Value Chain Analysis and How It Helps Create a Competitive Advantage

It’s fun to mix things up a little and change up the routine, isn’t it?

Well, in this case, it means presenting things in a different format. And for this, the format is video.

I have the pleasure of being the instructor for the ERM Advanced Techniques class (taught each Spring) for UCLA Extension’s ERM Certificate Program.

Week 3 of the class focuses on business strategy and competitive advantage and how risk plays into that. As you’ve heard here and elsewhere, creating a competitive advantage is how companies can create long-term staying power in this tumultuous environment. In its fully mature state, ERM can play a valuable role in helping a company do this.

As Hans Læssøe explains in his book Prepare to Dare: Using Risk Management to Make Maneuverability your Strategic Advantage in a Volatile World, this “last frontier” of ERM means companies are:

…deliberately taking on huge, but managed risks to raise the bar, and change the name of the game in the industry they are a part of. Being ahead of competitors, they enhance and strengthen their strategic positioning in the market

As you can tell, enabling the company’s leadership to take huge but managed risks goes way beyond more traditional outlooks on risk management that focus solely on preventing failure.

For ERM to support this last frontier, it has to better understand the company as a whole, which means analyzing how the company creates their unique competitive advantage in their industry.

How do you get this understanding? Analyze the value chain.

Below is a segment from the ERM Advanced Techniques course during which I discuss the value chain analysis method. While the entire segment is worth watching, I’m including time stamps of important points below.

• What is competitive advantage? (0:00)
• Why is competitive advantage important? (1:30)
• Sources of competitive advantage. (3:05)
• The Value Chain: How you get an understanding of competitive advantage. (5:00)
• How to analyze the value chain for your company’s products/services. (6:50)
  • Primary Activities – understanding how all of these pieces work within a process that creates value for the organization. (7:20)
  • Secondary Activities – how certain activities help primary activities become more efficient. (9:35)
• The Strategic Management Process – using the value chain analysis to develop plans that lead to more competitive advantage. (13:25)

What tools or approaches does your company use to create a competitive advantage in your industry?

This is undoubtedly an interesting topic and the tip of the spear when it comes to using ERM to help the company achieve success in a chaotic economy and operating environment. Jump in and share your thoughts with the community – either leave a comment below or join the conversation on LinkedIn.

And lastly, if your company is searching for ways it can move beyond simple failure prevention to better understand risks it should be taking in pursuit of objectives and value, please feel free to reach out to me to discuss your current status, goals, and ways we can help get you there.