Porter's Value Chain - Explained
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What is Porter's Value Chain?
Porters Value Chain was developed and introduced by Michael Porter in his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance. It has become a primary tool for developing an operational strategy within a business unit. It breaks down the primary operational activities of the business into five distinct segments of the value chain.
What is Operational Flow
The operational flow of the business firm is based upon all of the processes (both internally and externally) that must take place in order to create and deliver value to the customer. The operationally flow, much like the business model, can be summarized in model or canvass of the operational elements.
A Little More on What is Porter's Value Chain
Primary firm activities are those that relate to the known procedural activities that take a raw material or a service idea and create, transform, and transmit that value to the end customer. The primary activities of a firm within the value chain are as follows:
- In-Bound Logistics This section regards the processes relating to the supply of raw materials or inputs. What processes does the firm understand when acquiring, handling, storing, and transferring materials within the business?
- Operations Operations are the actual processes or undertakings that creates a product or service (processes) that has value to the customer. In a product-based business this would be the manufacturing or assembly process.
- Outbound Logistics Outbound logistics regards any of the processes necessary for transferring the product or delivering the service to the customer. It is most closely related to storing and distributing the product to the distributor or customer.
- Marketing and Sales This section accounts for the processes or activities employed to deliver information to potential clients. This section will contain the actual activities and individuals responsible for the processes outlined in the marketing plan.
- Service This section regards the processes you employ to support your product or service following the sale. In the value chain it serves to maintain the value for the customer.
The secondary or support activities serve to support the above-mentioned primary activities. The support activities of a firm within the value chain are as follows:
- Organization of Firm Structure This section regards how the firm is organized around the value creation process. It outlines the administrative processes and positions necessary to carry out operations. It generally includes the non-primary disciplines of business: Accounting, Finance, Management, Legal & Claims, etc.
- Human Resources This section involves the discovery, hiring, training, and managing the employment benefits of internal personnel. This section is particularly important in non-product-based businesses, such as consulting, accounting, legal, medical or other professional practices.
- Technology Development This section pertains to the technological processes necessary to support operations. It may involve information technology (communications) or technology that relates to the carrying out of a primary process. This will be a primary section for a technology-based service company.
- Purchasing (Procurement or Acquisitions) This section involves purchasing or otherwise acquiring the resources necessary to carry out the operations that create value. It can involve accessing information or databases in service industries or acquiring raw material or parts in product-based businesses.