The basic tool for understanding the influence of information technology on companies is the value chain- the set of
activities through which a product or service is created and delivered to customers. When a company competes in any industry, it performs a number of discrete but interconnected value-creating activities, such as operating a sales
force, fabricating a component or delivering products, and these activities have points of connection with the activities of suppliers, channels, and customers. The value chain is a framework for identifying all these activities
and analyzing how they affect both a companies costs and the value delivered to buyers. The special advantage of the Internet is the ability to link one activity with others and make real-time data created in one activity widely
available, both within the company and with outside suppliers, channels, and customers. By incorporating a common, open set of communication protocols, internet technology provides a standardized infrastructure, an intuitive
browser interface for information access and delivery, bi-directional communication, and ease of connectivity- all at much lower cost than private networks and electronic data interchange.
Prominent applications of the Internet in the value chain
Porter (1985) introduced his model of the generic value chain in his book competitive advantage: creating and sustaining superior performance. This was
essentially concerned with the internal activities of the company. The three (basic) primary activities of a product process are:
1. Inbound logistics: handling goods that are bought into the company, storing them and making
them available to operations as required.
- Real time integrated scheduling, shipping, warehouse management, demand management and planning, and advanced planning and scheduling across the company and its suppliers.
- Dissemination throughout the company of real-time inbound and in-progress inventory data.
2. Operation: the production process, in many cases a series of sub activities that can be represented on a detailed value chain
- Integrated information exchange, scheduling, and decision-making in in-house plants, contract assemblers, and components suppliers.
- Real time available -to- promise and capable-to-promise information available
to the sales force and channels.
3. Outbound logistics: taking the products of the company, storing them if necessary and distributing them to the customer in a timely manner.
- Real-time transaction of orders whether
initiated by an end consumer, a sales person, or a channel partner.
- Automated customer-specific agreements and contract terms.
- Collaborative integration with customer forecasting system.
- Integrated channel management
including information exchange, warranty claims, and contract management.
To these basic primary activities Porter adds two further activities:
1. Marketing and sales: finding out the requirement of potential
customers and letting them know of the products and services that can be offered.
- On-line sales channels including websites and marketplaces
- On-line product configurators
- Push advertising
- Tailored on-line access
- Real time customer feedback through Web surveys
- Customer profiling
2. Service: any requirement for installation or advice before delivery and then after-sales service once the transaction is completed.
On-line support of customer service representatives through e-mail response management, billing integration.
- Customer self-service via Web sites and intelligent service request processing including updates to billing and
To support these primary functions there will be a company infrastructure that performs a number of support activities. Porter classify these activities as:
1. Procurement: The function of
finding suppliers of the materials required as input to the operations of the organization.
Procurement is responsible for negotiating quality supplies at an acceptable price and with reliable delivery.
Internet-enabled demand planning; real-time available-to-promise/capable-to -promise and fulfillment
- Automated "requisition to pay"
- Direct and indirect procurement via marketplaces, exchanges, auctions.
2. Technology development: The organizations need to update its production processes, train staff and to manage innovation to ensure that its products and its overall range of goods and services remain competitive.
- Collaborative product design across locations and among multiple value-system participants
- Real-time access by R&D to on-line sales and service information
3. Human resource management: The recruitment, training
and personnel management of the people who work for the organisation.
- Self-service personnel and benefits administration
- Web-based training
- Internet-based sharing and dissemination of company information
Firm infrastructure: The overall management of the company including planning and accountancy.
- On-line investor relation
- Web-based, distributed financial and ERP systems.