The Intended Application of Value Chains Porter S 5 Forces and Economic Attritubes to Financial Analysis Research Paper

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FINANCE -- VALUE CHAINS, PORTER'S 5 FORCES AND ECONOMIC ATTRIBUTES

The analyses of The Home Depot and Lowe's will involve value chain analysis, Porters 5 forces framework and economic analysis framework. These three perspectives complement rather than conflict with each other. Furthermore, they view a business internally and externally within a specific industry. The combination of all three perspectives will give an effective "picture" of The Home Depot and Lowe's individually, head-to-head and within their industry.

Value chain analysis -- Information and Value for Financial Analysts

Value chain analysis separates a business into a series of value-generating activities called a "value chain," often including primary and support activities. This assists a financial analyst in discerning which activities a business uses to create a competitive advantage and generate shareholder value. The activities ideally offer more value to customer than cost to the business, causing a profit margin (Internet Center for Management and Business Administrations, Inc., 2010). Generally speaking, the value chain activities involve: Inbound Logistics; Operations; Outbound Logistics; Marketing and Sales; and Service. Inbound Logistics are the receipt and storage of raw materials, along with their required distribution to the business' manufacturing arm. Operations are the processes that make inputs finished products and services. Outbound Logistics are storage and distribution of the finished goods. Marketing and Sales are discernment of customer requirements and generation of sales. Service is customer support after products/services are sold to them. Those primary value chains are served by a company's: infrastructure, including the organization's framework, its systems, its company culture, etc.; human resources, which recruits, hires, trains, develops and compensates employees; technology, which supports value-creating activities; and procurement, which buys imports such as materials, equipment and supplies.

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In order to generate profit, the company must be effective in these areas at least to the point at which revenue from customers exceeds the costs of these activities. In order to heighten competitive advantage and profits, a company may reconfigure its value chains for lower costs or better distinction (Internet Center for Management and Business Administrations, Inc., 2010).

2. Porter's five forces framework -- Information and Value for Financial Analysts

Porter's Five Forces examines specific industry environment, using the factors of Competitive Rivalry, Threat of New Entrants, Threat of Substitute Products, Bargaining Power of Suppliers, and Bargaining Power of Buyers. In his interview on YouTube, Porter speaks of the five factors and discusses the underlying forces of each (Harvard Business Publishing, 2008). Porter emphasizes the significance and elasticity of his five forces, keeping a company focused on "underlying fundamentals" when determining its business strategy and avoiding being tricked by the latest fad or fashion (Harvard Business Publishing, 2008). Explaining the dynamic nature of his five forces, Porter encourages constant reexamination of how the organization and ideally everyone in its employ pursue a "common proposition of gaining competitive advantage" (Harvard Business Publishing, 2008). Porter also states that competition does not have to be a "zero sum" game; rather, all businesses within an industry can thrive by uniquely serving consumer needs and sharing….....

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