Question: Apply Porter’s Value Chain Analysis to an organisation of your

choice clearly pointing potential for competitive advantage.

1.1 Introduction

Value chain refers to the functional activities of a business that add value to
its customers. (Porter, 1985). For instance, for a company that produces
goods, a value chain comprises the steps that involve bringing a product
from conception to distribution, and everything in between such as procuring
raw materials, manufacturing functions, and marketing activities. Ideally, the
company’s products pass through the activities of the value chain and along
the way each activity adds value to the products. When managing the value
chain system, the idea is to optimize the chain so as to maximize value while
minimizing cost. A business must use its value chain activities to create
value, and then capture that value. The value created by this chain should
exceed the sum of the values added by each individual activity.

Value chain analysis refers to the process of evaluating the detailed

procedures involved in each step of a business. The purpose of value-chain
analyses is to increase production efficiency so that a company may deliver
maximum value for the least possible cost. (Investopedia.com). Porter (1985)
argues that value chain analysis rather than value added is the appropriate
way to examine competitive advantage. Differences among competitor value
chains are a key source of competitive advantage. Value chain analysis can
be used to formulate competitive strategies, understand the source(s) of
competitive advantage, and identify or develop the linkages and
interrelationships between activities that create value. (Ensign, 2001)

A competitive advantage can be described as an advantage over

competitors gained by offering consumers a greater value, either by means of
lowering the price of products or services or by providing a greater benefits
 and service that justifies higher prices. This advantage may be achieved in
various ways, including increased product performance, superior distribution
methods, or creative advertising. (Law, 2009)

2.1 Porter’s Value Chain analysis

According to Porter, a value chain consists of primary activities and support

activities, all of which add value to the products or services offered by the
business as shown in figure 1 below.

Figure 1: Porter’s Value Chain analysis

The primary activities focus on taking the inputs, converting them into outputs,
and delivering the output to the customer. The support activities play an
auxiliary role in primary activities. When a company is efficient in combining
these activities to provide a superior product or service, then the customer is
willing to pay more for the product than the cost to make and deliver the
product which results in a higher profit margin.
Primary activities consist of five components, and all are essential for adding
value and creating a competitive advantage:

 Inbound logistics: Functions like receiving, warehousing, and managing

inventory.

 Operations: Procedures for converting raw materials into finished

product.

 Outbound logistics: Activities to distribute a final product to a consumer.

 Marketing and sales: Strategies to enhance visibility and target

appropriate customers—such as advertising, promotion, and pricing.

 Service: Programs to maintain products and enhance consumer

experience—customer service, maintenance, repair, refund, and
exchange.

Support Activities

The role of support activities is to help make the primary activities more
efficient. When you increase the efficiency of any of the four support activities,
it benefits at least one of the five primary activities. These support activities are
generally denoted as overhead costs on a company's income statement:

 Procurement: How a company obtains raw materials.

 Technological development: Used at a firm's research and development

(R&D) stage—designing and developing manufacturing techniques; and
automating processes.

 Human resources (HR) management: Hiring and retaining employees

who will fulfill business strategy; and help design, market, and sell the
product.
  Infrastructure: Company systems; and composition of its management
team—planning, accounting, finance, and quality control.

3.1 Value Chain Model: Econet Wireless Group

Econet Wireless is the largest telecommunications company in Zimbabwe with

a wide scope of activities ranging from mobile banking, insurance,
entertainment, health and fitness advice to financial technology. Econet’s
business model is a perfect example of integration of a wide range of activities
and services to create value for customers resulting in a huge competitive
advantage.

3.2 Applying Porter’s value chain analysis to Econet Wireless

Inbound Logistics

The overall cost leadership strategic management of Econet is demonstrated in

its lean and supple inbound logistics function. The company uses economies of
scope and its leading market position as key bargaining powers to attain low
costs from its suppliers. The analysts have also highlighted the constant
upgrading of their approved vendor lists, ordering system, and in-store
processes to induce efficiency and effectiveness into the company’s inbound
logistics operations.

Operations

Econet has been commended for its effective use of IT systems that smoothens
the progress of the company’s low cost leadership strategy. The company’s
combination of technology, business strategy and re-modelling is driving its
cutting edge innovation, agility, efficiency and growth in tandem with digital
transformation. Econet has recently been focused on introducing new offers in
the gaming and entertainment area such as comedy box and play for trivia. This
will increase their competitive edge and enhance value to the business and its
stakeholders.

Outbound Logistics

Econet has a well-grounded leadership position in online and offline retail

divisions, which is due to its effective and efficient outbound logistics. Econet
group recently unveiled the OmniContact – a standalone ‘business process
outsourcing’ (BPO) unit that will offer local and foreign businesses, both
private and public enterprises, a wide range of specialized outsourced services,
designed to free them to focus on their core activities as well as reduce their
capital and operational costs. Using its digital platforms and a pool of highly
trained personnel, and leveraging best-in-class customer experience
management technology and software, the OmniContact will let organizations
increase their competitive advantage by focusing on their core activities –
whether it’s manufacturing, hotel and tourism, retailing, insurance, banking and
financial services

Marketing and Sales

Econet has leveraged on its digital potency and a huge subscriber base to
spearhead an aggressive campaign for its products. Econet’s successful product
reach is also attributable to a large network of agents and brand ambassadors
across the country. Econet boasts of around 50 000 agents across the country.
Moreover, loyalty programs such as the Ecocash Rewards programme have
been launched through information technology advances and these discourages
customers from switching over to their competitors. Econet has also introduced
Maisha, a digital health assistant which helps customers identify illnesses
earlier. Econet’s combination of agency marketing and digital marketing
strategy has been a huge source of its competitive advantage.
Services

Econet has been followed a dual strategy of cost leadership and differentiation,
which has led to an increased importance placed on customer service. Drawing
upon Barney (1991) this dual strategy is demonstrated through the development
of financial services, self-service kiosks, focused direct marketing and
promotions. Econet’s social media pages are quickly responsive and are always
in constant interaction with customers to resolve their queries. Moreover,
Econet also has a telephone customer service which operates 24/7 to try to bring
the customer the best experience. In line with its digital strategy, it has also
designed an online self-help customer service application which uses artificial
intelligence to resolve customer’s queries, these are known as chatbots. For
instance, Steward Bank’s Batsi.

Support activities

Econet has always been a pioneer in technological developments. One of

Econet’s subsidiary companies Cassava Smartech focuses on developing
technological innovations in various segments of the economy. Econet’s
recruitment policy has also been key in its success. It focuses on attracting
young, innovative and technologically apt employees, which has made it a
frontrunner in delivering technological innovations.

4.1 Conclusion

Owing to its value chain setup, Econet has become Zimbabwe’s largest
telecommunications company by subscriber base. It boasts of a 11.4 million
subscriber base and 84% of revenue market share. (Econet Wireless Group,
2019) It is also the biggest company on the Zimbabwe Stock Exchange by
market capitalisation.

The value chain framework has proven that the value chain of a company may
be useful in understanding and identifying crucial concepts to achieve
competitive strengths and core competencies in the marketplace. The model
also reveals how the value chain activities are united together to ultimately
create value for the consumer. The support activities and primary activities form
an interdependent system that is connected by linkages. Finally, it is very
essential to determine strategies that focus on those activities that would allow
the company to attain sustainable competitive advantage.
5.1 References

 Porter, M. E. (1985). Competitive advantage: creating and sustaining

superior performance. New York, Free Press
 Ensign, P.C. (2001) Value Chain Analysis and Competitive Advantage:
Assessing Strategic Linkages and Interrelationships. Journal of General
Management. 27(1): 18–42.
 Barney, J. (1991). Firm Resources and Sustained Competitive
Advantage. Journal of Management, 17(1), pp.99-120.
 Zuchi, K. (2019). Introduction to Value Chain Analysis. [online]
Investopedia. Available at:
https://www.investopedia.com/articles/investing/111014/basics value
chain analysis.asp [Accessed 23 Sep. 2019].
 Econet Wireless (2019). Econet Wireless Audited Financial Results.
[online] Available at: https://www.zse.co.zw/wp-
content/uploads/2019/06/Econet Wireless Audited Abridged Press
Results 30th draft 29 June 2019 FINAL.pdf [Accessed 19 Sep. 2019].