Chapter 2: Linking strategy with information
technology through a value chain approach
In this chapter, the literature review is based on the
relationship between technology and strategy, and the competitiveness impact of
IT on the enterprise. Included is a discussion of the technical, strategic
planning model (value chain approach) to evaluate Axapta software. The
definition of and debate on the concept of the value chain are also
highlighted, followed by a discussion of the impact of IT in the value chain,
the role of value chain integration and the relationship between e-business and
ERP for value chain extension benefits.
Chapter 3: An overview of ERP systems
In this chapter, the discussion is based on the definition
and analyses of the ERP system concept as a value chain system, its background,
as well as its benefits, characteristics, advantages and disadvantages. The
discussion of the general model of an ERP system will be highlighted and its
roles, global architecture and configuration under an MNE strategy will also be
discussed. In addition to the assessment of the strategic supply chain factors
for the evaluation of ERP software considered before adoption, matters related
to the methodology and the success and failure of an ERP system implementation
project within an organisation are also discussed.
Chapter 4: A case study of ERP systems - Axapta
Microsoft software solution
In this chapter, a case study regarding Axapta Microsoft
software solution is discussed according to the generics, modules and
architecture of the software.
17
Chapter 5: Research methodology
This chapter focuses on the research hypotheses formulated
and it provides a detailed discussion of the research type, methodology and
design of this study, including data-gathering methods and procedures used. It
also explains how the methodology of this research was conducted to gather the
data.
Chapter 6: Research findings and interpretation of data
analysis
This chapter is dedicated to presenting the research results
of the collected qualitative and quantitative data related to the ERP system
Axapta Microsoft and SAP software. It includes the results in different tables,
graphs and explanations of the primary data collected in order to complement
the relevant literature, which reinforces the findings of this study.
Chapter 7: Conclusions and recommendations
A conclusion is reached addressing the research objectives
and the finding of this study, followed by a display of the methodical approach
formulated by the researcher to assess ERP software before acquisition and
implementation.
18
CHAPTER 2: LINKING STRATEGY WITH INFORMATION
TECHNOLOGY
THROUGH A VALUE CHAIN APPROACH
2.1 Introduction
It is the objective of this chapter to analyse the strategic
importance of information system (IS), linking it with strategy. It is for this
reason that the value chain, as a strategic planning tool, will also be
evaluated. This enables the researcher to measure the effectiveness of an ERP
system, i.e. Axapta Microsoft software, as a strategic IT tool for MNEs.
2.2 The interdependence of technology and
strategy
Burgelman, Maidique and Wheelwright (2001:6) explain the
development of connecting technology and strategy as follows: "During the
1980s, strategic management scholars began to recognise technology as an
important element of business definition and competitive strategy." Abell in
Burgelman et al., (2001:6) identifies technology as one of three principal
dimensions of business definition, noting that "technology adds a dynamic
character to the task of business definition, as technology more or less
rapidly displaces another over time". Furthermore, Porter (in Burgelman et al.,
2001:6) observes that technology is among the most prominent factors that
determine the rules of competition. Friar and Horwitch (in Burgelman et al.,
2001:6) explain the growing prominence of technology as the result of
historical forces that encompass the disenchantment with strategic planning,
the success of high-technology organisations in emerging industries and the
surge of Japanese competition. This is in addition to the recognition of the
competitive significance of manufacturing.
The four elements that constitute the substantive dimensions
of technology in strategy, as explained by Burgelman et al., (2001:36), are as
follows: (1) The deployment of technology, which can be positioned in terms of
differentiation (perceived value or quality), delivered cost and to gain
technology-based competitive advantage; (2) the use of technology, which can be
seen more broadly in the various activities comprised by the organisation's
value chain; (3) the organisation's resource commitment to various areas of
technology; and (4) the organisation's use of organisation design and
management techniques to manage the technology function. Johnson and Scholes
(2002:10-16) define strategy as the direction and scope of an organisation over
the long term, which achieves advantage for the organisation through its
configuration of resources within a changing
19
environment and to fulfil stakeholder expectations. Strategic
management therefore includes an understanding of the strategic position of an
organisation and strategic choices for the future in an effort to turn strategy
into actions.
Turban, McLean and Wetherbe (2004a: 6) state that IT supports
strategic management through:
· Innovative applications that provide direct strategic
advantage to organisations;
· The changes in processes: where IT supports changes in
business processes that translate to strategic advantage;
· The competitive weapon: where IS itself is recognised as
a competitive weapon;
· The links with business partners: where IT links a
company with its business partners effectively and efficiently;
· Cost reductions: where IT enables companies to reduce
costs;
· The relationships with suppliers and customers: where IT
can be used to lock in suppliers and customers, or to build in switching
costs;
· New products: where IS enables an organisation to
leverage its investment in IT to create new products that are in demand in the
marketplace; and
· Competitive intelligence: where IT provides competitive
(business) intelligence by collecting and analysing information about products,
markets, competitors and environmental changes.
Therefore it can be concluded that IT helps businesses to
pursue the following four basic competitive strategies: (1) Developing new
market niches; (2) Locking in customers and suppliers by raising the cost of
switching; (3) Providing unique products and services; and (4) Helping
organisations in the provision of products and services at a lower cost by
reducing production and distribution costs.
2.3 The role IT plays within strategy
Dewett and Jones (2001:313-14) mention that an IS includes
many different varieties of software platforms and databases. These encompass
organisation-wide systems designed to manage all major functions of the
organisation provided by companies such as SAP, PeopleSoft, JD Edwards, to name
only a few. In addition, more general-purpose database products are found,
targeted with
20
specific uses such as the products offered by Oracle and
Microsoft. Thus, the result is IT encompassing a broad array of communication
media and devices, which link IS and people. Typical ISs include voicemail,
e-mail, voice conferencing, video conferencing, the Internet, GroupWare and
corporate intranets, car phones, fax machines and personal digital assistants.
Therefore as IS and IT are often inextricably linked and, since it has become
conventional to do so, for the rest of this study both IT and IS will be
referred to jointly as IT. A study done by Ward and Griffiths (in Corboy,
2002:7) stipulates that the reason IT could be used for gaining competitive
advantage is its status of:
· Linking the organisation to the customers and suppliers,
through electronic data interchange (EDI), websites, wide area networks (WANs)
and extranets;
· Creating effective integration of the use of information
in a value-adding process, e.g. data mining, data warehousing and ERP
systems;
· Enabling the organisation to develop, produce, market and
distribute new products or services, e.g. computer aided design (CAD) and CRM;
and
· Giving senior management information to help them to
develop and implement strategy through knowledge management, for instance.
IT plays a vital role in improving co-ordination,
collaboration and information sharing, both inside and across organisational
boundaries. It allows more effective management of task interdependence and
facilitates the creation of integrated management information, while
simultaneously offering new possibilities for MNEs.
The generic IT capabilities and their impact on organisations,
highlighted by Siriginidi (2000:376), are:
· Transactional capabilities, which transform unstructured
processes into structured transactions;
· Geographical capabilities, which transfer information
rapidly and with ease across large distances, thus making the processes
independent of geography;
· Automation, which replaces or reduces human labour in
processes;
21
· Analytical capabilities, which introduce complex
analytical methods to enlarge the scope of analysis;
· Informational capabilities, which bring vast amounts of
detailed information into the process;
· Sequential capabilities, which enable changes in the
sequence of tasks in a process, often allowing multiple tasks to be performed
concurrently;
· Knowledge management, which allows collection,
dissemination of knowledge and expertise to improve the process;
· Tracking, which allows detailed tracing of task status,
inputs and outputs; and
· Disintermediation, which connects two parties, internal
or external, within a process that would otherwise communicate through
intermediaries.
According to Dewett and Jones (2001:314), the findings of
Huber's study suggest that IT is a variable that can be used to enhance the
quality and timeliness of organisational intelligence and decision-making, thus
promoting organisational performance. However, Huber's research extends the
role and use of IT into the organisation in the strategic manner of efficiency
and innovation. This captures many of the specific benefits and the examination
of organisational functioning by describing the impact of IT on a broader array
of organisational characteristics from the use of IT to its theory, which
treats several organisational characteristics. The research further introduces
theory, which treats several organisations as dependent variables, with IT
positioned as the independent variable. Indeed, an ERP system is the IS tool
and expression of the inseparability of business and IT. It is not possible to
think of ERP implementation without a sophisticated IT infrastructure (Gupta,
in McAdam & Galloway, 2005:281).
2.4 The importance of a strategic IT plan within an
organisation
According to Bakehouse and Doyle (2002:1), the planning of an
IT strategy is a decision-making process. Such a crucial process should be
undertaken carefully, systematically and an understanding of the business
context.
A study conducted by Peppard in Corboy (2002:6) revealed that
the meanings of having a strategic
IT plan within an organisation are seen
as establishing entry barriers, affecting the cost of switching
operation,
differentiating products/services, limiting access to distribution channels,
ensuring
22
competitive pricing, decreasing supply cost, increasing cost
efficiency, using information as a product and building closer relationships
with suppliers and customers. In addition, the study conducted by Earl (in
Corboy, 2002:3) provides a useful list of reasons as to why an organisation
should have a strategic IT plan:
· High costs are involved and it is critical to the success
of many organisations.
· IT is now used as part of the commercial strategy in the
battle for competitive advantage.
· IT is required by the economic context (from a
macro-economic point of view).
· IT affects all levels of management and the detailed
technical issues in it are important.
· IT has meant a revolution in the way information is
created and presented to management.
· IT involves many stakeholders, not just management.
· IT requires effective management, as this can make a real
difference to successfully using it.
2.5 The value chain and IT, linked to strategic
management
The value chain can be helpful in understanding how value is
created or lost. It describes the activities within and around an organisation,
which together create a product or service. It is the cost of these
value-adding activities that determines whether or not products or services are
developed, which in turn underpins competitiveness (Johnson & Scholes,
2002:117).
According to Corboy (2002:6), the value chain model can be
used to assess the impact of IT on the elements of an organisation's individual
value chain and how it is integrated with other value-adding activities. Thus,
a value chain can be used to evaluate a company's process and competencies and
investigate whether IT supports add value, while simultaneously enabling
managers to assess the information intensity and role of IT. Turban, King, Lee
and Viehland (2004b: 11) state that the value chain is the series of
value-adding activities that an organisation performs to achieve its goals at
various stages of the production process categorises the generic value-adding
activities of an organisation and also the primary activities supported by the
secondary activities. Furthermore, it analyses the forces that influence a
company's competitive position, which assist management in crafting a strategy
aimed at establishing a sustained competitive advantage.
In an effort to establish such a position, Turban et al.,
(2004a: 16) suggest that a company needs to
23
develop a strategy of performing activities differently than a
competitor through:
· Cost leadership strategies: Produce products and/or
services at the lowest cost in the industry;
· Differentiation strategies: Offer different products,
services, or product features;
· Niche strategies: Select a narrow-scope segment (niche
market) and be the best in quality, speed, or cost in that market;
· Growth strategies: Increase market shares, acquire more
customers, or sell more products;
· Alliance strategies: Work with business partners in
partnerships, alliances, joint ventures, or virtual companies;
· Customer-orientation strategy: Concentrate on making
customers happy;
· Innovation strategies: Introduce new products and
services, put new features in existing products and services, or develop new
ways to produce them;
· Operational effectiveness strategies: Improve the manner
in which internal business processes are executed so that an organisation
performs similar activities better than rivals;
· Time strategies: Treat time as a resource, then manage it
and use it to the organisation's advantage;
· Lock-in customer or supplier strategies: Encourage
customers or suppliers to stay with you rather than going to competitors;
· The entry-barriers strategy: Create barriers to entry;
and
· Increase switching cost strategies: Discourage customers
or suppliers from going to competitors for economic reasons.
All this will motivate organisations to perform activities
differently than a competitor while linking those activities to the value
chain. The value chain is a series or «chain» of basic activities
that adds marginal increments of value to an organisation's products or
services. IT plays a strategic role in those activities that add the most value
to the organisation. Does Axapta software support strategic management within
the MNE? Has Microsoft positioned Axapta competitively, which will assist MNE
management to craft a strategy aimed at establishing a sustained competitive
strategy? These issues will be discussed further in chapter 6 in relation to
the hypotheses formulated in chapter 1.
24
2.6 Definition of the value chain concept
The initial purpose of the value chain was to analyse the
internal operations of an organisation, in order to increase its efficiency,
effectiveness and competitiveness. However, nowadays it extends to the company
analysis, by systematically evaluating a company's key processes and core
competencies in order to eliminate any activities that do not add value (Turban
et al., 2004a: 20).
In a study done by Walters and Lancaster (1999:646-47) different
scholars and researchers described the value chain analysis concept as
follows:
1. O' Sullivand and Geringer remind us of the purpose of
value chain analysis by explaining that the organisation has limited access to
resources, and the purpose of the value chain is to ensure that the resources
of the organisation work in a co-ordinated way to take full advantage of
market-based opportunities. In addition the analysis should identify the
optimal configuration of both the macro- and micro-business systems that will
maximise value expectations. Thus, the conceptual concerns of the supply chain
and the value chain begin to converge.
2. Brow pursues a conventional approach to the value chain by
introducing two additional perspectives to the debate by putting the emphasis
on the links or relationships between activities in the value chain and the
organisation's competitive scope as a source of competitive advantage. Brow
mentions that links and relationships between buyers, suppliers and
intermediaries can lower cost or enhance differentiation. The competitive scope
may concern the range of products or customer types (segment scope), the
regional coverage (geographic scope), or its activities across a range of
related industries (its industry scope).
3. Porter proposed the value chain as a means by which business
actions that transforms inputs could be identified (i.e. value chain stages).
Furthermore, from its study the proposition formulates suggested that those
stages in the value chain can be explored for interrelationships and common
characteristics. This could lead to the opportunities for cost reduction and
differentiation.
Porter provides a detailed view of the value chain and its
efficacy and states that its purpose at either macro or micro level is to:
· Identify relationships and interdependence between
stages for both systems within the organisation;
25
· Identify meaningful differentiation characteristics,
which are unique, or exclusive, to the organisation;
· Identify costs and cost profiles within the organisation
together with cost advantages that could exist, and identify the business
actions (stages) which transform inputs;
· Choose its competitive positioning market segments,
customer applications/end-uses and the technologies; and
· Identify alternative value chain delivery structures
(i.e. interrelationships internally and between business units) within the
industry delivery structure.
Therefore, according to Porter (1990:40), both macro- and
micro-business systems should consider the value creation process, more
recently in the interests of shareholders, suppliers and employees (together
with those of the community) included in a broader view of stakeholder
interests and value. In addition, Porter (1990:40) explains the concept of the
value chain in competition as follows:
"Competitive advantage grows out of the way organisations
organise and perform discrete activities. The operations of any organisation
can be divided into a series of activities such as salespeople making sales
calls, service technicians performing repairs, scientists in the laboratory
designing products or processes and treasurers raising capital. Organisations
create value for their buyers through performing these activities. The ultimate
value an organisation creates is measured by the amount buyers are willing to
pay for its product or service. An organisation is profitable if this value
exceeds the collective cost of performing all of the required activities.
Organisations gain competitive advantage from conceiving of new ways to conduct
activities, employing new procedures, new technologies, or different inputs. An
organisation's value chain is an interdependent system or network of
activities, connected by linkages. Linkages occur when the way in which one
activity is performed affects the cost or effectiveness of other activities.
Linkages also require activities to be co-ordinated. Gaining competitive
advantage requires that an organisation's value chain is managing as a system
rather than a collection of separate parts. Competitive advantage is a function
of either comparable buyer value more efficiently than competitors (low cost),
or performing activities at comparable cost but in unique ways that create more
buyer value than competitors and, hence, command a premium price."
26
Thompson and Strickland (1987:115) stress that the primary
analytical tool of strategic cost analysis is a value chain, which must
identify the separate activities, functions and business processes performed in
designing, producing, marketing, delivering and supporting a product or
service. The chain starts with raw materials supply and continues on through
parts and components production, manufacturing and assembly, wholesale
distribution and retailing to the ultimate end-user of the product or service.
Johnson and Scholes (2002:160) describe in a simplistic way the value chain as
the activities within and around an organisation, which together create a
product or service.
In a study done by Walters and Lancaster (2000:160), Brown
offered a succinct definition of the value chain as follows: " The value chain
is a tool to disaggregate a business into strategically relevant activities.
This enables identification of the source of competitive advantage by
performing these activities more cheaply or better than its competitors. Its
value chain is part of a larger stream of activities carried out by another
member of the channel-suppliers, distributors and customers." The three
important perspectives that emerged from the study of Walters and Lancaster
relating to the value chain are:
· Firstly that it emphasises the relationship between
activities in the value chain;
· Secondly, the need for the first to result in competitive
advantage; and
· Thirdly, to identify the role of information to
evaluate the nature of opportunities offered, identify optional methods for
competing and co-ordinate the value chain's activities towards successful
implementation of the value strategy.
2.7 Different graphic representations of the value
chain
2.7.1 Porter's value chain
The Porter's value chain model categorises nine generic
value-adding activities of an organisation (Johnson & Scholes, 2002:160),
as shown in figure 2.1 below. The model constitutes two broad types of
categories: primary and support activities.
The primary activities are those activities involved in the
physical creation of the product or service, its delivery and marketing to the
buyer and its support after sale. The support activities merely provide the
infrastructure that allows the primary activities to take place on an ongoing
basis. The five main areas of primary activities are:
27
· Inbound logistics, which are the activities
concerned with receiving, storing and distributing the inputs to the product or
service. They include materials handling, stock control and transport, etc.
· Operations, which transform these various inputs into the
final product or service: machining, packaging, assembly, testing, etc.
· Outbound logistics, which collect, store and
distribute the product to customers. For tangible products this would be
warehousing, materials handling, transport, etc. In case of services, they may
be more concerned with arrangements for bringing customers to the service if it
is a fixed location.
· Marketing and sales, which provide the means of making
consumer/users aware of the product or service and enabling them to purchase
it. This typically includes sales administration. In public services, it will
be communication networks, which help users to access a particular service.
· Service, which includes all those activities that enhance
or maintain the value of a product or service, such as installation, repair,
training and spares.
Figure 2.1: Porter's value chain model
Secondary activities
Value
Primary activities Primary activities
Upstream value activities Downstream value activities
Inbound
logistics
(raw materials,
handling
and
warehousing)
(machining, assembling, testing)
Operations
Firm infrastructure
(general management, accounting, finance, strategic
planning)
Procurement
(purchasing of raw materials, machines,
supplies)
Human resource management
(recruiting, training,
development)
Technology development
(R&D, product and process improvement)
(warehousing
and distribution
of
finished
product)
Outbound
logistics
(Advertising, promotion, pricing, channel
relations)
Marketing and
sales
(Installation, repairs, parts, etc.)
Services
Source: Adapted from Turban et al., (2004a: 11).
28
The element of primary activities can be broken down to form a
particular activity. Those primary activities, which occur before outbound
logistics, are commonly referred to as upstream value activities, while those
that occur after outbound logistics are called downstream value activities.
The upstream logistics are more important for buyers, while
downstream logistics are more important for the marketers of the organisation's
products. Each of these groups of primary activities is linked to support
activities. Support activities help to improve the effectiveness or efficiency
of primary activities and are divided into four areas:
· Procurement, which refers to the processes for acquiring
the various resource inputs to the primary activities. As such, it occurs in
many parts of the organisation.
· Technology development, where all value activities
have a «technology», even if it is just know-how. The key
technologies may be concerned directly with the product (e.g. R&D, product
design) or with processes (e.g. process development) or with a particular
resource (e.g. raw materials improvement). This area is fundamental to the
innovative capacity of the organisation.
· Human resource management, which is a particularly
important area, which transcends all primary activities. It is concerned with
those activities involved in recruiting, managing, training, developing and
rewarding people within the organisation.
· Infrastructure, which the system that plans the finance,
quality control and information management.
In most industries it is rare for a single organisation to
undertake all of the value activities in-house from the design to the delivery
of the final product or service to the final consumer (Johnson & Scholes,
2002:160). However, although the names that attribute processes to each
activity differ, the organisations perform activities more or less in the same
way. In the study of Walters and Lancaster (2000:162-3), Sutton reminds us of
«the totality surrounding one organisation as the value chain». Each
step can only be justified if it creates more value to the end-user than it
consumes as cost. An individual organisation's competitive position depends on
the effectiveness of the chain as an entity, not just its own position as a
link in the value chain.
2.7.2 The customer-centric value chain
Highly competitive markets and abundant information have placed
the customer at the centre of the
29
business universe. In this new environment, successful
business are those that employ customer-centric thinking to identify customer
priorities and construct business designs to match them (Slywotzky &
Morrison, 1997:17). Slywotzky and Morrison (1997:28-29) comment that in
«the old economic order, the focus was on the immediate customer. Today,
business no longer has the luxury of thinking about just the immediate
customer. To find and keep customers, the perspective has to be radically
expanded. In a value migration world, the vision must include two, three, or
even four customers along the value chain. For example, a component supplier
must understand the economic motivations of the manufacturer who buys the
components, the distributors who take the manufacturer's products to sell, and
the end-user».
According to Slywotzky and Morrison (1997:20), the
traditional value chain begins with the company's core competencies, its
assets. It then moves to inputs and other raw materials, to an offering, to the
channels, and then finally to the customer, as shown in figure 2.2 below.
Figure 2.2: The traditional value chain
Assets/Core
Competencies
Inputs, Raw
Material
Product/Service
Offering
Channels The Customer
Source: Adapted from Slywotzky and Morrison (1997:20).
Therefore Slywotzky and Morrison use a "customer-centric"
approach to propose a modern value chain, as shown in figure 2.3, in which the
customer is the first link to all that follows. The approach therefore changes
the traditional value chain in that it takes on a customer-driven perspective.
Slywotzky and Morrison (1997:20-7) state that an organisation's value chain
must merge with those of other value chain members. Figure 2.3 below takes an
industry perspective of this value chain where IT provides a co-ordinating
function.
As is evident in the customer-centric value chain, the task of
management is to identify the
30
customer needs and priorities of the channels that can
satisfy those needs and priorities, the services and products best suited to
flow through those channels, the inputs and raw materials required in creating
the products and services and the assets and core competencies essential to the
inputs and raw materials.
Figure 2.3: The customer-centric value chain
Value criteria Security
Performance
Aesthetics
Convenience
Economy Reliability
Channels
Information
Value added
Costs added
Customer
Value Value offer Inputs, raw
Attributes Channels materials
Assets and core
Competencies
Source: Adapted from Slywotzky and Morrison in Walters and
Lancaster (1999:648).
2.7.3 Scott's value chain
Scott (1998:87) notes that all organisations, whether
industrial or services, have a value chain. Each part needs a strategy to
ensure that it drives value creation for the whole organisation. For a piece of
the value chain to have a strategy means that it must be clear on what
capabilities the organisation requires to deliver effective market impact.
Walters and Lancaster (1999:648) explain Scott's value chain
by taking a strategic management view and using the value chain concept to
identify the tasks necessary to deliver a product or service to the market.
Therefore, Scott's approach to the value chain combines segmentation and value
chain analysis, followed by suggesting a number of questions such as: In which
areas of the value chain does the organisation have to be outstanding to
succeed in each customer segment? What skills or competencies are necessary to
deliver an outstanding result in those areas of the value chain? Are they the
same for each segment or do they differ radically? According to Scott
(1998:17), in order to segment an organisation or a product based on
competencies it is necessary to
31
understand the value chain of the company. The core elements
of Scott's value chain shown in figure 2.4 comprises seven areas: (1)
operational strategy; (2) marketing sales and service strategy; (3) innovation
strategy; (4) financial strategy; (5) human resource strategy; (6) information
technology strategy; and (7) lobbying position with government. In the Scott
value chain, coordination across the value chain is essential, which did not
occur in the traditional value chain.
Figure 2.4: An alternative view of the value chain
drivers
· Application rates
· Staff turnover
· Labour productivity
· Hierarchy/layers
· Accountability
· Remuneration ratios
· Ownership
· Bonusing
· Speed of promotion
· Training/revenue
· Internet comms
· Space/employee
· Cost
· Unionisation
· Leverage
· Cost of debt
· Debt maturity
· Investor relations
· Dividend policy
· Cost structure
· Cash flow
· Internal controls
· Acquisitions
Finance
Human resource
management
Innovation
Purchasing and
Supplier Process
· Relationship
quality
· Material inventory costs
· Unit input
· R&D training/revenue
· Patents/100 Employees
· New product launches
· Position on innovation curve
Core Production Process
· Unit costs - Utilisation
- Scale
- WIP
· Quality - Scrap rate
- Rework
· Timeliness - Cycle time -Throughput
time
· Flexibility -
Changeover time
· Exposure to regulatory change
· Lobbying capability
Distribution
Marketing
Sales and service
Government
relations
· Speed to market
· Finished goods
inventory
· Unit distribution Cost
Information
technology
· Customer targeting
· Customer loyalty
-
Churn
· Customer acquisition
· Customer yield
· SOV
· Unprompted
recall
· Price premium
· IT spend/revenue
· Communications
networks
· Knowledge sharing
· Value chain integration
· Channel complexity
· Channel control
· Trade relationships
· Market responsiveness
· Customer churn
Source: Adapted from Scott (1998:87-222).
Scott's study of the value chain emphasised primarily the
relationship between the company's value
32
chain and its strategic business units (SBUs). Furthermore,
according to Scott (1998:88), certain parts of the value chain are likely to be
common to all its SBUs. These include human resources, IT and large parts of
its financial and selling functions. Therefore Scott concludes that the
information requirements of individual SBUs might differ and require specific
services. In a market/customerfocused business, the core elements of the
business should be capable of developing specific service inputs to ensure
competitive advantage.
2.7.4 Walters and Lancaster's value chain
The value opportunities are distinguished by understanding
customers' priorities and producing, communicating and delivering the
identified value. This suggests that the value chain must be an analytical and
a facilitating concept (Walters & Lancaster, 2000:161-165). However,
strategy must be considered as the value-creating system itself in which
members work together to create value. Normann and Ramirez (1998:29) note that
offering goods and/or services is the result of a complex set of value-creating
activities involving different actors working together at different times and
locations to produce them for and with a customer. Walters and Lancaster
(2000:162) point out that the key strategic task is the reconfiguration of the
value chain roles and relationships in order to «mobilise the creation of
value in new forms and by new players». They further state that the
underlying goal is to "create an ever improving fit between competencies and
customer". To understand how this may be achieved, two models are required. The
first is a model of the value chain itself and the second is one describing the
value chain structures and processes.
According to Walters and Lancaster (2000:162-3), the value
chain depicted in figure 2.5 combines the two models. Topics and subcomponents
describe the notion of customer value, comprising customer value criteria less
their acquisition costs. In order for the value chain to be successful it is
essential that the individual objectives of all stakeholders as well as those
of customers be met. It is important to note that value production and
co-ordination are created by identifying and understanding customer benefits
and costs, and the combinations of organisational knowledge and learning,
together with organisational structures that facilitate response and delivery.
Essentially it requires the management of information and relationships. An
important influence is the impact of the value and cost drivers, which in turn
are the important strategic and operational relationship criteria influencing
value delivery and cost structures. A depiction of components of the value
chain is displayed in figure 2.5 below. "Corporate value" is a value chain
perspective of profitability and
33
cash flow objectives, "knowledge" refers to market-based
intelligence developed for strategic and operational use within the value chain
and "information management" components include market identification, time,
accuracy, relevance and control aspects. Walters and Lancaster (2000:162) claim
that relationship management comprises the obvious co-ordination activities
together with coproduction (upstream and downstream within the value chain),
co-destiny (the promotion of interdependence), cost management (to achieve
optimal value chain costs for the value added throughout) and cost transparency
(the notion that effective co-operation and co-ordination are only achievable
if visibility exists).
Figure 2.5: The value chain components model
Key success factors
Value proposition
'Corporate value'
· Profitability
· Productivity
· Cash flow
· 'Knowledge'
Information management
· Identification
· Time
· Accuracy
· Relevance
· Control
Value
strategy and
positioning
Organizational structure and
management
· Knowledge
· Learning
· Partnerships
Value production
and coordination
Operation structure and management
'Production'
· Time to market
· Service
· Quality
· Risk
· Cost management
· Reputation
Relationship management
· Coordination
· Coproduction
· Codestiny
· Cost management
· Cost transparency
|
· Sourcing and procurement
· Production processes
· Flexibility
'Logistics'
· Order management
· Delivery
· Reliability
· Availability
|
|
Value/
cost
drivers
Customer value criteria
· Security
· Performance
· Aesthetics
· Convenience
· Economy
· Reputation
|
|
|
Customer value added = Results produced for
the customer and the process quality
less
Price to the customer and the cost of acquiring the product
service
Customer acquisition costs
· Specification
· Search
· Transactions
· Installation
· Operations
· Maintenance
· Disposal
Source: Adapted from Walters and Lancaster (2000:163).
In his influential book Competitive
advantage, Porter (1985) depicts the relationships between actors
in a productive system in terms that are uni-directional and sequential in
nature. In Porter's value chain notion, economic actor A sells (or passes on)
the output of his work to actor B, who 'adds' value to it, and sells or passes
it on to actor C, who adds value to it, and sells or passes it on to actor D,
and so on until it is sold to the end-consumer. However, with microprocessor
technologies, economic actors are increasingly engaged in sequential and
simultaneous activity relations with other economic actors. Thus, Normann and
Ramirez (1998:viii) assert that provider-customer
34
relationships should be conceived not as one-way transactions
but reciprocal constellations in which the parties «help each other and
help each other to help each other». In addition, Walters and Lancaster
(2000:162) argue that the organisational structure management is concerned with
ensuring that maximum use is made of knowledge generated in the value chain and
partnerships, which lead to effective learning.
Therefore Walters and Lancaster (2000:163) conclude that the
activities and topics influence the production and co-ordination of value
delivery through the impact of the value/cost drivers. Not surprisingly, the
value/cost drivers influence organisational and operations structure and their
management. As figure 2.5 infers, both production and logistics are important
components of the operations structure, which is the other input into value
production and co-ordination. The impact of globalisation (for procurement and
marketing purposes) has made the value chain a more useful approach to
identifying and evaluating business opportunities. The view of value chain
structure and process mentioned by Walters and Lancaster in figure 2.6 below
becomes important because it incorporate the expansion of the role of the value
chain by means which the relationship and information management activities
become more effective by identifying value chain constraints.
Figure 2.6: Value chain structure and
process
Value Chain Management
Supply Chain Management
Relationship Management
Customers' Value criteria
less Customers' Costs of Acquisition
Product - Service Attributions
Value Delivery
Value Communication
Value production Assets & core
- inputs Value Competencies Value
- processes Proposition - required Objectives and strategy
- available
· Security
· Performance
· Aesthetics
· Convenience
· Economy
· Reliability
less
· Specification
· Search
· Transactions
· Operation
· Maintenance
· Disposal
· Core product
· Tangible product
· Augmentation
· Extended product
· Marketing logistics
· Transaction channels
· Physical distribution channels
· Benefits available
· Competitive advantage (s)
· Acquisition
costs
· Times to market
· Service
· Quality
· Risk
· Costs
· Partnerships
· Materials management
· Target
customers
· Internal
· value drivers
· activities
· costs
· External
· value attributes to be delivered
· ' relative value '
· Key success
factors
· Skills
· Ressources
· 'Corporate value'
· Profitability
· Productivity
· Cash flow
· Knowledge
· Performance
Information Management
Source: Adapted from Walters and Lancaster (2000:163)
35
Sutton (in Walters & Lancaster, 2000:162-3) proposes the
market mechanism as a means to coordinate activities. It is suggested that the
term "market co-ordination" be used for the situation in which specialisation
is separate and where the value chain comprises a series of sequential
individual activities under individual ownership. An alternative model is one
in which more than one organisation"... seeks to combine two or more stages
under single control and rely upon internal management to ensure
co-ordination". Sutton uses the conventional term "vertical integration" for
this structure. An organisation may also act as a contractor to co-ordinate the
other links in the value chain but relies on external agreements rather than
internal management.
The vertical co-ordination comprises individual organisations
having specific objectives but shared purpose (customer satisfaction) within
the value chain. According to Sutton (in Walters & Lancaster, 2000:162-3),
vertical integration has alternative structural options, namely breadth and
depth. Breadth occurs in companies that rely on co-ordination of some
activities while assuming ownership of others.
Sutton (in Walters & Lancaster, 2000:162-3) suggests
differentiation as breadth being the extent of co-ordination with vertical
integration and depth the activities that are combined into one activity, given
that the value chain is concerned with value maximisation and cost
optimisation. Therefore, the availability of economies of scale and scope is
important. These relate to the ability to specialise and gain cost advantages
and/or to offer a limited range of specialist products and/or services that
have significant impact on customer costs, for which much of the fixed costs
are shared.
2.7.5 Value nets
A traditional supply chain is designed to meet customer demand
with a fixed product line, relatively undifferentiated, one-size-fits-all
output and average service for average customers. In contrast a value net forms
itself around its customers, who are at the centre. It captures their real
choices in real time and transmits them digitally to other net participants.
36
Table 2.1: Key business design differences
Old supply chain New value net
· One size fits all
· Arm's-length and sequential
· Rigid, inflexible
· Slow, static
· Analogue
|
·
|
|
· Customer-aligned
· Collaborative and systemic
· Agile, scalable
· Fast-flow
· Digital
|
|
|
|
|
|
|
Source: Adapted from Bovet & Martha (2000:6).
According to Bovet and Martha (2000:2), a value net views
every customer as unique. It allows customers to choose the product/service
attributes they value most. The traditional supply chain manufactures products
and pushes them through distribution channels in the hope that someone will buy
them. In contrast, a value net begins with customers, allowing them to
self-design products and builds to satisfy actual demand. Thus, Bovet and
Martha (2000:2) describe a value net as a business design that uses digital
supply chain concepts to achieve both superior customer satisfaction and
company profitability. It is a fast, flexible system that is aligned with and
driven by new customer choice mechanisms. Therefore a value net is not what the
term `supply chain' conjures up. It is no longer just about supply, it is about
creating value for customers, the company and its suppliers. Nor is it a
sequential, rigid chain.
2.7.6 The e-business value chain
The e-business processes enable efficient and effective
collaboration between organisations, directly or through so-called
e-marketplaces. This means that responsibilities are shared between
organisational units of the collaborating organisations. The improvement of SCM
and CRM processes are key to enabling the organisation value chains (Kirchmer,
2004:25).
When the Porter value chain is considered and e-business
technologies are placed into the
framework, it gives an insight into the
reach of these technologies into the value activities. The
37
major enabler is the Internet and that is why the resulting
processes are called e-business processes, connected to entire networks of
processes across various organisations. Thus, the e-business value chain model
by Hooft and Stegwee (2001:49) in figure 2.7 below, is used to illustrate that
e-business can reach all activities of the organisation, and that some
applications cover multiple value activities. In this model, the linkages
already exist between activities; some of these linkages have been integrated
by using e-business technologies, ultimately providing a fully integrated
e-business process. By analysing the e-business value chain model, it helps the
organisation lower the costs and increase the value of activities.
Figure 2.7: The e-business value chain
Source: Adapted from Hooft & Stegwee (2001:49).
Porter (in Diana & Judith, 2003:242) examines the
Internet as it applies to the value chain as shown in figure 2.8 below. In this
depiction, Porter employed his well-known value chain model to examine
Web-based initiatives. Consequently, the focus is on strategy as it relates to
the value chain. The model therefore suggests the dimensions of operations,
technology, logistics and marketing as being potentially strengthened by the
adoption of e-commerce strategies.
38
Figure 2.8: Prominent applications of the Internet in
the value chain
Dissemination throughout the company of real-time inbound and
in-progress inventory data
Firm Infrastructure
· Web-based, distributed financial and ERP systems
· Online investor relations (e.g., information
dissemination, broadcast conference calls)
Human Resource Management
· Self-service personnel and benefits administration
· Web-based training
· Internet-based sharing and dissemination of company
information
· Electronic time and expense reporting
Technology Development
· Collaborative product design across locations and among
multiple value-system participants
· Knowledge directories accessible from all parts of the
organization
· Real-time access by R&D to online sales and service
information
Procurement
· Internet-enabled demand planning, real-time
available-to-promise/capable-to promise and fulfillment
· Other linking of purchase, inventory, and forecasting
system with suppliers
· Automated " requisition to pay"
· Direct and indirect procurement via marketplaces,
exchanges, auctions and buyer-seller matching
Real-time integrated scheduling, shipping, warehouse
management,
demand management and planning, and advanced planning and
scheduling across the company and its suppliers
Inbound Logistics
Web-distributed supply chain management
Integrated information exchange, scheduling, and decision making
in in-house plants, contract assemblers and components suppliers
Real-time availableto-promise and capable-to-promise
information available to the salesforce and channels
Operations
Real-time transaction of orders whether initiated by an end
consumer, a salesperson, or a channel partner
Automate customer-specific agreements and contract terms
Customer and channel access to product development and delivery
status
Collaborative integration with customer forecasting systems
Integrated channel management including information exchange,
warranty claims, and contract management
Outbound Logistics
Real-time inside and outside access to customer information,
product catalogs, dynamic pricing, inventory availability, online submission of
quotes, and order entry
Online sales channels including Web sites and marketplaces
Online product configurators
Customer-tailored marketing via customer profiling
Push advertising
Tailored online access
Real-time customer feed-back through Web surveys, opt-in/- out
marketing, and promotion response tracking
Marketing and sales
Customer self-service via Web sites and intelligent service
request processing including updates to billing and shipping profiles
Real-time field service access to customer account review,
schematic review, parts availability and ordering, work-order
Update,
and
service
parts manage-
ment
Online support of customer service representative Through e-mail
response management, billing integration, co-browse, chat, " call me now,"
voice-over IP, and uses of video streaming
After-Sales Service
Source: Adapted from Porter in Diana & Judith (2003:242).
For effective value chain reconfiguration, the process of
reconfiguring is necessary to an organisation's survival in a changing
environment (Normann & Ramirez, 1998:99). Thus, having an offering code
that enhances fit for potential value-creating activities between supplier and
customer is necessary. This is where the concept of leverage comes in.
According to Normann and Ramirez (1998:59), leverage explores
and exploits opportunities based
on better utilisation of the joint
resources of both parties, as well as those of subcontractors, partners
or
other suppliers as appropriate. Therefore, leveraging can take the form of
relieving and/or
39
enabling the customer. Both concepts concern the configuration of
activities as they are manifested in the relationship linking customer and
supplier; that is, in the offering.
2.8 ERP system and e-business: An evolving relationship
for value chain extension
In the 1990s, software developers developed ERP software, a
fuller "suite" of applications capable of linking all internal transactions.
Since then the use of ERP software has exploded, and some advocates claim that
it is the ultimate solution to information management. While traditional
production management information systems have focused on the movement of
information within an organisation, Web-based technology facilitates movement
of information from business to business (B2B) and from business to consumer
(B2C), as well as from consumer to business (Balls et al., 2000:2-3).
According to Balls et al., (2000:2-3), research groups such as
Forrester, Gartner and AMR all project incredible growth for e-business in the
first five years of the new century. Some analysts in Balls et al., (2000:2-6)
comment that in their rush to become an e-business, most organisations have
decided against implementing an ERP system. Balls et al., (2000: 4-6) have
discovered that some client companies are building e-business applications
while largely ignoring ERP development, hoping someone, someday will integrate
the back end. As a result, companies whose e-business applications have no
order-fulfilment and order-status capabilities either lack data or need to
recreate it.
E-business simply does not work without clean internal
processes and data. The choice, though, is not between developing e-business
solutions or implementing ERP. Clearly, both are necessary. According to Balls
et al., (2000:4-6), making ERP work most effectively in an e-business
environment means shedding old notions of ERP. One such notion is whether ERP
will always look the same. Balls et al., (2000:2-3) assert that ERP software in
the next few years will certainly not look like ERP software designed in the
1990s. The delivery of ERP functionality will also change. For instance, a
software vendor that today focuses on one front-end e-business application may
in the future build into its products a transaction engine component that can
then be attached to other organisations' front-ends. The other option is that
ERP vendors will successfully make products more flexible and less difficult to
implement, and they will either add e-business functionality or make their
systems more compatible with third-party front-end e-business products. Why is
this a
40
challenge for ERP vendors? Organisations use ERP software to
enable processes that confer a competitive edge. Consequently, e-business is
forcing ERP vendors to rethink their products' role within the enterprise. All
are in some way looking to broaden ERP functionality to incorporate front-end
technology and create trading communities through portals and joint ventures
with Web-based technology and other vendors.
For many organisations, ERP itself may be delivered over the
Web through business application outsourcing undertaken by application service
providers. In the future, it is clear that companies will work together in
extended value chains. Those that are able to plug their internal IS into the
information chain that parallels the physical goods value chain will prosper;
those that are not will fail. Successful organisations will be part of a
networked team of business partners dedicated to delivering customer value.
Very few (if any) organisations will be able to compete single-handedly against
such a team. The technology to "team" is available today, and strong teams are
already beginning to form. In short, together, e-business technologies (the
Internet, the Web, a host of e-enabling technologies) and ERP systems will
provide companies with new options for raising profitability and creating
substantial competitive advantage (Balls et al., 2000:7). Balls et al.,
(2000:7) realise that properly implementing e-business and ERP technologies in
harmony truly creates a situation where synergism is created. Web-based
technology puts life and breath into ERP technology that is large,
technologically cumbersome and does not always easily reveal its value. While
ERP organises information within the organisation, e-business disseminates that
information far and wide. ERP and e-business technologies supercharge each
other. The purpose of these new technologies (ERP and e-business) is to enable
the extended value chain.
2.9 The value chain selected and customised for the
purpose of this study
This study involves Porter's value chain, Walters and
Lancaster's value chain, the e-business value chain, the Scott value chain and
the customer-centric value chain as discussed at the beginning of this chapter.
The reasons for selecting these value chains respectively are given below.
· Porter's value chain model
Porter's value chain model is one of the foundation concepts on
which most ERP systems are built.
Even though IT has revolutionised it, the
concept remains an important tool for evaluation.
Therefore for this study
the model will be applied by comparing the generic modules and functions
41
of Porter's value chain with Axapta Microsoft software modules
and configuration as motivated in chapter 1.
· Walters and Lancaster's value chain
model
Walters and Lancaster (2000:178) point out that
identification of customer value criteria and an understanding of the key
success factors are necessary for creating both competitive advantage and
resultant success. Therefore value propositions become the means by which the
customer understands the value offer (typically made explicit as a series of
product/service attributes) and by which the value chain components assist in
the formulation, evaluation and decision on their value-adding contributions in
organisations. Walters and Lancaster (2000:178) view strategy as the
value-creating system itself in which members work together to create value.
Therefore, a key strategic task in the reconfiguration of value chain roles
falls under relationships in order to "mobilise the creation of value in new
forms and by new players". The model will be applied in this study to test
Axapta Microsoft software value chains in its roles, relationships and
leveraging mechanisms for the creation of value and its cost drivers for MNE
users.
· The e-business value chain model
With regard to the challenge of e-business in the value chain
system, it is the objective of this study to determine if Axapta attributes
have been incorporated in e-business mechanisms, which could extend the value
chain of an MNE. For its reason this model will be applied to indicate the
possibility of its use or otherwise.
· The customer-centric value chain
"The value of any product or service is the result of its
ability to meet a customer's priorities" (Slywotzky & Morrison, 1997:23).
Customer-centric thinking begins first with the customer and then moves,
ultimately, to the assets and core competencies. It literally reverses the
value chain so that the customer is the first link in the chain and everything
else follows (Slywotzky & Morrison, 1997:21). Thus, the customer-centric
value chain will be applied in order to analyse the Axapta Microsoft software,
to determine if it has been formulated according to the customer-centric
philosophy.
42
· Scott's value chain
There is now an increasing shift away from this departmental
view of competencies to managing the value chain holistically. The SBUs that do
well in a particular segment will ensure that the entire value chain works to
support their differentiating attributes. It is the ability of an organisation
to integrate all its departmental skills behind a single goal that gives it
decisive advantage over the competition (Scott, 1998:89). Thus, the value chain
model will be applied to analyse Axapta Microsoft software capability in its
relationship between a company's value and its SBUs.
The question can be asked whether Axapta software is based on
the value chain model and, if it is a value net with a leverage capability,
whether it has an impact on the effectiveness of an MNE's value chain in
fulfilling its requirements. The value chain models selected for this study, as
evaluative tools, will attempt to answer the above questions. This will be
debated further as part of the findings of this study in chapter 6, where
results will be put in relation to some of the hypotheses and objectives
formulated in chapter 1.
2.10 The value chain's system through ERP
integration
«The value chain's system integration is the process by
which multiple organisations with a shared market channel collaboratively plan,
implement, and manage (electronically as well as physically) the flow of goods,
services, and information along the entire chain in a manner that increases
customer-perceived value» (Balls et al., 2000-12). ERP systems facilitate
this integration, and as a structured approach, they optimise an organisation's
internal value chain.
According to Balls et al., (2000:82-4), a highly integrated
value chain creates greater value for the end-customer by delivering products
and services more efficiently and effectively. Within the industry the group of
organisations that carry out each step in creating and delivering products is
called the supply chain. Therefore the supply chain transforms into an
integrated value chain when it:
· Extends the chain all the way from sub-suppliers to
customers;
· Integrates the back-office operations with those of the
front office;
· Becomes highly customer-centric, focusing on demand
generation and customer service;
· Is proactively designed by chain members to compete as an
«extended organisation»; and
43
É Seeks to optimise the value added by information and
utility enhancing services.
The tangible benefits of system integration are inventory
reduction, personnel reduction, productivity improvement, order management
improvement, financial-close cycle improvements, IT cost reduction, procurement
cost reduction and revenue/profit increase, etc. On the other hand, the
intangible benefits are information visibility, new/improved processes,
customer responsiveness, standardisation, flexibility, globalisation and
business performance. Consequently, value chain integration allows real-time
synchronisation of supply and demand and enables support of an organisation in
its efforts to become part of an extended organisation, beyond electronic
supply chain management. This pushes MNEs to develop collaborative business
systems and processes that can span across multiple organisation boundaries.
2.11 The impact of IT in the value chain
system
In his introduction of the value chain theory, Porter makes
no reference of IT as a backbone to support the mechanism behind the process.
However, later Porter and Millar (1985:150) acknowledge the importance of IT by
mentioning that this technology «is transforming the nature of products,
processes, companies, industries, and even competition itself. Until recently,
most managers treated IT as a support service and delegated it to electronic
data processing departments. Now, however, every company must understand the
broad effects and implications of IT and how it can create substantial and
sustainable competitive advantages».
The revolution of IT, especially computers, came to change
the traditional value chain. In the study of Walters and Lancaster (1999:646),
Brow comments that the changes in and convergence of information and
communication technologies are the significant issues to highlight. Brow
illustrates changes in value chain structure by arguing that the role of
outsourcing has become more important in order to achieve the effectiveness of
the value delivery. Brow further emphasises the role and impact of information
management as an important feature that provides a co-ordinating activity. In
addition, Evans and Wurster (1997:71) write that: «the changing economies
of IT threaten to undermine the established value chains in many sectors of the
economy, requiring virtually every company to rethink its strategy - not
incrementally, but fundamentally». Evans and Wurster refer to this
phenomenon as the "deconstruction of the value chain". Ghosh (1998:130) refers
to it as
44
"pirating of the value chain" and explains that companies are
forced to risk the relationships in their physical chains in order to compete
in the electronic channel.
IT is spreading through the value chain system and it is
performing optimisation and control functions as well as judgmental executive
functions (Porter & Millar, 1985:151). Indeed, IT has had a revolutionary
effect on competitive scope in the way in which it facilitates local, regional,
national and international operations and co-operation. Truly the role and
impact of an ERP system as an integrative and a strategic IT tool challenges
the way businesses used to operate, and consequently supports the value chain
operation to act efficiently and globally for MNEs to gain competitive
advantage. With regard to the above view, the question is: Is Axapta software a
value chain system with IT mechanisms, which facilitate the integration and the
co-ordination of other ERP system applications? This question will be answered
in chapter 6.
2.12 Conclusion
«A business is profitable if the value it creates
exceeds the cost of performing the value activities» (Porter & Miller,
1985:152). Therefore, an organisation succeeds by ensuring that the entire
process necessary to deliver a good or service is attuned to achieving the
single goal of competitive positioning in the market. This requires
co-ordination across the entire value chain, even if certain pieces of it are
more critical than others (Scott, 1998:89). Thus, assert Day, Georges, Rebstein
and David (1997:33), the attractiveness of a certain industry or product market
depends upon how the economic value created for certain customers is shared
throughout the value chain.
The analyses of the value chain concept in this chapter have
focused on the assessment of the different value chains, and the linkage of all
activities within them for competitive advantage. A competitive advantage
requirement is that a viable number of buyers end up preferring the
organisation's product offering because of its perceived «superior
value». Superior value is nearly always created in either one of two ways:
(1) by offering buyers a "standard" product at a lower price, or (2) by using
some differentiating technique to provide a "better" product that more than
offsets the higher price it usually carriers (Thompson & Strickland,
1987:134). In this study, it was determined that:
· IT plays a key role in the value chain in terms of
the co-ordination of the different activities to create a product and the
delivery of the service in an efficient manner to satisfy customers.
45
· The value chain approach could indeed help to
measure the strength of an organisation's value
chain system, as well as of
a product's value chain, using ERP software, i.e. Axapta Microsoft.
· The ERP system is based on the value chain concept,
which supports the observation that it is a value chain system too.
Unfortunately, most ERP architecture of the past did not incorporate IT as one
of its core competencies. Therefore current ERP systems must be incorporated
with IT mechanisms, such as e-business technologies, to facilitate integration
and relationship within the value chain system.
· Based on the qualitative study of the ERP concept, an
ERP system as a value chain system becomes an evaluative tool and IT instrument
to evaluate ERP software (i.e. Axapta, SAP, Oracle, Aruba and others) attribute
and specification integrative status in its relationships to support
activities, strengths and ERP modules and applications.
The analysis of an organisation's value chain through a
formal value chain model, as introduced in this chapter, highlights the
linkages between the organisation's primary activities and support activities,
isolating both efficient and inefficient activities. By capitalising on the
efficient linkages and improving inefficient ones, organisations can increase
efficiency, lower costs and create value. Therefore, the surplus value created
through the achievement of efficiency translates directly into competitive
advantage for organisations pursuing a cost leadership strategy. In addition,
through the use of value chain analysis, organisations can identify the
attributes of products and/or services which customer's desire, resulting in
the creation of offerings that address these customer needs and desires.
Organisations are successful in differentiating their products and/or services
when they have a competitive advantage, which in turn, creates value and,
hopefully, profit for the organisation (Porter, 1998: 40).
However, the theories behind the value chain make the concept
impossible to be universally applicable owing to differing organisation
structures and objectives, which means that the value chain system must be
configured and applied differentially to every type of MNE. The value chain
architecture is therefore a unique tool, which is crafted for every type of
organisation, especially for MNEs where the architecture is very complex
because of the broad operation at different sites.
In chapter 6, the value chain theory assessed in this chapter
will indicate whether the Axapta
46
software value chain architecture, configuration and business
functional activities fulfil the requirements and help MNEs to craft their
value chain. It will be determined whether Axapta software as a value chain
system and the ERP system do in fact meet the requirements of a general global
ERP system model and the MNEs' value chain system for competitive advantage.
The next two chapters will be dedicated to ERP systems as an
associate value chain system in order to show how it relates technically to the
value chain configuration and architecture, since most ERP system software is
built upon it.
47
| 
