Scribd
Upload
37 views

The Value Chain

The document discusses Michael Porter's value chain model which identifies five primary activities and four support activities that firms use to create value. It explains that analyzing a firm's value chain can help identify activities for competitive advantage and make-or-buy decisions. The value chain is also linked to suppliers' and buyers' value chains forming a larger value system.

Uploaded by

Pankaj Khatoniar
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
37 views

The Value Chain

The document discusses Michael Porter's value chain model which identifies five primary activities and four support activities that firms use to create value. It explains that analyzing a firm's value chain can help identify activities for competitive advantage and make-or-buy decisions. The value chain is also linked to suppliers' and buyers' value chains forming a larger value system.

Uploaded by

Pankaj Khatoniar
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

19/07/2012

The Value Chain

QuickMBA / Strategy / Value Chain

The Value Chain


To analyze the specific activities through which firms can create a competitive
advantage, it is useful to model the firm as a chain of value-creating activities. Michael
Porter identified a set of interrelated generic activities common to a wide range of
firms. The resulting model is known as the value chain and is depicted below:

Primary Value Chain Activities

Inbound
Logistics

> Operations >

Outbound
Logistics

>

Marketing
& Sales

> Service

The goal of these activities is to create value that exceeds the cost of providing the
product or service, thus generating a profit margin.
Inbound logistics include the receiving, warehousing, and inventory control of
input materials.
Operations are the value-creating activities that transform the inputs into the final
product.
Outbound logistics are the activities required to get the finished product to the
customer, including warehousing, order fulfillment, etc.
Marketing & Sales are those activities associated with getting buyers to
purchase the product, including channel selection, advertising, pricing, etc.
Service activities are those that maintain and enhance the product's value
including customer support, repair services, etc.
Any or all of these primary activities may be vital in developing a competitive
advantage. For example, logistics activities are critical for a provider of distribution
services, and service activities may be the key focus for a firm offering on-site
maintenance contracts for office equipment.
www.quickmba.com/strategy/value-chain/

1/3

19/07/2012

The Value Chain

These five categories are generic and portrayed here in a general manner. Each
generic activity includes specific activities that vary by industry.

Support Activities
The primary value chain activities described above are facilitated by support activities.
Porter identified four generic categories of support activities, the details of which are
industry-specific.
Procurement - the function of purchasing the raw materials and other inputs
used in the value-creating activities.
Technology Development - includes research and development, process
automation, and other technology development used to support the value-chain
activities.
Human Resource Management - the activities associated with recruiting,
development, and compensation of employees.
Firm Infrastructure - includes activities such as finance, legal, quality
management, etc.
Support activities often are viewed as "overhead", but some firms successfully have
used them to develop a competitive advantage, for example, to develop a cost
advantage through innovative management of information systems.

Value Chain Analysis


In order to better understand the activities leading to a competitive advantage, one can
begin with the generic value chain and then identify the relevant firm-specific activities.
Process flows can be mapped, and these flows used to isolate the individual valuecreating activities.
Once the discrete activities are defined, linkages between activities should be
identified. A linkage exists if the performance or cost of one activity affects that of
another. Competitive advantage may be obtained by optimizing and coordinating
linked activities.
The value chain also is useful in outsourcing decisions. Understanding the linkages
between activities can lead to more optimal make-or-buy decisions that can result in
either a cost advantage or a differentiation advantage.

The Value System


www.quickmba.com/strategy/value-chain/

2/3

19/07/2012

The Value Chain

The firm's value chain links to the value chains of upstream suppliers and downstream
buyers. The result is a larger stream of activities known as the value system. The
development of a competitive advantage depends not only on the firm-specific value
chain, but also on the value system of which the firm is a part.

Recommended Reading
Porter, Michael E., Competitive Advantage: Creating and Sustaining Superior Performance
In Competitive Advantage, Michael Porter introduces the value chain as a tool for developing a
competitive advantage. Topics include:
Sharing of value chain activities among business units.
Using value chain analysis to develop low-cost and differentiation strategies.
Interrelationships between value chains of different industry segments.
Applying the value chain to understand the role of technology in competitive advantage.
The book concludes by considering the implications for offensive and defensive competitive strategy,
including how to identify vulnerabilities and initiate an attack on the industry leader.
QuickMBA / Strategy / Value Chain
Home | Site M ap | About | Contact | Privacy | Reprints | User Agreement

The articles on this website are copyrighted material and may not be reproduced,
stored on a computer disk, republished on another website, or distributed in any
form without the prior express written permission of QuickMBA.com.

www.quickmba.com/strategy/value-chain/

3/3

You might also like