Unleashing Business Success With Porter’s Value Chain

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Last updated on March 10th, 2023 at 01:13 pm

The four key components of Strategy Analysis are principles, practices, techniques, and skills. They play an essential role in identifying and validating the organization’s strategic needs, defining suitable solution approach(es) and solution(s), and planning, monitoring, and engaging stakeholders to achieve the organization’s strategic objectives. Techniques describe a step-by-step approach to conducting Strategic Analysis activities.

Purpose

Porter’s value chain assists in analyzing the activities performed by an organization. It identifies key areas of primary and support activities required to deliver value to the organization’s customers. These activities can potentially differentiate the organization from its competitors.

Description

We can use the concept of a value chain to develop high-level process maps for the organization. The figure below identifies the value chain activities for a manufacturing organization, using each of the primary activity sections of the value chain.

porters value chain process map
Figure 35: Porter’s Value Chain Process Map

When using the value chain, typically start with the operations – the core activity of this value chain – and then consider the other areas.

In the example above, we have a manufacturing organization, and the primary operations activity is ‘Manufacture products.’

However, products can be manufactured only when raw materials are available, which is the inbound logistics activity.

The outbound logistics activity concerns the delivery of manufactured goods to the end customers.

In the marketing and sales area, the organization needs to promote products and receive orders.

Finally, the service activity involves providing support to customers, answering their queries, and dealing with complaints.

Usage Considerations

Helps to define your value chain, understand where your profit margins are, and strategize both short-term and long-term growth.

How Can One Analyze the Cost and Performance of Activities and Identify Areas of Competitive Advantage in an Organized Way?

Here is a Strategy Analysis technique to achieve that. This blog will look at a technique called Porter’s Value Chain with examples.

History of Porter’s Value Chain as a Strategy Analysis Technique

Porter’s Value Chain as a strategy analysis technique was developed by Michael Porter in 1985. It is a tool used to analyze the different activities that make up a company’s operations and how they interact to create value for the customer. The Value Chain provides an organized way to analyze the cost and performance of activities and to identify areas of competitive advantage.

Porter’s Value Chain is based on the idea that businesses should focus on the activities that add the most value to the customer and focus on improving those activities. Porter’s Value Chain is used to identify areas where a company can create a competitive advantage by improving efficiency and effectiveness. It also helps in understanding how economic value is created in the form of cost savings and improved customer service.

The Value Chain is a powerful tool for helping organizations to identify areas of improvement and focus on activities that will create the most value for the customer. The Value Chain has become an important tool in business strategy analysis. It is the basis for most strategic planning, from assessing the competitive landscape to creating a strategy. Businesses use the Value Chain to identify opportunities for cost savings, improved customer service, and improved productivity. Check more information on cbap training via adaptive learning.

The Value Chain has been adapted and applied to different industries, such as construction, hospitality, healthcare, and retail. It is also used in public sector organizations, such as education and government. The Value Chain is an important tool for organizations to use in order to stay competitive in a rapidly changing business environment.

Advantages of Porter’s Value Chain as a Strategy Analysis Technique

  1. It provides a comprehensive overview of the company’s activities: Porter’s Value Chain helps to identify where a company adds value and how it can create competitive advantages. It also helps to identify areas where a company can cut costs and increase efficiency.
  2. It helps to identify the interrelationships between the various activities of the company: Porter’s Value Chain provides a comprehensive overview of the various activities of the company, which help to identify the interrelationships between them and how they can be improved.
  3. It helps to identify the weak links in a company’s activities: Porter’s Value Chain helps to identify the weak links in a company’s activities and how they can be improved in order to increase the efficiency and competitiveness of the company.
  4. It helps to identify the competitive advantages of a company: Porter’s Value Chain helps to identify the competitive advantages of a company by analyzing the various activities of the company and how they can be improved in order to gain a competitive edge over its rivals.
  5. It provides a basis for comparison between different companies: Porter’s Value Chain helps to identify the competitive advantages of different companies and how they compare to each other. This is helpful in making decisions about investments and other strategic initiatives.

Weaknesses of Porter’s Value Chain as a Strategy Analysis Technique

  1. Focuses too much on the internal operations of a company: Porter’s Value Chain analysis focuses too much on the internal operations of a company, such as production and marketing. It does not take into account external factors, such as competition and the external environment, which can have a significant impact on a company’s success.
  2. May be too simplistic: Porter’s Value Chain analysis may be too simplistic to provide a comprehensive view of a company’s competitive position. It does not consider the complexity of the external environment and how different forces interact with each other.
  3. Not suitable for highly dynamic businesses: Porter’s Value Chain analysis is not suitable for businesses that are operating in highly dynamic markets. This is because the model does not take into account the changing external environment and the different forces that can influence a company’s competitive position.
  4. Does not consider customer needs: Porter’s Value Chain analysis does not take into account customer needs and preferences. This means that a company may have an efficient and effective value chain, but it may not be meeting the needs of its customers.

Relationship of Porter’s Value Chain with Other Strategy Analysis Techniques

Porter’s Value Chain is closely related to other strategy analysis techniques, such as the Resource-Based View of the Firm, the Strategic Position and Action Evaluation Matrix, the Business Model Canvas, the BCG Matrix, the Ansoff Matrix, and the SWOT Analysis.

The Value Chain is a tool used to identify the activities and resources that are necessary to create value for a customer, and the Resource-Based View of the Firm is a way of understanding how a firm can use its resources to gain a competitive advantage. The Strategic Position and Action Evaluation Matrix, also known as the SPACE Matrix, is an analysis technique used to identify strategic alternatives for a firm.

The Business Model Canvas is a visual tool used to design and analyze a company’s business model. The BCG Matrix is a tool used to assess the relative competitive position of a firm’s products and services.

The Ansoff Matrix is a tool used to identify potential growth opportunities for a firm, and the SWOT Analysis is a tool used to evaluate the strengths, weaknesses, opportunities, and threats of a firm.

All of these techniques can be used in conjunction with the Value Chain to help a firm identify and analyze the activities and resources necessary to create value for a customer.

Future of Porter’s Value Chain as a Strategy Analysis Technique

Porter’s Value Chain analysis is a powerful tool for examining the competitive advantages of a company. As technology and business strategy evolve, Porter’s Value Chain analysis will continue to be an important tool for evaluating the competitive position of a company.

For example, the emergence of digital technologies such as artificial intelligence (AI), machine learning, and blockchain will provide companies with new opportunities to gain a competitive advantage. As such, Porter’s Value Chain analysis can be used to evaluate how these new technologies can be used to develop a competitive advantage, allowing companies to stay ahead of their competitors. As technology and business strategy continue to evolve, Porter’s Value Chain analysis will remain an important tool for strategists looking to gain a competitive advantage.

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