Value-Chain Analysis
Value chain is the sequence of business functions in which customer usefulness is added
to products. Exhibit 1-2 shows six primary business functions: research and development,
design, production, marketing, distribution, and customer service. We illustrate
these business functions using Sony Corporation’s television division.
1. Research and development (R&D)—Generating and experimenting with ideas related
to new products, services, or processes. At Sony, this function includes research on
alternative television signal transmission (analog, digital, and high-definition) and on
the clarity of different shapes and thicknesses of television screens.
2. Design of products and processes—Detailed planning, engineering, and testing of
products and processes. Design at Sony includes determining the number of component
parts in a television set and the effect of alternative product designs on quality
and manufacturing costs. Some representations of the value chain collectively refer to
the first two steps as technology development.2
3. Production—Procuring, transporting and storing (also called inbound logistics),
coordinating, and assembling (also called operations) resources to produce a product
or deliver a service. Production of a Sony television set includes the procurement and
assembly of the electronic parts, the cabinet, and the packaging used for shipping.
4. Marketing (including sales)—Promoting and selling products or services to customers
or prospective customers. Sony markets its televisions at trade shows, via advertisements
in newspapers and magazines, on the Internet, and through its sales force.
5. Distribution—Processing orders and shipping products or services to customers (also
called outbound logistics). Distribution for Sony includes shipping to retail outlets,
catalog vendors, direct sales via the Internet, and other channels through which customers
purchase televisions.
6. Customer service—Providing after-sales service to customers. Sony provides customer
service on its televisions in the form of customer-help telephone lines, support on the
Internet, and warranty repair work.
In addition to the six primary business functions, Exhibit 1-2 shows an administrative
function, which includes functions such as accounting and finance, human resource management,
and information technology, that support the six primary business functions.
When discussing the value chain in subsequent chapters of the book, we include the
administrative support function within the primary functions. For example, included in
the marketing function is the function of analyzing, reporting, and accounting for
resources spent in different marketing channels, while the production function includes
the human resource management function of training front-line workers.
Each of these business functions is essential to companies satisfying their customers
and keeping them satisfied (and loyal) over time. Companies use the term customer
relationship management (CRM) to describe a strategy that integrates people and technology
in all business functions to deepen relationships with customers, partners, and
distributors. CRM initiatives use technology to coordinate all customer-facing activities