This survey will focus on the value string analysis tool and exactly how it can be used to enhance the performance of Zenox personal computers. It will commence with an overview of the original accounting techniques and the value chain principle, what tactical decisions this concept facilitates within the organization, how it can be integrated, executed to improve the overall performance, figuring out its limits and making tips that will reduce the impact of such limits.
Traditional Accounting techniques: An overview
Up until the twentieth century, traditional techniques were flexible to the business environment when overheads in organizations were relatively low, product kinds were few, automation was little and labour was rigorous (Sulaiman, Ahmad and Alwi, 2004). The complexities of the modern business environment have made research workers emphasise the necessity for modern accounting ways to capture essential aspects of firms' operations which were neglected by the traditional techniques (Sulaiman, Ahmad and Alwi, 2004). Desk 1 shows the variations between traditional techniques and the business environment that they were applied and the modern accounting techniques and their present day business weather:
Traditional Accounting Techniques
Contemporary Accounting Methods
Longer product life cycles, more emphasis on direct labour with less focus on technology
Shorter product life cycles with advanced creation technology and less physical labour
Less global competition in the business environment
Global business environment is highly competitive
Varieties in products was minimal
Hugely diversified product base
Business strategies largely linked to volume
Business strategies linked to quality improvement, interacting with customer needs, inventory and stock control
Excessive concentrate on financial data
Focuses on both functional and financial data
Strategies are mainly internal to the company
Strategies are based on both the interior and exterior environment
Focuses on the short term performance of the firm
Focuses on the permanent sustainability of the firm
Table 1: Traditional and Modern Accounting Techniques
Value String Analysis
Value string is the set of connected activities of a firm completed from the initial level of sourcing for raw materials to the final stage of providing the product to customers (Shank and Govindarajan, 1989). Included in these are purchase of recycleables, production and syndication of the business's products and each activity plays a part in buyer value (Porter, 1998). It is considered as an instrument to disaggregate a firm's activities into its individual components and identify items along the chain where value can be added (Walter and Lancaster, 2000). Value alone can be portrayed as the power of something or service to meet customer's concern (Walter and Lancaster, 2000).
Porter (1998) advised that firms offers value with their products and gain competitive advantages by conceiving new ways to execute the activities in the worthiness chain and treating the string as a system which may be reconfigured, possibly by adding or getting rid of certain activities in the process, to enable the company perform important activities along the worthiness chain better than its rivals. He further advised that firm activities are broadly split into two namely Most important activities and Support Activities.
Primary Activities - Activities that are straight related to the ongoing creation, marketing, delivery and servicing of the firm's product. Table 2 shows the actions involved:
These are activities concerned with receiving materials from suppliers, inventory control of source materials and warehousing.
These are the processes of change of the type into final products
These are concerned with the distribution of the merchandise to the consumers.
Marketing and sales
Which use tools such as marketing and advertising communications with the aim of making a sale.
These may be needed to maintain or boost product's value and could include installation, customer support and repair services
Table 2: Key Activities in the Value Chain
Support activities - they are not directly involved with creation, but may increase performance or efficiency. The activities engaged are shown in Table 3.
This is responsible for purchasing all materials necessary for the company's procedures and value creating activities.
Human tool management
These are activities that entail recruitment, training and compensating of employees.
This will involve research and development, technologies and knowledge improving capabilities which are essential in giving a company an edge
This includes planning and control systems, such as finance, accounting, and corporate strategy etc
Table 3: Support Activities in the worthiness Chain
Value String of Zenox Computers
Fig. 1 below shows the current operational framework and value string of Zenox Pcs and Fig. 2 shows the value chain. The company currently produces the hardware components of laptops, procures required microchips, included circuits and other hypersensitive digital parts from specialised companies, assembles the motherboard and produces the notebook computers. The company warehouses the finished products prior to transporting them to the sellers, thus using an indirect sales device. It is also involved in the marketing of the merchandise and consciousness creation to market sales.
Design of Product
Assembly and Creation of final laptop
Branding & Marketing
Production of Hardware Components
Sub Assembly of Motherboards
Distribution of Products
Retailing via Indirect Channels
Fig 1 - Value chain of Zenox computers
Sales and Marketing
Relating with suppliers to get stock necessary for production
Innovative research into new functions and technology that gives the company a competitive edge
Recruitment and training of skilled and skilled personnel that will add value to the company
Backward integrated into creation of hardware software components.
Raw materials for hardware and sub assembly
Low inventory Turnover
Production of Hardware Components
Warehousing of Laptops Produced
Shipment to Retail Channels
3 year Warranty
After sales service and repairs
Fig 2: Porter's Value String for Zenox Computers
Industry Framework - Evaluation of the Micro Environment
Porter (1995) confirmed the micro environment of the firm is constituted by five pushes made up of the industry rivalry, bargaining ability of suppliers, bargaining ability of buyers, risk of substitutes and threat of new entrants. The evaluation of these is shown in Stand 4 and diagrammatically portrayed in Shape 3.
The computer industry is a competitive one with a large number of players. As several companies compete for a large share of the market, brand, quality and costs becomes very important
Threat of New Entrants
The high cost of admittance in to the market, level of technology and cost of penetrating a very competitive market where exit costs is high significantly increases the entry hurdle of the industry
Bargaining Electricity of Suppliers
The large numbers of hardware suppliers for the industry makes the bargaining vitality low. But also for the software industry the close to monopoly makes the bargaining power high.
Bargaining vitality of buyers
Due to the high number of manufacturers, the buyer has a variety to decided to go with from thus making the bargaining vitality quite high
Threat of Substitutes
Demand for laptop computers continue to be higher but competition from cloud processing, palm tops, office stops, smart cell phones is on the increase.
High Threat scheduled to lot of competing producers.
Bargaining Electric power of Suppliers
High (For Software suppliers)
Low (For Hardware suppliers)
Bargaining Vitality of Buyers
High Threat credited prevalence of varieties of laptop brands.
Threat of Substitutes
Medium Hazard; Alternatives are Desktops, Palm tops and Smart devices.
Threat of New Entrants:
Low Threat anticipated to high cost of entry
Table 4: Effect of Five Causes on Laptop Industry
Fig 3: Aftereffect of Five Makes on the Laptop Industry
Strategic Decisions and the worthiness Chain Analysis
In making our tactical decisions, tactical questions arose after a comprehensive analysis of the value chain and the price individuals in each facet of the chain. They are:
Whether to make or buy
Either to make a forwards integration or a backward integration
To quantify and examine the bargaining ability of clients and suppliers
How do we exploit the linkages with the suppliers and the potential buyers.
These questions are responded to from two major perspectives, the distributor and the buyer as shown in Stand 5.
The hardware part production and sub-assembly areas of the business enterprise will be phased out and outsourced to experienced suppliers.
Zenox will choose the build to order strategy and increase inventory turnover by warehousing stock predicated on preconfigured options which is determined by market forecasts
Given the reduced bargaining electricity of the hardware suppliers a romantic relationship will be founded with several firms to reduce risk of singular control by one supplier. The monopoly of Microsoft will be exploited by negotiating a long term deal to be able to reduce the deviation in Zenox cost structure.
Zenox will cut off the retailing, marketing and sales aspect which utilises indirect channels
Zenox will frontward integrate into sales and support service market
Zenox will sell directly to customers and create a web link with them
A build to order strategy will be proven to customise the merchandise matching to customer specifications
Table 5: Strategic Decisions and Value Chain Analysis
Selling immediately will eliminate the middle man, reduce capital expended on marketing and sales and permit Zenox sell at lower prices to the clients.
In addition the products will be advertised through popular web sites such as bing to reach a wider audience at cheaper cost. An evaluation of these strategic decisions with existing tactics is shown in Stand 6.
Zenox currently produces hardware components. Producing a limited volume is disadvantageous to the organization as cost per item is high.
Existing hardware manufacturers supply other organizations thus produce more enabling them spread their costs. This makes cost per item cheaper. The business will outsource this aspect and save resources by procuring hardware than producing them.
Zenox produces operating software which is installed on the final product.
Microsoft has a close to monopoly in the program creation. Zenox will establish a partnership with Microsoft. This will certainly reduce cost of usage of software and make the merchandise available to a larger customer base which is accustomed to Windows.
Zenox is intensely involved in sales and marketing but markets through retailers
Direct marketing strategy will permit company representatives interact with customers and understand their requests. The company will differentiate by building to order and then sell right to customers at cheaper prices.
Zenox presently warehouses a great deal of stock resulting in a low inventory turnover
The company will order predicated on demand and forecasts and can reduce stock quantities tying down less cash.
Zenox currently has a higher level of advertising
Advertising activities will embrace cheaper mediums such as the internet while sales and marketing will be emphasised
Table 6: Comparability of new strategies with existing practices
EFFECT WITH THE STRATEGIC DECISIONS OVER THE PERFORMANCE OF ZENOX COMPUTERS
Outsourcing the making of hardware components and sub-assembly units can help Zenox eliminate the price of those aspects and procure assembled mother planks from distributor companies. That is to take good thing about the cheaper prices of which they will be supplied to the company, given the suppliers will love the advantage of economies of level that will lower their production costs. It thus becomes significantly cheaper for Zenox to procure the components than to make them, enabling the company make cost savings. Nike's outsourcing of its processing and assembly departments after its realization of its primary competencies allowed Nike to produce its goods at lesser cost and better quality (Crain & Abraham, 2008).
The build to order strategy is a differentiation strategy which allows Zenox computers stand out as a brand. Its adoption will permit the company tailor its products to suit individual and corporate and business needs, open up new opportunities, get new marketplaces and increase market talk about. Increasing inventory turnover by minimising stock and ordering stock based on need and forecasts will certainly reduce the current investments in stock and increase free cash which may be channelled to other uses. HP's detailed warehouse management services created fulfilment centres close to FEDEX ultra hubs, therefore eradicating the inbound vehicles lower leg to FEDEX (Atikomtrirat, 2007).
The company will utilise the reduced bargaining electric power of the hardware suppliers to work out supplier discounts that are effective and affordable, taking into cognizance the capability of the company to deliver promptly. This will enable Zenox actualise the reduced inventory strategy and minimise costs. HP's integration of order management and inventory management systems were also made to proactively monitor and control product inventory level through its FEDEX empowered hpshopping. com (Atikomtrirat, 2007).
A software offer with Microsoft will permit the business hedge against unfavourable changes in expense of software procurement while the expense of software development would have been completely taken away.
Promotion of the merchandise through internet sites such as bing will generate cheaper and wider strategies by which knowing of the brand will be enhanced while direct offering gives a chance for price reduction having largely removed the price draw up related to merchants. Using HP's value chain, in-depth solution for the creation of a fresh online sales route for customers known as hpshopping. com, this was expected to allow HP capture a larger talk about of sales, boost its marriage with customers, and supplement its existing network of retail distributors
These strategies will improve functional efficiency and maximisation of available resources while lowering expenses, thus boosting company performance. The restructured functional string and value string are shown in Fig 4 and Fig 5.
Design of Product
Assembly and Production
Branding and Marketing
Integrated Circuits & Microchips
Fig 4: Restructured Value String for Zenox computer systems.
Sales and Marketing
Relating with suppliers to get stock necessary for production
Innovative research into new processes and technology that will give the company a competitive edge
Recruitment and training of skilled and capable staff that will add value to the company
Forward integration into assemblage of relevant components to create company branded laptops
Delivery of computer hardware and electric components
Minimal Stock warehousing
High inventory Turnover
Assembly and production of Zenox laptops
Warehousing of Laptop computers Produced
Shipment to Sales outlets
Direct Sales and marketing
Advertising through internet
3 yr Warranty
After sales service and repairs
Fig 5: Restructured Porter's Value string for Zenox computers
The value string analysis should be regularly used to evaluate the performance of the company so that necessary adjustments can be made in a reaction to market movements.
LIMITATIONS OF THE VALUE CHAIN ANALYSIS
Most business have complex value chains, making research difficult. Some companies entail activities that cannot easily be valued.
It was created in an period when service business in the European countries employed reduced workforce compared to today's statistics. This is why the model has come under heavy scrutiny by academicians and professionals.
The value string is utilized to analyse a firm's position in relation to its direct competition with the assumption that rivalry drives success in other words, the value string cannot be found in isolation when comparing a firm using its competitors. This restriction has been minimized through the benefits of a benchmarking tool to analyse the strength of Zenox's rivals.
The value chain analysis does not include a customer segmentation analysis to mix the inner and external view, Differentiating Competitive benefit can only be gained if customers are willing to purchase Zenox's product. This restriction has been reduced by the creation of a customer segmentation model showing the firm's aim for group.
Fig 6: Zenox Value Chain Incorporating Customer Segmentation
ROLE OF MANAGEMENT ACCOUNTING
The role of management accounting in applying Zenox's value string and making certain improvement in performance is achieved is shown in Table 7 below:
Building interfirm associations with supliers by participating in an integral role in make or buy decision
Following Zenox fix to go with a buy decision by outsourcing certain aspects of its production, this may lead to the initiation of partnership with our chosen suppliers. Therefore management accounting will help in identifying means of making relationship more efficient and helping associates to lessen their production costs
Usage in real management of Zenox partnerships using its suppliers
This can be achieved by providing support for inter-firm teams in research and development assignments and also through developing of the merchandise jointly and so searching for just one global minimum amount cost.
Managing companions' responsibilities with each other thereby creating a job for performance management
It will accomplish that by supplying performance survey which compare genuine performance with the designed performance and which therefore illustrates those activities that are not conforming to plan
Management of appropriation concerns
This involves the necessity to safeguard the eye of associates in interfirm associations against the possibly opportunistic behavior of others. Since Zenox's value string allows it to set-up romance with suppliers. It'll be important to guard its interest while building trust with suppliers. Management accounting could be employed here by creating something of planning and budgeting as well as financial motivation system to control any appropriation concerns.
Table 7: Role of Management Accounting in Zenox Value Chain
To support its competitive advantages, Zenox computers would need to treat its customers independently. Quite simply, it should choose different strategies for its different packages of customers.
For corporate and business customers, more research should be completed on types of enterprise solutions that commercial firms are increasingly adopting.
For individual customers, a technique of direct marketing should be tilted towards technology savvy customers who are either buying a second product or updating the old ones. It is recommended that Zenox makes an attempt to provide its customers with an increase of services and products specifically directed at the need of the customers. Aggressive offering can also be incorporated into the company's direct offering strategy to be able to help take a larger talk about of the marketplace.
The company should realize that with commoditization of the computer market, there will be more players on the market and the company at appoint with time will have to focus on volumes somewhat than margins.
Zenox's strategies of building-to-order, high inventory turnover and immediate marketing should give the firm a distinct position on the market. Its competitive advantage can only just be suffered in the fast growing computer industry through continuous exploitation of its resources
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