs across industries and as I said before since all of these activities are linked to each other though each of them can be viewed in isolation there is a tremendous reinforcement that is possible that the value that we derive from a particular activity can be input that can also generate some value to a different set of activities and this could be across the primary activities or could move between primary and support activities so this linkage if we are able to synergize then we are delivering more and more of such incremental value units and which aggregated together is that huge margin that we think end user will perceive to be having more value so there is a chance that all of these value activities can be linked to generate a comprehensive value and hence need not be viewed in isolation because the cost advantage that you get out of doing a particular activity in a particular way if it gets transferred to another set of activities leading to further cost advantages then there is a strong linkage across all these value activities and it need not necessarily be within the firm it can also be external to the firm I will explain that how a value chain analysis also used by firms to understand the interrelations of interrelationship of some strategic business units and this is true especially when we are talking about inbound logistics or procurement suppose we are a conglomerate and we make certain set of we purchase certain set of raw materials that is used by various strategic business units then you can understand what I am trying to say we need to study the interrelationship of these strategic business units so that we are able to generate more value because from one from the procurement perspective because if you are able to have a centralized procurement in place then we are able to get more price benefits which can be passed to various of these SBUs or if we find that there are some set of activities which would be better if somebody else does it than the firm itself then we are talking about outsourcing and this we can find if we are able to isolate these activities and say that we are not really adding value by doing it ourselves and this is the way which practitioners management practitioners do a value chain analysis to decide what is core to the firm to see whether we are doing it in a cost effective way and at times we are also mitigating some of the product associated with it in fact if somebody else does it than the firm itself if it can change the quality of the product it is better to get it outsourced so that is why if you are able to do a value chain analysis you will understand that by outsourcing we mean that we just identify a set of activities and this value activity and that portion if somebody else is able to do on behalf of the firm and if they are able to do it efficiently then we outsource that and then embed it within our firm and we find that that generates more value than the firm doing it all by itself so that is also a possibility which we identified only after we broke down all of these activities into such fine elements and put them into this value chain perspective otherwise we would have missed seeing that and if at all we had seen that it could have been a sheer coherence coincidence or luck but the idea is this structured way of putting these value activities in this value chain model is one very important tool that many use to also decide on their outsourcing strategy of course there are other strategic imperatives to it I am not saying that it is only value chain that is used as a tool to decide on outsourcing but definitely an important tool then the previous slide I was saying that there are external linkages that is possible now a value chain is not just something that is applicable only for the firm it can extend forward to include the customer's value chain it can extend backward to include the vendor's value chain a dealer's value chain so if we are able to integrate all these value chains remember I told you before that at the end of the day the end user pays for all the profit margins of all the entities across the value chain delivery system right from the vendor up to the retailer and if we are able to look at the bird's eye view that captures the value chain of all these stakeholders then we are able to appreciate this concept better and probably also end up giving more value to the end user instead of just viewing the firm's value in isolation now just as we are not isolating each of the activities within the firm and that we are trying to look for linkages of activities within the firm this is just the bigger picture of it where we are looking at linkages of not just activities within the firm but linkages of the value chain of entities that are outside the firm because it is this integration of such value chains that can be a powerful that can be a tool for delivering more value so we can always look out and let us say study our vendor's value chain and probably tell the vendors if you are able to do this differently you are still able to generate value or look at the distribution channels value chain and tell them if you are able to do this you are able to increase your market share at the end of the day it benefits the firm also so value chain can also be looked from the perspective of integrating it beyond the firm itself and include entities that are external to the firm and we can create these value chains ourselves because what we need to do is we know that there is something called a value chain and this is how it has to be mapped and we know that every firm has its own discrete set of activities and all we have to do is caption them under some all these functional activities under these process lists and label them I am just trying to tell you how we actually do it and then then you pin them across this value chain diagram and look at each of these activities to see whether you can do it at a lesser cost or you are able to do it better if you are able to differentiate and in the process you will end up delivering a new service or a new product or in some cases the biggest example is the new distribution system that Dell or Amazon because you know the disruption that was created by internet in the early 2000 that is when the e-commerce as a business proposition both business to business or business to consumer took the entire value chain it changed the way in which we viewed this value chain and this disruption remodeled value chains of big entities Dell is a classic example about which I will be talking later but what I am trying to say is you can create your own value chain this way and the process come out with a new service deliverable or a new product deliverable or a new distribution system which is intertwined with the service and for example let me you did this process for a copier industry and this is how you will end up coming out with a value chain for the copier industry and we will have the human resource management that includes it is as simple as the recruitment training then the technology development which is internal where a lot of R and D happens then various procurement activities but in this inbound is your raw material receiving inspection and then sending it to the operations that is where the component gets fabricated outbound is your order processing and you ship it marketing and sales as I said has the advertising promotion and the sales force trying to sell the product after sales so this well this is just a typical value chain for a copier industry the reason I am just putting this before us in the previous slide I said how to do it and if you are able to just choose one industry and try to do it you will end up doing it this way so this is for a copier industry likewise you can create a value chain for an automobile industry or an aircraft industry or whatever be the industry or for your own firm this is how things will get seated in different pockets in this value chain. Now I said before that the disruption that was created by internet change the value chains of different entities a classic example is how Dell changed the way in which it did business because if you look at the personal computer value chain traditionally and in many cases even nowadays this is how it happens so you have a supplier who supplies components to the original equipment manufacture in this case the PC maker and then the personal computer manufacturer just ships all the computers to a distributor who later then gets all these PCs populated in a retail store or through a reseller and then a final customer buys it through the reseller. Dell changed the way in which things are happening now I do not know how many of you have experiences of buying a Dell laptop now sitting at home using internet I can order any configuration of a Dell PC or a Dell laptop and it is only after the order is placed that then Dell further interacts with different of its suppliers each of them get sourced finally gets assembled and gets delivered at home and it is not that I go to a retail store choose a product from a shelf that is products that are already available out of a shelf I can even create my own configuration of a Dell I am talking about branded PCs and then have it delivered and I consider this as an extremely significant value proposition and this changed the way in which Dell was doing business and in fact it was one of the key success factors for the growth of Dell with the advent of internet so the internet as a powerful this disruption that was created was positively channelized in building a very different value chain where the value proposition to the end user is that I can make my own computer a branded computer through an internet and get it delivered at home and this is the value proposition so you can understand what I am talking about the feeling that you can have this done through the internet as customized as possible itself is a big value proposition and you are ready to pay more because you find that this value proposition is very unique and that is one of the key success factors for Dell's success story and I find that invariably there is this confusion between a value chain and a supply chain there is plenty of literature that differentiates between a value chain and supply chain but the core to this is the flow of value is through is from the customer remember I said in the beginning of the class that all these value activities are relevant from the customers or the end users point of view so it is the customers requirement the end users requirement which is calculated backwards to see how this can be embedded into all these activities with a hope that it can deliver a value that is perceived to be valuable by the end user as against a supply chain where the flow is from the organization to the customer it is a little subtle difference between there are a lot of similarities between value chain and supply chain also but then what we need to understand is that both are not the same there are similarities but that does not make them same they are two entirely different concepts and I am trying to caution you do not get mixed with supply chain and value chain both are not the same. So if somebody says that if you are talking about value chain and that they already know supply chain it means they still they do not know value chain and both of these are two different entities. So a value chain analysis at the end of the day for any firm or organization provides a structured thinking through which we are able to identify set of activities that are characterized under different heads and each of them being able to be done in a different way or each of them could be done at a reduced cost since we are interested in providing either cost competitiveness or a differentiation because these two are the important elements in building a sustainable competitive advantage. And in the absence of this value chain analysis we cannot be doing a wild goose chase and saying that look can we identify this activity this activity this activity. But at the end of the day we do a value chain analysis we also finally choose activities but it is not a wild goose chase we know that we have not missed activities because we have structured them in a standard framework because we followed this value chain. And remember for any firm any organization whether it delivers a product or whether it provides a service a value chain can be created. And I would encourage you to just take any example and come out with a value chain you can create a value chain for an educational institution you can create a value chain for a consulting business you can create a value chain for any business and it is possible and if you look through the lens of a value chain you will definitely find activities which you otherwise would have missed that is the key to do an analysis using this voters value chain. Now before I end this lecture I would like to just show you two videos videos of Koch and Unilever the examples that I used in my presentation which you can understand through which you can understand the value chain of Koch and you will understand that three important activities form a significant value in Koch's the inbound logistic the outbound logistic and sales and marketing these three are the important value generating activities if you look at the value chain of Koch and if you look at the value chain of Unilever from a different perspective of course Unilever is also being an FMCG the sales and marketing is very important but the video that I am going to show you it talks about the value factor that I mentioned those three sources of value it talks about a set of activities that are not related with the firm's value chain but something that is exterior to the firm talks about the environmental impact that the product after its use creates and how Unilever tries to reduce that environmental impact and that as a value proposition how it makes it how it ensures that its end user realize that even after its product is being used the way in which it gets disposed of creates a value proposition that is the idea of showing that video and I am sure if you are able to see this video and appreciate the concept of value generation through these two different perspectives then you will understand that for any activity there is an inherent value to it which can be generated either by trying to see if we can reduce the cost at which we are going to perform this activity or if we can do this activity in a different way and still generate value remember value is the willingness of the end user to pay more and end user will be paying more only if he or she is able to appreciate that this value is something that the end user perceives to be really valuable thank you