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Introduction
The modern business environment is dynamic and competitive. Therefore, growth, profitability, and survival in such an environment are critical for all firms. Companies use different tools to build and implement their strategies, so as to ensure their survival.
The Porter’s value chain model (VCM) is one of the tools that managers are using to attain a competitive edge. This essay presents how the PepsiCo organization’s managers can use Porter’s value chain model for effective implementation of business strategies.
Porter’s Value Chain
Michael Porter first introduced the value chain in 1985. He observed that these activities were interdependent and connected (Porter, 1985). Firms include activities in their operations which are performed to support the organization’s products (Ilyas, Banwet & Shankar, 2007). There are several value chain functions. They include technologically and physically distinct features.
These functions provide important building blocks for a firm to produce a product. According to Walter and Lancaster (2000), VCM refers to the business system that is designed to create consumer satisfaction, and enables a firm to realize its strategic objectives (Kaplinsky, 2000).
It consists of an organization’s resources and knowledge that are used to create and deliver value to the company, and the end-user (Bamford & West, 2010). Firms use it to analyse their core competencies with an aim of gaining a competitive advantage over their competitors in the dynamic environment.
According to Henry (2011), for a firm to utilize the value chain effectively in achieving its strategic goals, it should identify its primary and support activities (Henry, 2011). Ling et al. (2004) argue that in order to achieve strategic objectives, value chain activities must be integrated to improve a company’s efficiency while reaping the differentiated value to all stakeholders.
The PepsiCo Company should evaluate how each internal primary activity is adding value towards the realization of its goal. The organization’s business activities should be divided into strategic units. This will allow executives to identify sources of competitive advantage. It should support these activities by supplying technological and personnel resources (Overbeck, 2009).
The VCM provides the relevant tools for efficient analysis of the cost-position of a firm (McNair, Polutnik & Silvi, 2001). The PepsiCo will be able to analyse cost characteristics within the activity chain. This will enable the company to ascertain the sources of cost benefits and disadvantages.
This will enable the PepsiCo to improve its performance by cutting on expenditure. Through cost-leadership, the company will be able to gain a competitive advantage, and hence achieves its strategic objectives and shareholder value (Magretta, 2012).
The VCM tools are critical in enabling managers to identify linkages that exist in the performance of business activities (Kaplinsky & Morris, 2001). It also enables them to identify the sections of operations that create value, and those that are ineffective (Hitt, Ireland & Hoskisson, 2012).
The PepsiCo Company can utilize this tool to coordinate and optimize these activities to acquire differentiated advantages. Strengthening of the linkages will be helpful in the removal of existing inefficiencies hence eliminating costs to the company. Finally, the VCM helps a firm in analysing their competitor operations (Dekker, 2003; Porter, 2008).
The carrying out of a value chain analysis by PepsiCo will enable it to understand its competitors, and enable it upgrade its performance. By conducting this analysis, the PepsiCo will identify its advantages and compare them to its rivals. This will enable it to design products that will make the company gain a competitive advantage.
Conclusion
The VCM is an important tool for identifying business activities that are critical in the implementation of a firm’s strategy. Managers utilizing the VCM are able to identify linkages among primary and secondary activities that are essential to strategic performance.
The VCM creates efficiencies and enables companies to identify sources of its competitive advantage against its rivals. The PepsiCo should integrate its business activities by supporting its primary activities with technological and personnel resources, which are drivers for the implementation of its strategy.
List of References
Bamford, CE, & West, GP 2010, Strategic management: Value creation, sustainability, and performance, South-Western Cengage Learning, Australia.
Dekker, HC 2003, “Value chain analysis in inter-firm relationships: a field study,” Management Accounting Research, Vol. 14 no. 1, pp. 1-23.
Henry, A 2011, Understanding strategic management, Oxford University Press, Oxford.
Hitt, MA, Hoskisson, RE, & Ireland, RD 2013, Strategic management: Competitiveness & globalization: cases, South-Western Cengage Learning, Mason, OH.
Ilyas, RM, Banwet, DK, & Shankar, R 2007, “Value Chain Relationship-A Strategy Matrix”, In Supply Chain Forum: An International Journal, Vol. 8, No. 1, pp. 56-72.
Kaplinsky, R MM 2000, A handbook for value chain research, University of Sussex, Institute of Development Studies, Sussex.
Magretta, J 2012, Understanding Michael Porter: The essential guide to competition and strategy, Harvard Business Review Press, Boston, Mass.
McNair, CJ, Polutnik, L, & Silvi, R 2001, “Cost management and value creation: the missing link”, European Accounting Review, vol. 10 No. 1, pp. 33-50.
Overbeck, S 2009, Supply Chain Management- A Critical Analysis, GRIN Verlag GmbH, München.
Porter, ME 1985, Competitive advantage: Creating and sustaining superior performance, SimonandSchuster, New York.
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