Porter’s value chain is a framework that helps businesses understand the various activities that contribute to the creation and delivery of their products and services. By mapping out the value chain, businesses can identify which activities are the most important to their success and where they can create the most value for their customers.
The value chain
The value chain was first proposed by Michael Porter in his classic book, Competitive Advantage: Creating and Sustaining Superior Performance. In this book, Porter argued that a company’s competitive advantage depends on its ability to perform activities in its value chain more efficiently or effectively than its competitors.
Today’s value chain
Today, the value chain is still widely used by businesses as a tool for strategic planning. By understanding how the various activities in their value chain contribute to their overall competitiveness, businesses can make decisions about where to invest their resources and how to create the most value for their customers.
The primary activities in the value chain are:
- Inbound logistics: This includes all activities related to receiving and storing raw materials.
- Operations: This includes all activities that transform raw materials into finished products.
- Outbound logistics: This includes all activities related to distributing and delivering finished products to customers.
- Marketing and sales: This includes all activities related to promoting and selling products or services.
- Service: This includes all activities that provide post-sales service and support to customers.
The support activities in the value chain are:
- Procurement: This includes all activities related to purchasing raw materials and other supplies.
- Technology development: This includes all activities related to developing and improving the company’s production processess.
- Human resources management: This includes all activities related to recruiting, training, and managing employees.
- Firm infrastructure: This includes all activities related to managing the company’s overall operations, such as accounting, finance, and information systems.
Using the value chain
By understanding the various activities in their value chain, businesses can make decisions about where to invest their resources and how to create the most value for their customers. For example, if a business wants to improve its customer service, it might focus on investing in technology that will help it better track customer orders and shipments. Or if a business wants to reduce its production costs, it might focus on streamlining its manufacturing process or finding cheaper raw materials. The enterprise architecture software from BiZZdesign will help you to create a clear value chain.
Business tool
The value chain is just one tool that businesses can use to create a competitive advantage. To be successful, businesses must also understand the other elements of the competitive environment, such as the five forces of competition and the generic strategies. In addition, they must continuously monitor and adapt to changes in these factors over time.
