Porter’s value chain is a very effective business strategy to achieve a competitive advantage, an essential factor in any innovative project. In this article we explain what value chain analysis consists of.
What is value chain analysis?
Porter’s value chain is a business management concept developed by Michael Porter in his book Competitive Advantage (1985). It is based on a set of activities that a company performs in order to generate value for its customers. This strategy in turn leads to improved competitive advantage and greater profitability.
The strength of Porter’s value chain analysis is its focus, since the main driver of this model is centered on the analysis and breakdown of the different systems and activities that generate value in the company, relating them to customers and linking them all together through research and development strategies. The primary and supporting activities of this business management tool are discussed below.
Value chain activities
In order to perform an analysis of Porter’s value chain, it will be necessary to take into account all the activities of a company. In this sense, the strategy divides them into primary activities and support activities.
Primary value chain activities
Primary activities have an immediate effect on the production, maintenance, sales and support of the products or services provided. They are as follows:
Inbound logistics
These are the processes involved in the reception, storage and internal distribution of the basic materials or parts of a product or service. In this aspect, the relationship with suppliers will be fundamental.
Production
These are all activities that convert materials and designs into minimum viable products or finished products ready for distribution.
Outbound logistics
Activities related to the delivery of products and services to the customer. They include, for example, warehousing, distribution and transportation of products.
Marketing and sales
These are the processes that have to do with the placement of products in the markets and the relationship with users, whose objective is to acquire customers that generate income with their sales.
Service
This model is specifically designed for service management, for example, it focuses on analyzing customer satisfaction with the product.
Value chain support activities
Value chain support activities are complementary to primary activities and form the basis of any organization.
Infrastructure
Actions that enable the company to maintain its day-to-day operations. Administrative, financial, planning or communication management are examples of activities that generate this type of value.
Human resources management
It deals with all activities related to the company’s employees, such as recruitment, training, compensation and retention of human talent.
Technological development
Actions related to innovation, development of the organization’s products and services, both internally and externally. Some examples are: automation software and data collection, customer service with technological support, product design research, technological improvements in product development and creation of new materials. These types of activities create value using innovation and optimization.
Procurement and purchasing
It consists of all the support processes related to procurement in order to create products that generate value and stand out in the market. Examples are supplier relations, purchase agreements for materials or finished products or the outsourcing of strategic design professionals, among others.
How to use a company’s value chain analysis
There are four basic steps that must be followed to carry out a value chain analysis in a company:
- Identify the primary and support activities that create specific value to the organization.
- Find the links that relate both types of activities and study the interdependencies between them.
- Search for opportunities and solutions to optimize processes and create value.
- Formulate effective and specific strategies for the company and the type of product
However, it should be borne in mind that, in the technologically advanced era in which we live, practically all activities in the value chain depend on innovation and technological integration in the actions of production, distribution, marketing, etc. Therefore, any company needs to be aware of the importance of technological research and development. In Infinitia Research we are moved by these principles and we offer you our services to add value to your company. Consult with our Strategic Design department and tell us about your case.