3.3 Value Chain Analysis for IT Firms

Value chain analysis is crucial for IT firms to understand how they create and deliver value. By examining primary and support activities, companies can identify areas for improvement and competitive advantage.

The digital era has transformed traditional value chains, introducing concepts like disintermediation and co-creation. IT firms now navigate complex value networks and platform ecosystems, reshaping how they interact with customers, partners, and competitors.

Value Chain Components

Primary and Support Activities

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• Primary activities directly contribute to the creation and delivery of a product or service
  • Inbound logistics (receiving and storing raw materials)
  • Operations (transforming raw materials into finished products)
  • Outbound logistics (distributing finished products to customers)
  • Marketing and sales (promoting and selling products)
  • Service (providing after-sales support and maintenance)
• Support activities enable and enhance the efficiency of primary activities
  • Firm infrastructure (general management, planning, finance, and legal support)
  • Human resource management (recruiting, training, and compensating employees)
  • Technology development (improving products and processes through R&D)
  • Procurement (purchasing raw materials, supplies, and equipment)

Digital Value Chain and Vertical Integration

• Digital value chain leverages digital technologies to optimize and integrate activities across the entire value chain
  • Enables real-time data sharing, collaboration, and decision-making
  • Facilitates automation, customization, and innovation
  • Enhances customer engagement and experience through digital channels (e-commerce, mobile apps, social media)
• Vertical integration involves a firm owning and controlling multiple stages of the value chain
  • Backward integration (acquiring suppliers or raw material sources)
  • Forward integration (acquiring distributors or retailers)
  • Aims to reduce costs, improve quality control, and secure supply or distribution channels
  • Can be achieved through mergers, acquisitions, or organic growth

Value Chain Disruption

Disintermediation and Co-creation

• Disintermediation eliminates intermediaries between producers and consumers in the value chain
  • Enabled by digital platforms that directly connect buyers and sellers (Airbnb, Uber)
  • Reduces transaction costs, improves efficiency, and increases transparency
  • Challenges traditional business models and disrupts established industries (travel agencies, taxi companies)
• Co-creation involves collaborating with customers, partners, or external stakeholders to create value
  • Leverages collective intelligence, expertise, and resources to develop innovative products or services
  • Engages customers in the design, development, or customization process (crowdsourcing, user-generated content)
  • Builds stronger relationships, loyalty, and brand advocacy among participants

Value Networks and Platform Ecosystems

• Value networks are complex, interconnected systems of value-creating activities and relationships
  • Involve multiple stakeholders (suppliers, partners, customers, competitors) that contribute to and benefit from the network
  • Rely on collaboration, information sharing, and resource exchange to co-create value
  • Require effective governance, coordination, and trust-building mechanisms to align interests and resolve conflicts
• Platform ecosystems are digital infrastructures that enable interactions and transactions among multiple participants
  • Provide a foundation for third-party developers, complementors, and users to create and exchange value (iOS, Android)
  • Facilitate network effects, where the value of the platform increases with the number and diversity of participants
  • Generate revenue through various models (commissions, subscriptions, advertising, data monetization)
  • Pose challenges related to platform governance, quality control, and managing complementor relationships