Value chain analysis

IKEA and Porter’s value chain analyis (and the hot-dog at the end…)

Published on: 20 Sep 2014

At the weekend I bought some furniture at the local IKEA. For those of you not familiar with IKEA it’s a very successful home furnishings group with over 650 million people visiting 300 stores in over 35 countries last year and producing sales of Euro 23 billion. They specialise in “flat pack”, self assembly furniture.

I’m a great fan of IKEA. You know exactly what you are getting with them. A great design, good quality and a reasonable price. IKEA make a great strategy case study and I’ll no doubt be referring to them as this blog progresses. I’ll highlight a couple of things I liked about the whole experience of shopping with them and them briefly link it into a strategic model.

As any of you that have been to an IKEA store before will verify, a trip there can turn into a day long event if you’re not careful. You are guided through a labyrinth of nice displays which will get your design thought processes working nicely. You are then funneled towards the checkouts tils where straight afterwards if the fancy takes you you can enjoy one of the classic IKEA hot-dogs!

Using Porter’s Value Chain when analyzing IKEA and linking it to my purchase shows what worked for me. (See our free P3 ExPress notes for more detail on the value chain)

I didn’t want to spend too much time at the store so what was useful for me was in that their website was very user friendly and easy to find what I wanted. They had up to date stock levels and estimates for the next few days. I could simply go to the website, highlight the item I wanted along, identify my local store and it would tell me the actual stock levels.

Each box within the Value Chain has numerous items in it but for me this element of “sales and marketing” was exactly what I wanted.

Another part of the Value Chain which is important for IKEA but I’m relieved to say I didn’t need it was the “after sales service”. As well as the normal guarantees and warranties that are provided, IKEA have a helpline for people to call if they get stuck when building the self assembly furniture. This could prove to be a key component of the value chain!

This is only a brief post about IKEA and the Value Chain but I always tell my students to look out for real life situations that link to the syllabus. Ok, so my purchase of furniture at IKEA is not the most exciting thing in the world but for anyone who has struggled to put together flat packed furniture “after sales service” component of IKEA’s value chain could save a frustrated hour or so!

Will you drive your customers towards you or away from you?

Published on: 04 May 2011

How easy is it for you to get your product or service to your customers?

Tesco, one of the world’s most successful retailers, have just released a new service which makes it easier for their customers to buy from them.

They were one of the first supermarkets to shake up the “outbound logistics” of their value chain when they launched tesco.com a few years ago. Their website has now gone on to be the most successful grocery retailer website in Europe and they currently deliver shopping to more homes than any other grocery retailer in Europe.

But they have now gone a step further and introduced another clever option for making it easier for customers to buy their products.

They have identified that some people want the convenience of buying their groceries on the internet but don’t want to have to wait at home for the delivery during the 2 hour “delivery window” that Tesco offer.

Busy executives for example, may not want to have to walk around the shop or wait at home for the delivery. A good alternative for them would be to order their shopping at any time of the day and then pick up their groceries on their way home from work whether this is at 6 pm or 10 pm.

As a result Tesco are piloting “drive through shopping” at some of their stores.

This works by the customer making their order online and then driving to their chosen Tesco store to show their order reference number and then pick up their shopping. In fact, they don’t even have to physically pick up their shopping as their groceries will be delivered to the car by a Tesco employee.

Tesco are charging a “pick and pack” fee of £2 per order for the service.

A nice idea by Tesco to make it easier for people to buy from them and raises the thought as to what other companies could benefit from providing “drive through shopping”?

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Are we about to see Nokiasoft or Microkia phones?

Published on: 04 Feb 2011

I used to have a Nokia phone. It had a good battery and made great calls.

Then smartphones came along and I progressed onto an Apple iPhone. It looked super slick and did a lot of things.

Alas, problems with the battery and a slow processor meant that I fell out of love with it and recently decided to replace it.

I briefly looked at the Nokia phones and in particular their flagship phone the N8. The reviews were pretty bad and instead I decided on the Desire HD phone from  HTC.

Now my phone history isn’t the most scintillating of reads but what I found interesting was that Nokia appear to have gone from having arguably the top phones to really having not a lot to offer in today’s Smartphone market.

The challenges faced by Stephen Elop, the new CEO of Nokia have been blogged elsewhere but it seems that the anticipated success of their great hope, the N8 hasn’t materialised.

Nokia’s first quarterly results since Mr Elop joined have just been released.

Whilst their figures are growing with Smartphone sales of 28.3 million units (compared to 20.8 million units for the corresponding quarter in the previous year), their share of the Smartphone market has fallen to 31% (vs. 40% in the 2009 equivalent quarter).

On 11 February there is an investor meeting where Nokia will outline their new strategy but Mr Elop offered a few hints this week.

He stated that the company should have a better strategy around operating systems.

At the moment the 2 big operating systems in the Smartphone market are Apple and Android (the Google open source platform used by Samsung and HTC amongst others).

Nokia currently use their own Symbian operating system with a planned shift to the mobile Linux-based MeeGo operating system. Neither of these systems appear to be particularly impressive.

Mr Elop also mentioned the need for the company to “build or join a competitive ecosystem”.

Now, let’s just take a step back here and look at some of the facts:

Nokia make great handsets but they haven’t got a particularly good operating system. Apple are their arch competitors and switching to an open source Android operating system would make it challenging for them to rise above the other companies using Android.

Now here’s an interesting thought. A couple of months ago Microsoft launched their Windows 7 mobile platform. It’s reportedly technically very good but arguably needs a major handset manufacturer to take it on board.

Mr Elop’s previous employer before joining Nokia was none other than Microsoft.

Will we see Nokiasoft or Microkia phones in the near future?

Was it a good bet or not? 10 years and £1.4 billion later and the answer seems to be…

Published on: 27 Oct 2010

Although people have been gambling for a long time, the profile of the betting industry has changed dramatically over recent years.

The bookmakers that were seen on many a high street seem to be gradually disappearing.

People are still gambling though but the delivery method of the industry is switching to internet based gambling rather than placing bets at a physical bookmakers.

Ten years ago former professional gambler Andrew Black and former JP Morgan trader Edward Wray started up a betting business that addressed matters in a new novel way.

For years the typical approach to gambling had been where a bookmaker set the odds and it was up to the individual gambler whether or not he or she accepted these odds and placed the bet.

Betfair pioneered the concept of person to person betting whereby individuals bet against each other rather than the bookmaker. Betfair provide the platform for the betting and take a commission on each transaction.

A gambler will say that they want to bet on a certain event happening (or not happening) and if another gambler wants to accept the bet then the transaction goes ahead. Betfair provide the mechanism for this to happen.

This is known as a betting exchange and is a great example of where first mover advantage really counts.

In order for the business model to work there has to be a critical mass of gamblers that are willing to offer and accept bets. Without this critical mass the business simply would not work.

Another example of where first mover advantage has been critical to business success is in online auctions. After all, who are the main competitors to eBay?

Back to Betfair though and it certainly is a good business model. Risk for example, is nicely reduced as the company is not standing to lose on the bet but instead takes a nice commission on each transaction.

So how well has it done over the last 10 years?

The answer to this can be found last Friday when 15% of the company was floated on the London stock market and the company was valued at £1.4bn.

Betfair’s advisors were some of the biggest names in the business and included Goldman Sachs, Morgan Stanley and Barclays Capital to name a few.

Amongst other things their job was to identify the price range of the proposed offer. Initial indications were that it would be between £11 to £14. The final initial public offering (IPO) price was set at £13.

With some of the top investment bankers involved and Betfair being in the gambling industry (which is not necessarily renowned for being generous to gamblers) it was something of a surprise to some people to see the share price rise by nearly 20% in the first day of initial trading after the IPO. After all, this could imply that the IPO was undervalued if there was such an initial jump in price.

I wonder what odds you would have got from Betfair that the IPO share price would rise by 20% on the first day of trading?

The ACCA exam results are out today. If you’ve been successful then maybe head to the vending machine.

Published on: 23 Aug 2010

It’s ACCA exam results day today and congratulations to those of you that have passed. All your hard work has paid off and it’s now time to celebrate.

I’ve often wondered whether the results day should be a Friday so you can celebrate on Friday night and Saturday night or whether it’s a good excuse to annoy everyone else in the office on the Monday with your shouts of happiness all day.

If by any chance you’re in Pennsylvania in America and want to have a little drink to celebrate your success then there is now a novel way of doing so.

We blogged last year about the use of vending machines in Germany for selling local fruit and vegetables but in Pennsylvania they are now piloting a new type of “outbound logistics” (using Porter’s Value Chain Analysis terminology).

You can now buy bottles of wine from vending machines. In order to buy the wine customers have to firstly prove they are old enough by swiping their ID and a credit card. They then have to prove they are sober enough to buy the wine by using a breathalyzer.

Wine aficionados may well be aghast at the thought of buying wine from a vending machine but if you’re the type of person that just doesn’t want to stand in a queue and talk to the shop assistant when you’re buying the wine then this could be for you.

Then again, if you’re buying it to celebrate passing your exams I would recommend that you buy it from the shop assistant so that you can tell them and the rest of the people in the queue the reason you’re buying it.

I’d like the classic novel “To Kill a Mockingbird” and a whole lamb delivered tomorrow please.

Published on: 07 Jul 2010

So my plan for tomorrow night is to have a relaxing evening and settle down with a nice box of chocolates, a glass of Pinot Grigio wine and start reading the 50th anniversary edition of the book “To Kill a Mockingbird” which has just been released.

The only problem is that I don’t have chocolates, wine or the book…

Not to worry though as I can order these over the internet for delivery tomorrow. Two websites I’ve ordered from before are those of the supermarket Tesco and the online bookstore Amazon. Tesco have sold books as part of their offerings for a while now so I might as well order all of them from their website.

Hold your horses though as Amazon today announced that as well as books, DVDs and suchlike they would now be selling a range of grocery items online.  Over 22,000 grocery items in fact.

Items ranging from a packet of cinnamon sugar for 29p through to a Highland Fayre Royal Banquet for £1,203.97 are now available for home delivery on www.amazon.co.uk.

Is this a smart move by Amazon or simply an online bookstore trying to get some extra revenue? After all, shouldn’t they stick to what they do best and sell books?

Well, if you think about it, what do they do well? (what are their “core competencies” in strategy exam talk?)

I’d argue that they are pretty good at getting stock into their warehouses (using Porter’s value Chain: inbound logistics), processing orders (operations), delivering goods to customers (outbound logistics), running a website (sales and marketing) and dealing swiftly with any returns (after sales service).

Whether the item of stock being processed is the classic book by Harper Lee or a whole lamb for £119.99 then does it really make any difference?

Only time will tell whether this venture will be successful. Amazon has a trusted brand and is a world leader in processing orders over the internet so maybe they will be successful. The established supermarkets already have a successful internet presence though so it will be interesting to see how this develops.

Anyway, after writing this I’ve now made my decision and I’ll buy the chocolates, wine and books from the Sainsbury Express store next to the office and have the relaxing evening tonight.

So, how will Tom be impacted by the scanning of the outbound logistics?

Published on: 03 May 2010

Tom, the postman that delivers letters to our street always seems to be happy and full of the joys of life. Whether it’s the middle of a cold and wet winter or during a hot summer (admittedly in the UK we don’t get a lot of hot summers but that’s another story!) he’s always smiling and ready for a quick chat.

I wonder whether he knows though that he is in fact part of the “Outbound logistics” of the Royal Mail’s Value Chain.  Value Chain Analysis is a model by Michael Porter and provides a “bird’s eye view” of a business.

The postal service in Finland has recently announced that they will be running a trial where individuals can sign up for a pilot programme which would allow the postal service themselves will open the individual’s letters, scan them and then store them electronically on a password protected  electronic mailbox.

Individuals who use this service will then be sent a text message or email telling them that they have received mail and they can then log on and decide whether the mail item should be shredded or sent to them via the postal system.

This is a novel way of changing the outbound logistics of the value chain. As well as potential costs savings for the postal service in terms of transport costs it would certainly enable people to reduce the amount of junk mail that they received.

There will be obvious issues to address such as confidentiality when the letters are opened and scanned but this is certainly a pilot programme which will be worth watching to see how it develops.

I mentioned to Tom about the pilot programme in Finland and he didn’t seem at all bothered by it – his view was that he’s getting older so the less junk mail he carries the better it would be for him!

The ExP Group