Value Chain Analysis

Abstract

Value chain analysis (VCA) aids the strategist in understanding a firm’s potential sources of competitive advantage by decomposing the firm’s business processes into strategically important activities. Viewing the firm as an aggregate of interlinked value-adding activities and placing them in the context of a broader value chain helps to understand each activity’s impact on both cost and revenue potential. As such, VCA can be used to help the firm achieve an optimal allocation of resources. This chapter discusses the underlying theory, core idea, depiction, process, insight or value created, and risks and limitations of VCA. The chapter also continues the illustration of Netflix and applies the steps of value chain analysis to this case.