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Porter's Concept of Value Chain Analysis

Porter's value chain analysis breaks a firm's activities into primary and support activities to identify where competitive advantage can be gained. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include firm infrastructure, human resource management, technology, and procurement. Conducting a value chain analysis allows a firm to maximize value creation while minimizing costs by identifying activities that could be improved to increase efficiency and profitability. This gives the firm a competitive advantage through strategies like cost leadership, differentiation, or focus.

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95 views13 pages

Porter's Concept of Value Chain Analysis

Porter's value chain analysis breaks a firm's activities into primary and support activities to identify where competitive advantage can be gained. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include firm infrastructure, human resource management, technology, and procurement. Conducting a value chain analysis allows a firm to maximize value creation while minimizing costs by identifying activities that could be improved to increase efficiency and profitability. This gives the firm a competitive advantage through strategies like cost leadership, differentiation, or focus.

Uploaded by

MIKAELA CHARMIAN RAÑOCO
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Porter’s Concept of

Value Chain Analysis


Value Chain 
• The activities that take place within a company in order
to deliver a valuable product or service to their market.

Value Chain Analysis 


• A tool for analyzing activities to find those that are most
valuable.
Value Chain Management 
• The process of identifying and organizing the activities that add value in
the production of goods and services in an effort to increase collaboration,
increase competitive advantage, and improve customer satisfaction.
Value
• the total amount (i.e. total revenue) that buyers are willing to
pay for a firm's product

Margin
• difference between the total value and the total cost performing
all of the firm's activities
Uses
• analyzing the internal activities of a business in an effort to
understand costs
• locate the activities that add the most value
• differentiate from the competition
• outlines primary business functions as the basic areas and
activities of inbound logistics, operations, outbound logistics,
marketing and sales, and service.
• identifies the discrete tasks found in the important support
activities of firm infrastructure, human resources management,
technology, and procurement. 
Overall Goal
• to identify areas and activities that will benefit from change in
order to improve profitability and efficiency
• to maximize value creation while also monitoring and
minimizing costs
• to visually analyze a company's business activities to see how
the company can create a competitive advantage for itself
Competitive Advantage
• the ability for a firm to put "generic strategy" into practice,
generic strategy includes:

1. Cost Leadership: offer the lowest price to customers


2. Differentiation: selecting the important attributes that buyers
want so the company can get a premium price
3. Focus: doing each strategy according to each market segment
Competitive advantage types
Cost advantage Differentiation advantage

This approach is used when organizations try to The firms that strive to create superior products
compete on costs and want to understand the or services use differentiation advantage
sources of their cost advantage or disadvantage approach. (good
and what factors drive those costs.(good examples: Apple, Google, Samsung
examples: Amazon.com, Wal- Electronics, Starbucks)
Mart, McDonald's, Ford, Toyota)

•Step 1. Identify the firm’s primary and support •Step 1. Identify the customers’ value-creating
activities. activities.
•Step 2. Establish the relative importance of •Step 2. Evaluate the differentiation strategies
each activity in the total cost of the product. for improving customer value.
•Step 3. Identify cost drivers for each activity. •Step 3. Identify the best sustainable
•Step 4. Identify links between activities. differentiation.
•Step 5. Identify opportunities for reducing
costs.
Value Chain Analysis Example of Primary Activities for Cost Advantage
Step 1 - Firm's primary activities
Design and Purchasing materials Assembly Testing and quality Sales and marketing Distribution and
engineering and components control dealer support
Step 2 - Toal cost and importance
$164 M $410 M $524 M $10 M $384 M $230 M
less important very important very important not important important less important
Step 3 - Cost drivers
•Number and •Order size •Scale of plants •Level of quality •Size of advertising •Number of dealers
frequency of new •Average value of •Capacity utilization targets budget •Sales per dealer
models purchases per •Location of plants •Frequency of •Strength of existing •Frequency of
•Sales per model supplier defects reputation defects requiring
•Location of •Sales Volume repair recalls
suppliers
Step 4 - Links between activities
1.High-quality assembling process reduces defects and costs in quality control and dealer support activities.
2.Locating plants near the cluster of suppliers or dealers reduces purchasing and distribution costs.
3.Fewer model designs reduce assembling costs.
4.Higher order sizes increase warehousing costs.
Step 5 - Opportunities for reducing costs
1.Create just one model design for different regions to cut costs in designing and engineering, to increase order sizes of the same
materials, to simplify assembling and quality control processes and to lower marketing costs.
https://strategicmanagementinsight.com/tools/value-chai
n-analysis.html

https://www.visual-paradigm.com/guide/strategic-analysis
/what-is-value-chain-analysis/

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