Strategic Management: Formulation and Implementation

Linkages Within The Value Chain

Linkages are relationships between the way one value activity is performed and the cost or performance of another (e.g., purchasing high-quality, precut steel sheets can simplify manufacturing and reduce scrap). Linkages can lead to competitive advantage in two ways: optimization and coordination.

Linkages among value activities arise from a number of generic causes, among them the following: the same function can be performed in different ways; the cost or performance of direct activities is improved by greater efforts in indirect activities; activities performed inside a firm reduce the need to demonstrate, explain, or service a product in the field; quality assurance functions can be performed in different ways.

The buyer's value chain. Buyers also have value chains, and a firm's product represents a purchased input to the buyers's chain. Understanding the value chains of industrial, commercial, and institutional buyers is easy because of their similarities to that of a firm.

The value chain can be used to compare the firm's current position with the strategy selected in order to assess the strategic gap. The use of activity-based cost measurement with value chain analysis will enable individual components of the business to be evaluated without losing sight of their holistic impact on the competitiveness of the business.

Finally, the basic concept of the value chain has been used by strategists to explain the success of various firms in pursuit of a differentiation or low cost strategy.