Unlocking Profit Potential: Mapping your Business on the Industry Value Chain

Where does your business reside on the industry value chain?

Choosing where to play can impact your profits, help you produce more efficiently, and predict the potential for scale.

If you haven't given this some thought before, let's do it together.

Consider a typical smartphone value chain consisting of several stages:

1. Component Manufacturers: These companies produce essential components like processors, displays, camera modules, and batteries.
2. Device Manufacturers: These companies assemble components into finished smartphones and handle branding, design, and marketing.
3. Operating System Providers: These companies develop and provide operating systems (OS) that power smartphones.
4. App Developers: These individuals or companies create apps for the OS, ranging from games to productivity tools.
5. Retailers: These companies sell smartphones to end consumers through physical stores or online platforms.
6. Accessories Manufacturers: These companies produce accessories like cases, screen protectors, and headphones.

Each stage of the value chain offers opportunities for the different players to earn varying levels of profits based on factors such as brand recognition, innovation, market dominance, pricing strategies, and customer demand.

From the above example, it's easier for smartphone manufacturers to enter into retail territory (a strategic advantage) but can retailers easily become smartphone manufacturers?

Think about it for a moment. And now it's your turn.

Grab a sheet of paper, draw a horizontal line, and divide it into parts - as you would a number line.

Starting from the left and working your way through to the right, write down your industry's stages for your business.

Think about the profitability of companies across each stage and the opportunities they have for specialisation, growth and expansion.

Did you find this exercise insightful? Let me know in the comments!