Find out everything you need to know about this valuable business tool with this practical and accessible guide. The concept of the value chain was made popular by harvard universitys professor michael porter. The value chain from competitive advantage, by michael. The figure below illustrates the essence of amazon value chain analysis. Michael porter defines value chain as a representation of a firms valueadding activities, based on its pricing strategy and cost structure. In 1985 porter proposed the value chain as a tool to identify and to analyze the origins of competitive advantages. The value chain was designed by michael porter in 1985 as a systematic way to examine how competitive advantage develops and to identify where value is added in an organisation. 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. A value chain is a set of activities that an organization does to create value for its customers. 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. Allcompetitive advantage resides in the value chain. Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product.
A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. As you might have guessed, the value chain is a set of activities that will lead to the creation of value. Developed in the early 1980s by harvard business school professor michael porter in his book competitive advantage, the value chain consists of two main components. Creating and sustaining superior performance porter 1985. You should be familiar with the original model see figure 1 and the activities described within it. As i mentioned in the first part of this series, this model optimizes for. Theory 63 porters value chain theory use this to identify how you can improve organisational effectiveness by improving the quality of internal activities. Retail value chain the retail value chain provides a clear, yet indepth, analysis of the current retail value chain and the key operational models and success factors of its main players. In his book competitive advantage 1985, michael porter explains value chain analysis. The primary goal and advantage of a value chain is to create or strengthen a competitive advantage and companies use value chain analysis to help. The changing nature of the publishing value chain published may 17, 2011 by.
Porter proposed a generalpurpose value chain that any company can use to examine all its activities, and to see how theyre. 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. Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firms cost of creating it. These activities add value and cost in the process of creating products and services. Value chain for software product delivery linkedin. All these activities can be represented using a value chain. Understanding how your company creates value, and looking for ways to add more value, are critical elements in developing a competitive strategy. Porters value chain analysis is a tool that can be used to determine exactly how your company goes about the task of creating value. The value chain from competitive advantage, by michael porter. Back in 1985, michael porter, a harvard business school professor, introduced a basic value chain model in his book competitive advantage he identified several key steps common among all. It is a comprehensive and indispensable companion to the study and practice of corporate strategy which provides invaluable insights on the concepts of value chain, organisational performance settings and alignment, and competitive advantage. Porters value chain michael porter proposed the value chain framework in his book competitive advantage. A generic, firm specific value chain is shown in figure 1.
T he value chain analysis describes the activ ities the organ ization performs and links them to the organizations competitive pos ition. Value chain is used to analyze the flow of valueadding activities from the raw material. In addition to examining value chains from a firm level, it is also possible to examine them at an activities level. Porters value chain analysis by michael porter toolshero. Porter harvard business school ford canada top 100 boston, ma. Porter has dedicated much of his career to studying competitive advantage. Value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the business. The value chain approach is part of many current textbooks on marketing e. The value chain analysis, as popularized by porter 1985, investigates the sequence of consecutive. Generally, amazon does not have longterm contracts or arrangements with its vendors to guarantee the.
Porters value chain model and competitive advantage in. The concept comes through business management and was first described by michael porter in his 1985 bestseller, competitive advantage. Porters value chain what is the value chain of porter. Hax and majluf 1996, meffert 1994, meffert 2000, hayes et. The porter value chain has been widely adopted by the business community as a mechanism to understand and comprehend complexity in business environments, with the ultimate goal of structuring the business to maximize its competitive advantage. Developed by michael porter and used throughout the world for nearly 30 years, the value chain is a powerful tool for disaggregating a company into its strategically relevant activities in order to focus on the sources of competitive advantage, that is, the specific activities that result in higher prices or lower costs. Download at book 0615426026 download at book 0600605094 download at book. For the past two decades, michael porters work has towered over the field of competitive strategy. The value chain and the target cost play significant role in achieving competitive advantage in many areas where both concepts are complement to each other. In his 1985 book, competitive advantage, michael porter introduced the concept of the value chain and described it as a systematic way of examining all activities a firm performs and how they interact, necessary for analyzing the sources of competitive advantage, and introduced the idea of linkages, which was the real breakthrough in management thinking.
The porters 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. How to gain competitive advantage through efficient. This chain is made up of 9 steps and the process can be changed in any of the nine steps to add further value to the final product. The value chain was first introduced by michael porter during the 1980s in his bestselling book, competitive advantage. A firms value chain and the way it performs individual activities are a reflection of its history, its strategy, its. Michael porters value chain is a strategic selection from the little book of big management theories book. The value chain the term value chain was used by michael porter in his book competitive adva n tage. Seep preevent presentation 26 value chain analysis can help to reveal linksbetween producers, exporters and global markets identify constraintsall along the chain to competing in the marketplace. Michael porter defines value chain as a representation of a firms value adding activities, based on its pricing strategy and cost structure. Strategy is manifested in how activities in the value chain are configured and. The supportive activities are formed by four key factors like technology aspects, and the primary activities has a series of subcategories such as branding, engagements. Value chain analysis templates start from porters theory the value chain analysis template below shows the very basic model of the porters value chain analysis process. The changing nature of the publishing value chain the. Porters value chain analysis free management books.
In his book, porter first time introduced value creation concept. According to michael porter, value chain consists all. Porter s value chain is a model used to study the activities that are performed in the creation of a product or service by an organization. Competitive advantage introduces a whole new way of understanding what a firm does. A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product i. The essential complement to the pathbreaking book competitive strategy, michael e. Porters groundbreaking concept of the value chain disaggregates a company into activities, or the discrete. Value chain michael porter was the first person who introduced the term value chain in his book competitive advantage. Michael porter discussed this in his book, competitive advantage, in which he introduced the concept of the value chain.
The value chain also known as porters value chain analysis is a business management concept that was developed by michael porter. To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of valuegenerating activities referred to as the value chain. The concept was developed by michael porter with his book competitive advantage 1985 where the idea of value chain is based on the processe view of organisations, the idea of seeing a manufacturing or service organisation as system, made up of subsystems each with inputs, transformation process and outputs which involve the acquisition. In this article well examine examples of how you can perform a firm level value chain analysis. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits. It integrates customeroriented and costbased ideas meffert 1994, 51f.
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