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Value Chain Analysis

The document discusses Michael Porter's value chain analysis model, which categorizes a business's activities into primary activities like operations that directly create products, and support activities like procurement that increase efficiency. It describes analyzing which activities are best for a business to perform itself versus outsource. Value chain analysis identifies activities linked to competitive advantage through lower costs or differentiation. The document outlines Porter's primary and support activity categories, provides examples, and describes a three-step process for conducting value chain analysis.

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missph
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168 views

Value Chain Analysis

The document discusses Michael Porter's value chain analysis model, which categorizes a business's activities into primary activities like operations that directly create products, and support activities like procurement that increase efficiency. It describes analyzing which activities are best for a business to perform itself versus outsource. Value chain analysis identifies activities linked to competitive advantage through lower costs or differentiation. The document outlines Porter's primary and support activity categories, provides examples, and describes a three-step process for conducting value chain analysis.

Uploaded by

missph
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Value Chain Analysis describes the activities that take place in a business and relates them to

an analysis of the competitive strength of the business. Influential work by Michael Porter
suggested that the activities of a business could be grouped under two headings:

(1) Primary Activities - those that are directly concerned with creating and delivering a
product (e.g. component assembly); and

(2) Support Activities, which whilst they are not directly involved in production, may
increase effectiveness or efficiency (e.g. human resource management). It is rare for a
business to undertake all primary and support activities.

Value Chain Analysis is one way of identifying which activities are best undertaken by a
business and which are best provided by others ("out sourced").

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving competitive advantage.


For example, a business which wishes to outperform its competitors through differentiating
itself through higher quality will have to perform its value chain activities better than the
opposition. By contrast, a strategy based on seeking cost leadership will require a reduction
in the costs associated with the value chain activities, or a reduction in the total amount of
resources used.

Primary Activities

Primary value chain activities include:

Primary Activity Description


Inbound All those activities concerned with receiving and storing externally sourced
logistics materials
Operations The manufacture of products and services - the way in which resource
inputs (e.g. materials) are converted to outputs (e.g. products)
Outbound All those activities associated with getting finished goods and services to
logistics buyers
Marketing and Essentially an information activity - informing buyers and consumers about
sales products and services (benefits, use, price etc.)
Service All those activities associated with maintaining product performance after
the product has been sold
 

Support Activities

Support activities include:

Secondary Description
Activity
Procurement This concerns how resources are acquired for a business (e.g. sourcing and
negotiating with materials suppliers)
Human Those activities concerned with recruiting, developing, motivating and
Resource rewarding the workforce of a business
Management
Technology Activities concerned with managing information processing and the
Development development and protection of "knowledge" in a business
Infrastructure Concerned with a wide range of support systems and functions such as
finance, planning, quality control and general senior management

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:

(1) Break down a market/organisation into its key activities under each of the major headings
in the model;

(2) Assess the potential for adding value via cost advantage or differentiation, or identify
current activities where a business appears to be at a competitive disadvantage;

(3) Determine strategies built around focusing on activities where competitive advantage can
be sustained

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