Value Chain

Value chainThe value chain is a strategic tool whose objective is to identify and analyze the internal and external activities of a company, with the aim of finding sources of competitive advantages.

The value chain was presented for the first time in 1985 by Michael Porter in his book "Competitive Advantage: Creating and Sustaining Superior Performance", being used today in multiple companies and institutions.

The value chain examines and classifies each of the activities carried out by a company in order to maximize the creation of value and minimize costs, due that activity adds a percentage of value and cost.

The value chain of a company is part of the total value system, which includes the value chain of suppliers and the value chain of customers, the global analysis of the value system will allow us to detect possible sources of competitive advantages.

Classification of activities

Michael Porter classifies in 2 groups all the activities that take place in any company or organization;

The primary activities are all those that are part of the productive cycle, that is, those that are related to the creation, handling and sale of the product / service.

The support activities support the primary activities and support each other, indirectly contributing value to the product / service.

The primary activities are:

The support activities are:

The optimization of the primary activities are sources for the competitive advantage of cost leadership, while the support activities are sources for the competitive advantage of differentiation.

Steps to follow for the implementation of the value chain

Looking at the 2 possible competitive strategies indicated by Michael Porter (leadership in cost and differentiation), the steps to follow for the correct implementation of the value chain tool will be different;

Leadership in cost

Differentiation

Example of Value Chain

In the following example we can see the implementation of the value chain in an industrial company that wants to acquire the competitive advantage based on cost leadership.

Identify the primary and support activities:


Establish the cost and relative importance to the total cost;


Establish key indicators for each of the activities with significant weight with respect to cost:


Establish relationships between the different activities, identifying the impact of some on others:


Identify opportunities for improvement and establish action plans to carry them out:

 

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