VALUE CHAIN ANALYSIS AND SWOT ANALYSIS: HOW TO USE THEM

Value Chain Analysis and SWOT Analysis

Value chain analysis is a framework used to investigate how best to produce the greatest available value to customers. Shank and Govindarajan (1993) has stated that “the value chain for any firm is the value-creating activities all the way from basic raw material sources from component suppliers through to the ultimate end-use product delivered into the final consumers’ hands.” It is made up of two major categories: primary activities and support activities (Porter 1985). The primary activities are made up of:

• • Inbound logistics — this involves raw materials for use in manufacturing, handling and warehousing;
  • Operations — entails the processes that are used to convert the inputs into finished products
  •  Outbound logistics — processing of customer orders and distribution of finished products to retail and wholesale sites;
  • Marketing and sales — communication (advertisements and promotions), pricing and channel management; and
  • Service — installation, repair and parts

Procurement, technology development, human resource management and firm infrastructure constitute some support activities.

Whilst primary activities are directly involved in the creation of goods and services, support activities merely supports primary activities. The essence of the value chain analysis is to help the organization focus on the essentials i.e. its core functions. After all, those are the things that directly generate revenue to keep it thriving. This is because there is the tendency for an organization to become preoccupied with support activities without even knowing it. Hence, focus on primary activities enables its focus on what really matters and that is generating maximum value for customers. In sum, the building blocks for a successful strategy using the Value Chain Approach are inbound logistics, outbound logistics, marketing and sales and service. It must be noted also that there are certain components in the primary activities that may yield to the organization the greatest amount of value in comparison to the rest. For example, MTN GH is phenomenal when it comes to marketing and sales. Often times, it enters late into an innovation started by the other Telcos and takes it over as if it was the originator.  A case in point is Mobile Money. Tigo (Tigo Cash) and Airtel (Airtel Money) popularized the innovation and MTN has taken it over through its marketing and sales primary activity.

SWOT Analysis

The SWOT analysis is a framework used for scanning the internal and external environments of an organization for strengths, weaknesses, opportunities and threats. The strengths and weaknesses emanate from the internal environment, whilst opportunities and threats arise from the external environment. Using GCB Bank Limited as a case study, the following SWOT analysis can be produced:

Strengths

• • Financial Assets: Effective competition in the banking industry has a lot to do with the financial assets that a bank commands. As one of the biggest banks in the country, GCB has a strong financial base to effectively compete in the industry. Because of this strength, it is able to finance a considerable proportion of the government high value projects.
  •  Large Customer Base: GCB Bank has one of the largest customer base in the country, partly owing to the fact that most government workers and cocoa farmers in the country are paid through GCB. This gives it competitive advantage in the market.
  • Presence/Coverage: GCB bank has possibly one of the strongest presence in the country as well as very high coverage, being found in all the regional capitals and districts of Ghana. Currently, GCB has a network of 157 branches, making it the bank with the most networks. This unique position gives GCB a reach advantage over the other banks. 
  • Operational Efficiency: GCB Bank has one of the lowest cost income ratio in the industry; the lower the better. It didn’t always used to be this way. GCB successfully reduced its cost income ratio from 0.85 in 2011 (which was above the industry average of 0.60) to 0.47 in 2013 (just below the industry average of 0.50) (PriceWaterCooper, 2014). Operational efficiency enables the bank to make more income for fewer costs.

Weaknesses

• Poor service delivery.
• Small banking halls.
• Internationally not well recognized and tend to lose business from NGOs, Embassies, and donor funds (Aboagye-Debrah, 2007).
• Weak technological capability.
• Long queues and waiting time for transactions

Opportunities

• Perception: GCB can leverage on the perception of being an indigenous bank. People feel more comfortable and safe (in terms of fiscal security) doing business with GCB because they feel it is government-owned and indigenous and so no one will abscond with their money. Though government has divested a large chunk of its holdings in the bank, this prevailing perception still holds.
• The bank has access to government funds for specific projects (Aboagye-Debrah, 2007).

Threats

• New entrants into the markets.
• Rising inflationary pressures and therefore reduced real market value of stocks.
• Depreciation of cedi against the major trading currencies.
• Imposition of VAT on bank charges. This may discourage people from conducting transactions through the banks.

The SWOT analysis output in terms of strengths and opportunities will be used to put together “offensive” strategies for the firm, whereas the weaknesses and threats helps the organization craft “defensive” strategies which are risk mitigating in nature. And so a successful strategy should contain: (a.)  “defensive” components that seek to tackle the weaknesses and threats facing the organization and, (b.) “offensive” components that takes advantage of the strengths and opportunities of the organization.

The SWOT analysis above show that GCB Bank Ltd is very dominant in the Ghanaian marketplace and does have government backing for certain projects. However, its weakness in technology and poor customer service makes it internationally unappealing. It would do well building its brand image nationally and it is starting to do so through a rebranding exercise.

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