{"id":6404,"date":"2020-02-27T07:35:49","date_gmt":"2020-02-27T12:35:49","guid":{"rendered":"http:\/\/flevy.com\/blog\/?p=6404"},"modified":"2020-12-18T22:19:18","modified_gmt":"2020-12-19T03:19:18","slug":"strategy-classics-porters-value-chain","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/strategy-classics-porters-value-chain\/","title":{"rendered":"Strategy Classics: Porter&#8217;s Value Chain"},"content":{"rendered":"<p><img decoding=\"async\" class=\"alignright size-medium wp-image-6407\" src=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain2-300x200.jpg\" alt=\"\" width=\"300\" height=\"200\" srcset=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain2-300x200.jpg 300w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain2-768x512.jpg 768w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain2-1024x683.jpg 1024w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Value-Chain2.jpg 1920w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/>The Value Chain concept, first described by Dr. Michael Porter in 1985, is a series of actions that a firm\u2014in a specific industry\u2014accomplishes to produce a valuable product or service for the market. \u00a0The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of subsystems of inputs, <a href=\"https:\/\/flevy.com\/browse\/stream\/transformation\">transformation<\/a> processes, and outputs.<\/p>\n<p>Another way to define the Value Chain principle is, \u201ctransforming business inputs into outputs, thereby creating a value much better than the original cost of producing those outputs.\u201d\u00a0 These inputs, processes, and outputs entail acquiring and utilizing resources\u2014finances, workforce, materials, equipment, buildings, and land.<\/p>\n<p>An industry Value Chain includes the suppliers that provide the inputs, creation of products by a firm, distribution value chains, till the products reach the customers.\u00a0 The way Value Chain activities are planned and executed determines the costs and profits.<\/p>\n<p>Value chains consist of set of activities that products must undergo to add value to them. \u00a0These activities can be classified into 2 groups:<\/p>\n<ul>\n<li>Primary Activities<\/li>\n<li>Secondary Activities<\/li>\n<\/ul>\n<p>Primary activities in <a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\">Porter&#8217;s Value Chain<\/a> are associated with the production, sale, upkeep, and support of a product or service offering, including:<\/p>\n<ul>\n<li>Inbound Logistics<\/li>\n<li>Operations<\/li>\n<li>Outbound Logistics<\/li>\n<li>Marketing and Sales<\/li>\n<li>Service<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong>The secondary activities and processes in Porter\u2019s Value Chain support the primary activities.\u00a0 For instance:<\/p>\n<ul>\n<li>Procurement<\/li>\n<li>Human resource management<\/li>\n<li>Technological development<\/li>\n<li>Infrastructure<\/li>\n<\/ul>\n<h2><strong>Value Chain Analysis Benefits<\/strong><\/h2>\n<p>The analysis of a Value Chain offers a number of benefits, including:<\/p>\n<ul>\n<li>Identification of bottlenecks and making rapid improvements<\/li>\n<li>Opportunities to fine-tune based on transforming marketplace and competition<\/li>\n<li>Bringing out the real needs of an organization<\/li>\n<li>Cost reduction<\/li>\n<li>Competitive differentiation<\/li>\n<li>Increased profitability and business success<\/li>\n<li>Increased efficiency<\/li>\n<li>Decreased waste<\/li>\n<li>Delivery of high-quality products at lower costs<\/li>\n<li>Retailers can monitor each action throughout the entire process from product creation to storage and distribution to customers.<\/li>\n<\/ul>\n<h2><strong>Value Chain Analysis (VCA) Approach<\/strong><\/h2>\n<p>Businesses seeking competitive advantage often turn to Value Chain models to identify opportunities for cost savings and differentiation in the production cycle.\u00a0 The <a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\">Value Chain Analysis (VCA)<\/a> process encompasses the following 3 steps:<\/p>\n<ul>\n<li><strong>Activity Analysis<\/strong><\/li>\n<li><strong>Value Analysis<\/strong><\/li>\n<li><strong>Evaluation and Planning<\/strong><\/li>\n<\/ul>\n<p><a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\"><img decoding=\"async\" class=\"aligncenter size-full wp-image-6405\" src=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Porters-Value-Chain.png\" alt=\"\" width=\"1920\" height=\"1436\" srcset=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Porters-Value-Chain.png 1920w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Porters-Value-Chain-300x224.png 300w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Porters-Value-Chain-768x574.png 768w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2020\/02\/Porters-Value-Chain-1024x766.png 1024w\" sizes=\"(max-width: 1920px) 100vw, 1920px\" \/><\/a><\/p>\n<h2><strong>Activity Analysis <\/strong><\/h2>\n<p>The first step in Value Chain Analysis necessitates identification of activities that are essential to undertake in order to deliver product or service offerings.\u00a0 Key activities in this stage include:<\/p>\n<ul>\n<li>Listing the critical processes necessary to serve the customers\u2014e.g., marketing, sales, order taking, distribution, and support\u2014visually on a flowchart for better understanding.\n<ul>\n<li>This should be done by involving the entire team to gather a rich response and to have their support on the decisions made afterwards.<\/li>\n<\/ul>\n<\/li>\n<li>Listing the other important non-client facing processes\u2014e.g., hiring individuals with skills critical for the organization, motivating and developing them, or choosing and utilizing technology to gain competitive advantage.<\/li>\n<li>This stage also entails gathering customers\u2019 input on the organization\u2019s product or service offerings and ways to continuously improve.<\/li>\n<\/ul>\n<h2><strong>Value Analysis<\/strong><\/h2>\n<p>The second phase of the Value Chain Analysis necessitates identifying tasks required under each primary activity that create maximum value.\u00a0 This phase is characterized by:<\/p>\n<ul>\n<li>Ascertaining the key actions for each specific activity identified during the first phase.<\/li>\n<li>Thinking through the &#8220;value factors&#8221;\u2014 elements admired by the customers about the way each activity is executed.\n<ul>\n<li>For example, for the order taking process, customers value quick response to their call, courteous behavior, correct order entry, prompt response to queries, and quick resolution of their issues.<\/li>\n<\/ul>\n<\/li>\n<li>Citing the value factors next to each activity on the flowchart.<\/li>\n<li>Jotting down the key actions to be done or changes to be made to under each Value Factor.<\/li>\n<\/ul>\n<p>Interested in learning more about the other phases of the Value Chain Analysis Approach?\u00a0 You can download <a href=\"https:\/\/flevy.com\/browse\/flevypro\/strategy-classics-porters-value-chain-4058\"><u>an editable PowerPoint on <strong>Strategy Classics: Porter\u2019s Value Chain<\/strong> here<\/u><\/a> on the <a href=\"https:\/\/flevy.com\/browse\">Flevy documents marketplace<\/a>.<\/p>\n<h2>Do You Find Value in This Framework?<\/h2>\n<p>You can download in-depth presentations on this and hundreds of similar business frameworks from the <a href=\"https:\/\/flevy.com\/pro\/library\">FlevyPro Library<\/a>. <a href=\"https:\/\/flevy.com\/pro\">FlevyPro<\/a> is trusted and utilized by 1000s of management consultants and corporate executives. Here&#8217;s what some have to say:<\/p>\n<blockquote><p>&#8220;My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today\u2019s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.&#8221;<\/p>\n<p style=\"text-align: right;\">\u2013 Bill Branson, Founder at Strategic Business Architects<\/p>\n<\/blockquote>\n<blockquote><p>&#8220;As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.&#8221;<\/p>\n<p style=\"text-align: right;\">\u2013 David Coloma, Consulting Area Manager at Cynertia Consulting<\/p>\n<\/blockquote>\n<blockquote><p>&#8220;As a small business owner, the resource material available from FlevyPro has proven to be invaluable. The ability to search for material on demand based our project events and client requirements was great for me and proved very beneficial to my clients. Importantly, being able to easily edit and tailor the material for specific purposes helped us to make presentations, knowledge sharing, and toolkit development, which formed part of the overall program collateral. While FlevyPro contains resource material that any consultancy, project or delivery firm must have, it is an essential part of a small firm or independent consultant&#8217;s toolbox.&#8221;<\/p>\n<p style=\"text-align: right;\">\u2013 Michael Duff, Managing Director at Change Strategy (UK)<\/p>\n<\/blockquote>\n<blockquote><p>&#8220;FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight \u2013 it&#8217;s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.&#8221;<\/p>\n<p style=\"text-align: right;\">\u2013 Roderick Cameron, Founding Partner at SGFE Ltd<\/p>\n<\/blockquote>\n<blockquote><p>&#8220;Several times a month, I browse FlevyPro for presentations relevant to the job challenge I have (I am a consultant). When the subject requires it, I explore further and buy from the Flevy Marketplace. On all occasions, I read them, analyze them. I take the most relevant and applicable ideas for my work; and, of course, all this translates to my and my clients&#8217; benefits.&#8221;<\/p>\n<p style=\"text-align: right;\">\u2013 Omar Hern\u00e1n Montes Parra, CEO at Quantum SFE<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>The Value Chain concept, first described by Dr. Michael Porter in 1985, is a series of actions that a firm\u2014in a specific industry\u2014accomplishes to produce a valuable product or service for the market. \u00a0The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of&hellip;&nbsp;<a href=\"https:\/\/flevy.com\/blog\/strategy-classics-porters-value-chain\/\" rel=\"bookmark\"><span class=\"screen-reader-text\">Strategy Classics: Porter&#8217;s Value Chain<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":6407,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[82,81],"tags":[1941,1940,761,1939,802,136,824,1937,986,1938],"class_list":["post-6404","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-operations","category-strategy","tag-activity-analysis","tag-inbound-logistics","tag-operations-2","tag-porters-value-chain","tag-procurement","tag-supply-chain","tag-transformation","tag-value-chain","tag-value-chain-analysis","tag-vca"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/6404","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=6404"}],"version-history":[{"count":6,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/6404\/revisions"}],"predecessor-version":[{"id":7839,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/6404\/revisions\/7839"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/6407"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=6404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=6404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=6404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}