A value chain model are the set of activities required to deliver a product or a service. The essence of a value chain model is creating a set of activities valued by the customers. Activities could be primary in that it directly benefits the customers (e.g. creating content) or it could be supporting which means customers indirectly benefit from these activities (e.g. bookkeeping).
In developing a value chain, the following questions should be asked:
- What activities are required to make my customers happy
- What set of activities do my competitors engage in to provide this same value (from above) to customers
- Should all activities be provided in house or outsourced
- What is the cost of each activity in the value chain
- Can cost be reduced by cutting non value added activities
The value creation cycle
The value creation cycle is the ability for an online business owner to take scare resources like time or money and turn that into a competitive advantage.
Time/Money:
Before starting an online business venture you need access the availability of scare resources such as time or money. It is not completely true that you can make money online with zero investment. While the investment to start online could be low, the truth is an initial investment will have to be made: The investment is either paid with time or money. If you cannot invest either time or money into your online business, then you are better off waiting till you can.
Develop a strategy
The next step in the value creation process is to develop a strategy. A strategy are the set of activities you plan to undertake to convert your time or money into income.
Core competence
An online business core competence comes from its ability to convert inputs using efficient coordinated processes into output that create value for customers.
Input
Input could be in the form of information, subcontracting services or employees. A business with the ability to coordinate resources to maximize customer value is more likely to do better than a business that wastes resources. The knowledge of the founder goes a long way in improving the core competencies of the business
Processes
Every business needs a system or set of processes for converting inputs into outputs. For example, a bloggers process could be using time (input) or money to hire a writer (input) to create a content that bring value to customers (output). The processes involved will be activities like: how to find relevant topics, format of the blog posts, etc.
Output
The final output is what the customer gets to enjoy which in the case of the blogger will be the content produced.
Competitive advantage
The combination of investment, strategy and core competence, is an online business competitive advantage. The more time or money an online business has to deploy, the more strategies the business can develop which in turn increases core competencies.
Highly competitive online businesses have the ability not only to convert their time or money into output but can also coordinate other people’s time to increase the inputs available in their business.