STRATEGIC SIGNIFICANCE
Information technology is changing the way compa-nies operate. It is affecting the entire process by whichcompaniescreatetheirproducts.Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information compa-nies provide to create value for their buyers.
An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2
A company’s value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary ac-tivities to take place. Every activity employs pur-chased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the par-ticular business. Service, for example, frequently in-cludes activities such as installation, repair, adjust-ment, upgrading, and parts inventory management.
A company’s value chain is a system of interde-pendent activities, which are connected by linkages.
STRATEGIC SIGNIFICANCE
Information technology is changing the way compa-nies operate. It is affecting the entire process by whichcompaniescreatetheirproducts.Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information compa-nies provide to create value for their buyers.
An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. We call these “value activities.” The value a company creates is measured by the amount that buyers are willing to pay for a product or service. A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).2
A company’s value activities fall into nine generic categories (see Exhibit I). Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. Support activities provide the inputs and infrastructure that allow the primary ac-tivities to take place. Every activity employs pur-chased inputs, human resources, and a combination of technologies. Firm infrastructure, including such functions as general management, legal work, and accounting, supports the entire chain. Within each of these generic categories, a company will perform a number of discrete activities, depending on the par-ticular business. Service, for example, frequently in-cludes activities such as installation, repair, adjust-ment, upgrading, and parts inventory management.
A company’s value chain is a system of interde-pendent activities, which are connected by linkages.
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