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4 - The Value Chain

The document discusses Porter's value chain model which analyzes a company's internal environment. It breaks a company's activities into primary and support activities. Primary activities directly involve production and distribution, while support activities provide resources. A company can pursue cost leadership or differentiation strategies by optimizing value chain activities. Analyzing interrelationships across business units and outsourcing non-core activities can also create competitive advantages through Porter's value chain framework.

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Darwin Baguio
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342 views10 pages

4 - The Value Chain

The document discusses Porter's value chain model which analyzes a company's internal environment. It breaks a company's activities into primary and support activities. Primary activities directly involve production and distribution, while support activities provide resources. A company can pursue cost leadership or differentiation strategies by optimizing value chain activities. Analyzing interrelationships across business units and outsourcing non-core activities can also create competitive advantages through Porter's value chain framework.

Uploaded by

Darwin Baguio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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ANALYZING INTERNAL ENVIRONMENT

VALUE CHAIN

1
Porter’s Generic Value Chain

Infrastructure
Activities
Support

Human Resource Management

Ma
rg
Technology Development

in
Procurement

Outbound Logistics
Inbound Logistics

Marketing and
Operations

Service

M
Sales

ar
gi
n
Primary Activities

Porter 1985

2
 Primary Activities – involved with a a product ‘s
physical creation, its sale and distribution to buyers,
and its service after the sale
•Inbound Logistics: materials handling, warehousing,
inventory control, transportation
•Operations: the process of transforming inputs into finished
products or services
•Outbound Logistics: warehousing and distribution of finished
goods
•Marketing and Sales: the identification of customer neds and
generation of sales.
•Service: installation, servicing, spare parts management

3
 Support Activities –provide the assistance necessary
for the primary activities to take place.
•Company Infrastructure: organizational structure, control
systems, company culture, etc.
•Human Resource Management: employee recruitment,
hiring, training, development and compensation
•Technology Development: technologies that suport value-
creating activities.
•Procurement: purchasing inputs as materials, suppliers and
equipment

4
A company can pursue a competitive
advantage by:
 Cost Leadership Strategy: emphasizes efficiency. By producing high
volumes of standardized products, the firm hopes to take advantage of
economies of scale and experience curve effects.

5
Porter 10 cost drivers related to value chain
activities:
 Economies of scale
 Learning
 Capacity utilization
 Linkage among activities
 Interrelationships among business units
 Degree of vertical integration
 Timing of market entry
 Firm’s policy of cost differentiation
 Geographic location
 Institutional factors (regulation, union activity, taxes, etc.)
•A firm develops a cost advantage by controlling these
drivers better than their competitors.

6
 Differentiation Strategy: involves creating a product that is
perceived to be unique. The unique features or benefits should
provide superior value for the customer if this strategy is to
be successful. A differentiation advatnge maybe achieved by
changing individual value chain activities to increase
uniqueness in the final product or by reconfiguring the value
chain.

 Porter’s identified areas of uniqueness


 Policies and decisions
 Linkages among activities
 Timing
 Location
 Interrelationship
 Learning
 Integration
 Scales ( better service as a result of large scales)
 Institutional factors

7
Analyzing Business Units
Interrelationships among business units form the
basis for a horizontal strategy. Such business
interrelationships can be identified by a value chain
analysis.

Tangible interrelationships offer direct


opportunities to create a synergy from
interrelationships among business units. Sharing of an
activity in a value chain can result to cost reduction.
Such interrelationships may exist simultaneously in
multiple value chain.

8
Outsourcing Value Chain Activities
A firm may specialize in one or more value chain
activities and outsource the rest. The extent to
which a firm perform upstream and downstream
activities is described by its degree of vertical
integration.
A manager may consider the following when
selecting activities to outsource:
• Whether the activity can be performed cheaper
• Whether the activity is one of the firm’s core competencies from
which stem a cost advantage or product differentiation
• The risk of performing the activity in-house
• Whether the outsourcing activity result in business process
improvements such as reduced lead time, high flexibility, reduced
inventory.
9
The Value Chain System

Supplier Channel Customer


Value Chains Value Chains Value Chains

Organizations
Value Chain

10

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