Discuss value chain analysis activity and the considerations for outsourcing.
The value chain is a model that helps organizations to assess their cost position and to implement strategies in light of that knowledge (Hitt et al., 2017, p. 93). Essentially, it helps an organization to consider its various facets, evaluating the capabilities that create value for the customer. In order for a certain capability to become a core competence or to create a competitive advantage it needs to allow the organization to (1) perform a service or activity which creates value greater than that of a competitor, or (2) perform a value-creating activity that is impossible for competitors to mimic (Hitt et al., 2017, p. 95). When an organization assesses its position by utilizing value chain analysis, it may decide to outsource if it finds itself lacking in a certain area. However, organizations must realize that they should only outsource for activities/services for which they cannot create value or where they are at a disadvantage when compared to competitors (Hitt et al., 2017, p. 96). This will take discernment on the part of the business. Outsourcing can be very helpful because few organizations have every tool that they need to maintain an all-around competitive advantage. If a company focuses on nurturing and perfecting a smaller number of core competencies and outsources for the rest, the organization has a greater chance of maintaining its competitive advantage, since it won’t be overloaded (Hitt et al., 2017, p. 96). Organizations do need to keep in mind the inherent risk of outsourcing. Some possible effects on the company include a loss of human capital, as well as a future inability to innovate due to limitations caused by outsourcing (Hitt et al., 2017, p. 96).
Prompt: Value chain analyses is used to identify and evaluate the competitive potential of a firm’s resources. Firms consider outsourcing when they cannot create value in a value chain activity or a support function. Discuss value chain analysis activity and the considerations for outsourcing.
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