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Developed by Michael Porter and used throughout the world for nearly 30 years, the value chain is a powerful tool for disaggregating a company into its strategically relevant activities in order to focus on the sources of competitive advantage, that is, the specific activities that result in higher prices or lower costs.
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Corporate social responsibility. Creating Shared Value. How to reinvent capitalism—and unleash a wave of innovation and growth. by. Michael E. Porter. and. Mark R. Kramer. From the Magazine...
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- Understanding The Value Chain
- Components of A Value Chain
- What Is Value Chain Analysis?
- Why Is Value Chain Analysis Important?
- How to Conduct A Value Chain Analysis
- One Piece of The Puzzle
The term value chain refers to the various business activities and processes involved in creating a product or performing a service. A value chain can consist of multiple stages of a product or service’s lifecycle, including research and development, sales, and everything in between. The concept was conceived by Harvard Business School Professor Mi...
According to Porter’s definition, all of the activities that make up a firm's value chain can be split into two categories that contribute to its margin: primary activities and support activities. Primary activitiesare those that go directly into the creation of a product or the execution of a service, including: 1. Inbound logistics: Activities re...
Value chain analysisis a means of evaluating each of the activities in a company’s value chain to understand where opportunities for improvement lie. Conducting a value chain analysis prompts you to consider how each step adds or subtracts value from your final product or service. This, in turn, can help you realize some form of competitive advanta...
Value chain analysis is essential for businesses to understand the sequence of activities required to deliver a product or service. In addition to optimizing budgets and establishing competitive advantage, businesses can also use value chain analysis for: 1. Supply chain management:Value chain analysis provides insights into how each component of t...
1. Identify Value Chain Activities
The first step in conducting a value chain analysis is to understand all of the primary and secondary activities that go into your product or service’s creation. If your company sells multiple products or services, it’s important to perform this process for each one.
2. Determine Activities' Values and Costs
Once the primary and secondary activities have been identified, the next step is to determine the value that each business activity adds to the process, along with the costs involved. When thinking about the value created by activities, ask yourself: How does each increase the end user’s satisfaction or enjoyment? How does it create value for my firm? For example, does constructing the product out of certain materials make it more durable or luxurious for the user? Does including a certain fe...
3. Identify Competitive Advantage Opportunities
Once you’ve compiled your value chain and understand the cost and value associated with each step, you can analyze it through the lens of whatever competitive advantage you’re trying to achieve. For example, if your primary goal is to reduce your firm’s costs, you should evaluate each piece of your value chain through the lens of reducing expenses. Which steps could be more efficient? Are there any that don’t create significant value and could be outsourced or eliminated to substantially redu...
Value chain analysis can be a highly effective means of understanding and contextualizing your business’s processes, but it’s just one tool at your disposal. There's a host of other frameworks and conceptsthat can help you evaluate organizational performance, craft winning strategies, and be more effective in your role. Ready to learn additional fr...
In a November 2014 article, “How Smart, Connected Products Are Transforming Competition,” Harvard Business School professor Michael Porter and PTC president and CEO James Heppelmann...
May 24, 2017 · Strategy: Creating and Sustaining Competitive Advantage. This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); On Competition (Harvard Business Review ...
Competitive advantage. The value chain. Five forces. Industry structure. Differentiation. Relative cost. If you want to understand how companies achieve and sustain competitive success, Michael Porter's frameworks are the foundation. But while everyone in business may know Porter's name, many managers misunderstand and misuse his concepts.
