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Difficult to 'analyse' a value chain - certainly with numbers, and almost impossible without a deep understanding of an industry. Maybe the nearest parallel is 'business model' a business model is something that defines how a company makes money and differentiates itself and this will be wildly different from GE to CSCO, and the bit you need to analyse will vary according to which company you're looking at - CSCO will need to be integrating acquisitions and retaining staff better than the competition, whereas GE will need to be controlling its ROE better than the competition (perhaps).

So now on to value chains - this is the bit OUTSIDE the company that allows it to do business, all the stuff it doesn't own, but needs to survive - suppliers, partners, distributors and consumers (the two types of "customers"). Again different companies have wildly different value chains, and 'analysis' varies accordingly. A theme park as no distributors - you buy the product directly from them, Amazon has FedEx, and MSFT has Best Buy, Gateway, IBM, HP, direct sales, etc, etc, etc. MSFT has mostly insignificant suppliers (their staff create the value, others provide paper boxes and blank CDs) whereas Amazon gives most of its money to suppliers, and GE probably does too. Then look at partners how far would MSFT get without partners, Amazon,.... getting the picture?

This is why analysis is only numerical when you are comparing similar companies (CSCO has x times as many distributors as Nortel....), and again requires understanding of the industry.

The definition from the Gorilla Game is true for Gorillas, but non-Gorillas also have value chains.

Moving on a bit - Companies have spent the years since Ford and GM optimising what goes on inside the company, by improving things they control - customer service, products, costs, and by attempting to control the external things to their direct advantage - beating down suppliers and getting maximum margin from customers. Now we have a global information infrastructure (the internet) it is increasingly possible for entire value chains to be optimised by co-operation within a vlaue chain in order to optimise the WHOLE, rather than relying on the optimiation of the parts and summing this. So ICI make a lot of paint - how can they and the rest of their value chain (suppliers of pigment, Home Depot, trucking companies etc etc) improve the whole business so they ALL make more money, or reduce the consumer price so much that people stop using wallpaper?

And back to Gorillas - how does/should a Gorilla behave with respect to their value chain? From memory it is to do with the extent that they dominate it and don't allow anyone else to make more than a subsistence level of profit. A Gorilla can do this, because the rest of the value chain isn't adding any value! If Gateway don't sell a Windows PC I don't want it - therefore Gateway add no (or little) value to the MSFT relationship, but MSFT add a lot to Gateway. When looking for Gorilla Games the value chain can give clues as to whether the Gorilla is going to appear, or how long it might last - are there whole competing value chains (maybe I don't want a PC, I just want to surf the web, and now I can do that on my mobile, Palm Pilot, Linux tablet etc)? - are there signs that the Gorilla isn't dominating the chain? - are there signs that the chain is too fluid/stupid to do the right thing and get behind a company that really should be a Gorilla?

When half of your value chain starts giving depositions to the courts about your business practices then it is a sign that your Gorilla status is recognised by them, that they want to take it away from you, and they MAY succeed.

Hope this helps

Bny
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