An analysis of the value chain rather than value added is the appropriate way to examine competitive advantage. The value chain from competitive advantage, by michael. Porter has suggested many ground breaking strategic concepts like porters five forces, competitive strategy, and others. Porters value chain what is the value chain of porter. Porters value chain analysis by michael porter toolshero. Creating and sustaining superior performance porter 1985. Creating and sustaining superior performance porter, 1985, as a tool of analyzing the firms internal environment and resource base. Porter harvard business school 14th annual rotman school. Zara has achieved this despite proudly claiming that they have never spent a penny on advertising. A business strategy of through a value chain and comparative advantage analysis of amazons trademarks and intangibles amazon is considered the preeminent online retailer in the world.
The porter s value chain concept says that there is a chain of events which occur in a company right from the procurement of raw materials to the delivery of goods as well as the post sales service. As you might have guessed, the value chain is a set of activities that will lead to the creation of value. Hence, value chain analysis should cover the whole value system in which the organization ope rates. A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. Value chain analysis porters value chain the concept of value chain was propagated by michael porter in the 1980s in his book competitive advantage. In porter s value chains, inbound logistics, operations, outbound logistics, marketing. Several frameworks have emerged and have been used to. Value chain michael porter was the first person who introduced the term value chain in his book competitive advantage. Porters value chain approach is restricted to the firm level neglecting the analysis of up. Above is an image of michael porter who presented the concept of value chain.
Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. Value chain structure includes the five elements like end market, business and enabling environment, vertical linkages. In his book competitive advantage 1985, michael porter explains value chain analysis. The disadvantage of value chain analysis is that it forces a company to break into segments, and there is the possibility of losing the big picture in the details. According to michael porter, value chain consists all. Value chain presentation template free powerpoint templates. Value chains versus supply chains by andrew feller, dr. Indeed to try and do so in this form would be methodologically. The steps to develop a value chain analysis successfully are. This paper is intended as a discussion piece to lead and give legitimacy to more formalized research in this area. Porter proposed a generalpurpose value chain that companies can use to examine all of their activities, and see how theyre connected.
Porters value chain cis 4397 intro to cloud computing. Documents in econstor may be saved and copied for your. Gaining such a perspective sets the groundwork for further analysis of individual institutions with respect to their particular value chain advantage and strategically attractive competitive position. When you understand how the chain works within your own business. The relevant level for constructing a value chain is a firms activities in a. Porter value chain analysis model template is one of the most effective and popular business strategy and analysis theories. It divides the activities in your system into two categories primary and support. Porter linked up the value chains between firms to form what he called a. Shared value opens up new customer needs, new available markets, new value chain choices, new ways to address external constraints shared value leads to new ways of thinking about the business this creates new value propositions, new opportunities for strategic positioning, and new potential sources of competitive advantage. The value chain the term value chain was used by michael porter in his book competitive adva n tage. Tom callarman abstract the concept of a value chain has existed for twenty years but we find it still is an unclear concept. The concept of value chains as decision support tools, was added onto the competitive strategies paradigm developed by porter as early as 1979. The value chain analysis sometimes refers to porters value chain analysis model is a wellknown business management tool developed by michael porter in 1985 in his alltime influential book competitive advantage. Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization.
Porters value chain is a model used to study the activities that are performed in the creation of a product or service by an organization. The value chain also known as porters value chain analysis is a business management concept that was developed by michael porter. Value chain analysis is an important strategic tool for business management. In his book, porter first time introduced value creation concept. However, this framework was designed for tangible product and service delivery e. All competitive advantage resides in the value chain. The concept of a value chain has existed for twenty years but we find it still is. Value added selling price less the cost of purchased raw materials has sometimes been used as the focal point for cost analysis because it was viewed as the area in which a firm can control costs. The value chain template in powerpoint format includes three slides. A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.
Michael porter s value chain analysis can get complicated. Value chain analysis works by breaking an organizations events and activities down into strategically appropriate pieces, so that it can have a complete picture of the cost drivers and sources of differentiation and after that can make changes accordingly. Within the whole value system, there is only a certain value of profit margi n available. A value chain is a set of activities that an organization carries out to create value for its customers. It has been suggested that the third generation supply chain is based on customer intimacy and is fully synchronized. It offers a great solution to handle with complex process within enterprises. These activities add value and cost in the process of creating products and services. Figure 1 below illustrates the essence of apple value chain analysis. Additional information may be found at the website of the institute for strategy and competitiveness. Value chain analysis of procter and gamble case study. This presentation draws on ideas from professor porters books and articles.
Value chain analysis is one way of identifying which activities are best undertaken by a business and which are best outsourced. That is, a value chain is made up of various subsystems that are used to create products or services. The value chain the term value chain was used by michael porter. Primary activities relate directly to the creation, sale, maintenance, and support of a product or service. This chain is made up of 9 steps and the process can be changed in any of the nine steps to add further value. Enduring ideas and new opportunities professor michael e. Those tasked to do the job encounter difficulties in many areas including the gathering of data, identifying functions or tasks which might add real or perceived value, and creating then applying the plan. Value chain analysis methodologies in the context of.
The concept of the value chain was made popular by harvard universitys professor michael porter. Uber value chain analysis is a strategic analytical tool that helps to identify the sources of value and competitive advantage for the global transportation technology company. The main downside of creating a value chain diagram through analysis is that it involves a lot of work. T he value chain analysis describes the activ ities the organ ization performs and links them to the organizations competitive pos ition. Porter defines value chain as a representation of a firms value adding activities, based on its pricing strategy and cost structure. Porter s value chain is a model that can be used as part of the strategic analysis stage of the strategic planning process and is particularly useful to assess whether an organisation has a sustainable competitive advantage. Watch this video for a straightforward 3step process that can help you. Porter s five forces model and porter s value chain. Porters value chain analysis free management books. Value chain analysis has been applied in various fields, from the time the concept of. Instead, the value of zaras brand comes from its supply chain and its ability to add value to every stage of the supply chain porter, 1985. Free download the pdf format file and try it right now with edraw software. Michael porter defines value chain as a representation of a firms value adding activities, based on its pricing strategy and cost structure. Use of the value chain in the process of generating a.
The backbone of this model is the set of five primary activities that have been identified as porter as being relevant to all businesses. A conceptual framework 75 structural and dynamic components in which the structure of the value chain influences the dynamics of firm behavior and this dynamic persuade how well the value chain performs. Apple value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the business. Michael eugene porter is an american academic known for his theories on economics, business strategy, and social causes. We know of no value chain analysis that has comprehensively covered all the aspects dealt with in the following pages, and certainly not in the methodologically sequential handbook set out below. Porters value chain is a model that is sometimes included in a marketing principles textbook, but is more commonly found in a book on marketing strategy. Using porters value chain the marketing study guide. Four activities from porters value chain ups barcoding and tracking system dunkin donuts sms advertisingvirgin megastores unified communication system kenyas mpesa. Zara is ranked as one of the top 50 global brands in terms of brand value interbrand, 2009. The value chain from competitive advantage, by michael porter. Michael porter introduced a concept known as porter s value chain. Edraws rich, intelligent and professionallydesigned value chain templates and examples will help you end up with a quality value chain diagram quicker.
The value chain describes a set of activities for a firm to deliver a product or a service. Porter s value chain lists nine activities that are found in most businesses. Porters value chain matrix diagram porters value chain. Kramer 94 disruptive innovation for social change clayton m. Porter s value chain analysis is a useful strategic management tool. Pdf porters five forces model and porters value chain. Zaras strategic capabilities and value chain analysis. Porter proposed a generalpurpose value chain that companies can use to examine all of their. A value chain consists of the activities an organization performs to make a product that is valued by customers. He is credited for creating great works, porters five forces analysis, competitive strategy, national diamond and value chain. Generally, inbound logistics involves receiving and storing raw materials. What are the primary activities of michael porters value.
It includes descriptions of industry selfdefinition, sourcing, production, selling, financing, intellectual property and end markets. This model allows a business manager to identify the activities that add value to the business and those that do not the idea is to divide the activities into primary activities those activities that relate to core operations, sales, marketing, and customer. Porter distinguished two important elements of modern value chain analysis. All these activities can be represented using a value chain.
Select a free value chain template from the thousands of examples available in the edraw library and convert to pdf value chain template with one click. Porters value chain assumes that an enterprise is a system of inputs. Value chain analysis of procter and gamble case study value chain analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Figure below illustrates the essence of uber value chain analysis. Porter s value chain focuses on systems, rather than departments or accounting cost types. The link between competitive advantage and corporate social responsibility michael e. Porter s value chain analysis is a tool that can be used to determine exactly how your company goes about the task of creating value.
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