Description
Document describes value chain analysis and how value is added affecting margin at every step.
Value Added Services
Value Chain Analysis
Value Chain:
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. Both individual activities as well as the interrelationships among activities within the firm—and between the firm and its suppliers, customers, and alliance partners--add value to the firm. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'
A. PRIMARY ACTIVITIES There are five categories of primary activities in an organization that is competing within any industry. 1. INBOUND LOGISTICS Inbound logistics are associated with the receiving, storing, and distributing of inputs to the product. It includes material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers. Example of Toyota's exemplary use of JIT inventory systems — in which parts deliveries arrive at its assembly plants only hours before they are used. 2. OPERATIONS Operations include all activities associated with transforming the final product form, such as machining, assembly, equipment, testing, printing, and facility operations. Shaw Industries, the world's largest carpet manufacturer, became known for its strong concern about the natural environment. They have received numerous awards for their recycling efforts.
2
3. OUTBOUND LOGISTICS The activities of outbound logistics are associated with the collecting, storing, and distributing the product or service to buyers. They include finished goods warehousing, material handling, delivery vehicle operations, order processing, and scheduling. Example is the use of electronic data interchange (EDI) for Campbell Soup, whereby Campbell has forged close links with their customers to both forecast future demand as well as determine what products require replenishment. 4. MARKETING AND SALES Marketing and sales activities are associated with purchases of products and services by end users and the inducements to get them to make purchases. They include advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing. Example of Monsanto's effective efforts to convince channel partners to purchase their line of KeepSafeR (previously SaflexR) windows. It was critical to coordinate the product's value propositions. 5. SERVICE This includes all activities associated with providing service to enhance the value of products such as installation, repair, training, parts supply, and product adjustment.
B. SUPPORT ACTIVITIES Support activities in the value chain are involved with competing in any industry and can be divided into four generic categories
3
1. PROCUREMENT Procurement refers to the function of purchasing inputs used in a firm's value chain, not the purchased inputs themselves. Purchased inputs include raw materials, supplies, and other consumable items as well as such assets as machinery, laboratory equipment, office buildings, and buildings. B. SUPPORT ACTIVITIES Support activities in the value chain are involved with competing in any industry and can be divided into four generic categories 1. PROCUREMENT Procurement refers to the function of purchasing inputs used in a firm's value chain, not the purchased inputs themselves. Purchased inputs include raw materials, supplies, and other consumable items as well as such assets as machinery, laboratory equipment, office buildings, and buildings. The example of how Microsoft improved their procurement operations by providing formal reviews of its suppliers. The example points out the value of constructive feedback and evaluation. 2. TECHNOLOGY DEVELOPMENT Every value activity embodies technology. The array of technologies employed in most firms is very broad, ranging from technologies used to prepare documents and transport goods to those embodied in processes and equipment or the product itself. Technology that is related to the product and its features supports the entire value chain, while other technology development is associated with particular primary or support activities. 3. HUMAN RESOURCE MANAGEMENT Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports both individual primary and support activities (e.g., hiring of engineers and scientists) and the entire value chain (e.g., negotiations with labor unions). JetBlue Airways' innovative "family friendly" initiative and AT & T's use of the internal labor market for talent. 4. FIRM INFRASTRUCTURE Firm infrastructure consists of a number of activities, including general management, planning, finance, accounting, legal, government affairs, quality management, and information systems. Infrastructure (unlike other support activities) typically supports the entire value chain and not individual activities. Example of the symbolic leadership of CEOs such as Hewlett-Packard's Carleton (Carly) Fiorina, Walgreen Drug's information systems, and how the legal services at Texas Instruments were able to generate significant cash flows for the firm via its patent portfolio. 4
Value Added Services in India – Value Chain Understanding
Definition of Value Added Services:
Value Added Service (VAS) in telecommunication industry refers to non-core services, the core or basic services being standard voice calls and fax transmission including bearer services. The value added services are characterized as under:• Not a form of core or basic service but adds value in total service offering. • Stands alone in terms of profitability and also stimulates incremental demand for core or basic services. • Can sometimes be provided as stand alone. • Do not cannibalize core or basic service. • Can be added on to core or basic service and as such can be sold at premium price. • May provide operational synergy with core or basic services.
In the 1990s, the introduction of mobile phone and Internet has demonstrated that how the Network can be used to create new mass market products and services that can change the way people think and transact. With the rapid expansion of mobile phones, tele-density and Next Generation Network (NGN) services many more such novelties are in store for Indian population with mobile phone services and broadband services at the centre of innovation. Telecommunications had traditionally been a voice communication service. The services today have moved beyond their fundamental role of voice communications to a spectrum of non-core services, which in telecommunication parlance is called Value Added Services (VAS). In short, all services beyond basic voice calls and fax transmissions come under the category of VAS or also called enhanced services. In simple terms, Value Added Services add value to service, enabling the subscriber to use the telephone, particularly the mobile phone or any end user terminal device for a host of purposes like sending short messages, pictures, play games, listen to music, read news headlines, astrology, get flight information, surf Internet and mobile banking including mobile payments. In times to come people will buy mobile phones or any end user terminal device not just to remain connected but to express them in a variety of ways. 5
Value Added Services are provided either directly by the telecom operators themselves or by a third party Value Added Service Provider (VASP). VASP connects to the core equipment of telecom operators through inter-working units using protocols like short message peer-to-peer protocol (SMPP), connecting either directly to the short message service center (SMSC) or to a messaging gateway that allows the telecom operators to have control of the content.
6
Value Added Services – Value Chain
The mobile value added services value chain consists of following:• Cellular Mobile Telephone Service Providers (telecom operators) • Content Aggregators/Enablers *Value Added Service Provider (VASPs) + • Content Authors/Producers or copyright owners (Content owners) • Device/Mobile Handset Manufacturers • End Users i.e. Customers The mobile VAS market in India has evolved into a complex ecosystem. There are multiple entities involved in the value chain but our research reveals that it is still not well defined and lot of overlapping takes place. A single entity performs one or more roles and several are also focusing on expanding their existing roles. The main entities involved in VAS value chain are:
7
Or another View is the one below:
Content Enablers
Content Portals/Aggregators/Developers: At the first level existing portals in the Internet space are providing content to end users. For most of them, mobile data content offers an additional revenues stream, from a strategic perspective it also offers an opportunity to leverage the traffic to the portal and generate potential advertising revenues. Ringtones & wallpapers are two very popular categories where portals like Indiatimes & Rediff lead. On the next level there are a host of large content aggregators. Most of these like Mauj & Indiagames offer content directly to the end user through their own portal and also provide content to mobile operators. They perform the twin functions of in-house content development & also aggregating from other smaller boutiques. There are also many small pure development entities, as they do not have the technical support to host content or to negotiate with operators they prefer to provide it to aggregators.
8
Third Party Copy Right Owner Most of the rich content in mobile VAS is built around Bollywood movies & music. The copyright for these are held by production houses or rests with individual artistes. A part of the revenue is shared as fee with the owners for using the copyright material. Apart from Ringtone & wallpaper development there is also a growing trend of game development around popular Bollywood movies, a recent example is a popular game based on the Hindi movie “Don”. Traditional Media Companies Following the global trend most traditional media companies are also trying to bring the feature of interactivity into their media. As we have discussed in the first part, SMS contests have been a very successful way for TV channels to achieve this. However using this feature involved revenue sharing with several entities, so to generate cost efficiencies over the long run, some media houses have expanded and acquired Short Codes for their own brands. Prominent amongst them are Sony TV, Aaaj Tak & Zee TV. HT Media is a relatively new entrant in this space and has also acquired a short code.
Technology Enablers
Short Code Provider These are the companies who own a short code (e.g. 8888, 3456 etc) which is sold to a third party client for some keyword and a specific period. They have a tie up with multiple operators to ensure customers of all operators send the SMS to the same number. e.g. if Star wants to get participants for a TV show, it can advertise “Type ‘X’ on your mobile phones and send to 3456” .The server at destination 3456 would identify the message with the keyword ‘X’ and route it to Star. There are around 10 national level players and several regional players in this domain. The entry barrier is very high because of high initial deposit and need to tie up with each operator for each individual circle. Our research reveals that most operators also ask for a deposit of Rs 2 million and a minimum guaranteed volume of half a million SMS per month for entering into an arrangement with a Short Code owner. Technology partner & platform enabler handle software platforms and authoring tools. Platforms are the backbone of the service providers and allow managing of various entertainment services, such as
9
games, streaming audio and video and ring tone downloads. Authoring tools are a necessary component for delivering applications by application developers.
Value Added Services Offerings
In addition to SMS and Voice mail, the other value added services presently being provided are: Sl. 1. Types of VAS News Description National, International, Business, Entertainment, Sports News 2. 3. 4. 5. 6. 7. Finance Entertainment Travel Downloads Astrology service Cricket Stocks (NSE, BSE, NASDAQ etc.), Forex Games, Mobile TV and jokes Railways, Airlines Logos, Ringtones, Caller tones etc. Personal Horoscope/Personalized Prediction Cricket Score, Match clippings, cricket commentary 8. Missed call alert Subscriber to get a SMS alert of incoming calls when the subscriber’s mobile phone is switched off / not reachable and busy. 9. 10. 11. 12. 13. 14. E-mail Music on demand Contest GPRS/WAP MMS Health E-mail through SMS Dial a song Reality Shows Mobile Internet, Mobile Chat, Mobile TV Picture Messages, Picture clippings Health Tips, Beauty Tips
10
15.
M-Commerce
Transaction based services with multiple payment modes and supporting multiple domains like WAP, GPRS, SMS, IVR & Web.
16.
Miscellaneous
Devotional, Movies & Music, Fun
11
doc_753990188.docx
Document describes value chain analysis and how value is added affecting margin at every step.
Value Added Services
Value Chain Analysis
Value Chain:
The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. Both individual activities as well as the interrelationships among activities within the firm—and between the firm and its suppliers, customers, and alliance partners--add value to the firm. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'
A. PRIMARY ACTIVITIES There are five categories of primary activities in an organization that is competing within any industry. 1. INBOUND LOGISTICS Inbound logistics are associated with the receiving, storing, and distributing of inputs to the product. It includes material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers. Example of Toyota's exemplary use of JIT inventory systems — in which parts deliveries arrive at its assembly plants only hours before they are used. 2. OPERATIONS Operations include all activities associated with transforming the final product form, such as machining, assembly, equipment, testing, printing, and facility operations. Shaw Industries, the world's largest carpet manufacturer, became known for its strong concern about the natural environment. They have received numerous awards for their recycling efforts.
2
3. OUTBOUND LOGISTICS The activities of outbound logistics are associated with the collecting, storing, and distributing the product or service to buyers. They include finished goods warehousing, material handling, delivery vehicle operations, order processing, and scheduling. Example is the use of electronic data interchange (EDI) for Campbell Soup, whereby Campbell has forged close links with their customers to both forecast future demand as well as determine what products require replenishment. 4. MARKETING AND SALES Marketing and sales activities are associated with purchases of products and services by end users and the inducements to get them to make purchases. They include advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing. Example of Monsanto's effective efforts to convince channel partners to purchase their line of KeepSafeR (previously SaflexR) windows. It was critical to coordinate the product's value propositions. 5. SERVICE This includes all activities associated with providing service to enhance the value of products such as installation, repair, training, parts supply, and product adjustment.
B. SUPPORT ACTIVITIES Support activities in the value chain are involved with competing in any industry and can be divided into four generic categories
3
1. PROCUREMENT Procurement refers to the function of purchasing inputs used in a firm's value chain, not the purchased inputs themselves. Purchased inputs include raw materials, supplies, and other consumable items as well as such assets as machinery, laboratory equipment, office buildings, and buildings. B. SUPPORT ACTIVITIES Support activities in the value chain are involved with competing in any industry and can be divided into four generic categories 1. PROCUREMENT Procurement refers to the function of purchasing inputs used in a firm's value chain, not the purchased inputs themselves. Purchased inputs include raw materials, supplies, and other consumable items as well as such assets as machinery, laboratory equipment, office buildings, and buildings. The example of how Microsoft improved their procurement operations by providing formal reviews of its suppliers. The example points out the value of constructive feedback and evaluation. 2. TECHNOLOGY DEVELOPMENT Every value activity embodies technology. The array of technologies employed in most firms is very broad, ranging from technologies used to prepare documents and transport goods to those embodied in processes and equipment or the product itself. Technology that is related to the product and its features supports the entire value chain, while other technology development is associated with particular primary or support activities. 3. HUMAN RESOURCE MANAGEMENT Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports both individual primary and support activities (e.g., hiring of engineers and scientists) and the entire value chain (e.g., negotiations with labor unions). JetBlue Airways' innovative "family friendly" initiative and AT & T's use of the internal labor market for talent. 4. FIRM INFRASTRUCTURE Firm infrastructure consists of a number of activities, including general management, planning, finance, accounting, legal, government affairs, quality management, and information systems. Infrastructure (unlike other support activities) typically supports the entire value chain and not individual activities. Example of the symbolic leadership of CEOs such as Hewlett-Packard's Carleton (Carly) Fiorina, Walgreen Drug's information systems, and how the legal services at Texas Instruments were able to generate significant cash flows for the firm via its patent portfolio. 4
Value Added Services in India – Value Chain Understanding
Definition of Value Added Services:
Value Added Service (VAS) in telecommunication industry refers to non-core services, the core or basic services being standard voice calls and fax transmission including bearer services. The value added services are characterized as under:• Not a form of core or basic service but adds value in total service offering. • Stands alone in terms of profitability and also stimulates incremental demand for core or basic services. • Can sometimes be provided as stand alone. • Do not cannibalize core or basic service. • Can be added on to core or basic service and as such can be sold at premium price. • May provide operational synergy with core or basic services.
In the 1990s, the introduction of mobile phone and Internet has demonstrated that how the Network can be used to create new mass market products and services that can change the way people think and transact. With the rapid expansion of mobile phones, tele-density and Next Generation Network (NGN) services many more such novelties are in store for Indian population with mobile phone services and broadband services at the centre of innovation. Telecommunications had traditionally been a voice communication service. The services today have moved beyond their fundamental role of voice communications to a spectrum of non-core services, which in telecommunication parlance is called Value Added Services (VAS). In short, all services beyond basic voice calls and fax transmissions come under the category of VAS or also called enhanced services. In simple terms, Value Added Services add value to service, enabling the subscriber to use the telephone, particularly the mobile phone or any end user terminal device for a host of purposes like sending short messages, pictures, play games, listen to music, read news headlines, astrology, get flight information, surf Internet and mobile banking including mobile payments. In times to come people will buy mobile phones or any end user terminal device not just to remain connected but to express them in a variety of ways. 5
Value Added Services are provided either directly by the telecom operators themselves or by a third party Value Added Service Provider (VASP). VASP connects to the core equipment of telecom operators through inter-working units using protocols like short message peer-to-peer protocol (SMPP), connecting either directly to the short message service center (SMSC) or to a messaging gateway that allows the telecom operators to have control of the content.
6
Value Added Services – Value Chain
The mobile value added services value chain consists of following:• Cellular Mobile Telephone Service Providers (telecom operators) • Content Aggregators/Enablers *Value Added Service Provider (VASPs) + • Content Authors/Producers or copyright owners (Content owners) • Device/Mobile Handset Manufacturers • End Users i.e. Customers The mobile VAS market in India has evolved into a complex ecosystem. There are multiple entities involved in the value chain but our research reveals that it is still not well defined and lot of overlapping takes place. A single entity performs one or more roles and several are also focusing on expanding their existing roles. The main entities involved in VAS value chain are:
7
Or another View is the one below:
Content Enablers
Content Portals/Aggregators/Developers: At the first level existing portals in the Internet space are providing content to end users. For most of them, mobile data content offers an additional revenues stream, from a strategic perspective it also offers an opportunity to leverage the traffic to the portal and generate potential advertising revenues. Ringtones & wallpapers are two very popular categories where portals like Indiatimes & Rediff lead. On the next level there are a host of large content aggregators. Most of these like Mauj & Indiagames offer content directly to the end user through their own portal and also provide content to mobile operators. They perform the twin functions of in-house content development & also aggregating from other smaller boutiques. There are also many small pure development entities, as they do not have the technical support to host content or to negotiate with operators they prefer to provide it to aggregators.
8
Third Party Copy Right Owner Most of the rich content in mobile VAS is built around Bollywood movies & music. The copyright for these are held by production houses or rests with individual artistes. A part of the revenue is shared as fee with the owners for using the copyright material. Apart from Ringtone & wallpaper development there is also a growing trend of game development around popular Bollywood movies, a recent example is a popular game based on the Hindi movie “Don”. Traditional Media Companies Following the global trend most traditional media companies are also trying to bring the feature of interactivity into their media. As we have discussed in the first part, SMS contests have been a very successful way for TV channels to achieve this. However using this feature involved revenue sharing with several entities, so to generate cost efficiencies over the long run, some media houses have expanded and acquired Short Codes for their own brands. Prominent amongst them are Sony TV, Aaaj Tak & Zee TV. HT Media is a relatively new entrant in this space and has also acquired a short code.
Technology Enablers
Short Code Provider These are the companies who own a short code (e.g. 8888, 3456 etc) which is sold to a third party client for some keyword and a specific period. They have a tie up with multiple operators to ensure customers of all operators send the SMS to the same number. e.g. if Star wants to get participants for a TV show, it can advertise “Type ‘X’ on your mobile phones and send to 3456” .The server at destination 3456 would identify the message with the keyword ‘X’ and route it to Star. There are around 10 national level players and several regional players in this domain. The entry barrier is very high because of high initial deposit and need to tie up with each operator for each individual circle. Our research reveals that most operators also ask for a deposit of Rs 2 million and a minimum guaranteed volume of half a million SMS per month for entering into an arrangement with a Short Code owner. Technology partner & platform enabler handle software platforms and authoring tools. Platforms are the backbone of the service providers and allow managing of various entertainment services, such as
9
games, streaming audio and video and ring tone downloads. Authoring tools are a necessary component for delivering applications by application developers.
Value Added Services Offerings
In addition to SMS and Voice mail, the other value added services presently being provided are: Sl. 1. Types of VAS News Description National, International, Business, Entertainment, Sports News 2. 3. 4. 5. 6. 7. Finance Entertainment Travel Downloads Astrology service Cricket Stocks (NSE, BSE, NASDAQ etc.), Forex Games, Mobile TV and jokes Railways, Airlines Logos, Ringtones, Caller tones etc. Personal Horoscope/Personalized Prediction Cricket Score, Match clippings, cricket commentary 8. Missed call alert Subscriber to get a SMS alert of incoming calls when the subscriber’s mobile phone is switched off / not reachable and busy. 9. 10. 11. 12. 13. 14. E-mail Music on demand Contest GPRS/WAP MMS Health E-mail through SMS Dial a song Reality Shows Mobile Internet, Mobile Chat, Mobile TV Picture Messages, Picture clippings Health Tips, Beauty Tips
10
15.
M-Commerce
Transaction based services with multiple payment modes and supporting multiple domains like WAP, GPRS, SMS, IVR & Web.
16.
Miscellaneous
Devotional, Movies & Music, Fun
11
doc_753990188.docx