In this article we describe the Porter Value Chain, a strategic model that is included in research for, or development of, competitive advantage of an organisation.
In this article you can expect:
What is Porter’s Value Chain?
Porter’s Value Chain is a strategic model that is included in research for, or development of, competitive advantage of an organisation. According to Porter, competitive advantage is established by the whole organisation. By partitioning the organisation into a number of groups of activities and subsequently analysing them in detail, the achievements can be solidified.
How does Porter’s Value Chain look like?
Porter’s Value Chain Explanation about the Value Chain Every company has a number of general activities and these consist of primary and auxiliary activities. If you divide these, then the value chain starts to exist.
The auxiliary activity of infrastructure is about the infrastructure within the organisation. Examples of this are management, financial oversight, bookkeeping and quality management.
Human Resource Management
The auxiliary activity of HRM encompasses the labour factor. Examples of this are recruiting, selecting, training, paying, and keeping personnel.
The auxiliary activity of R&D are activities that focus on technological progress. Examples of this are investments in R&D and knowledge.
The auxiliary activity of procurement includes all activities that focus on serving the client. Examples of this are procurement of resources and negotiating good contracts.
The primary activity of inbound logistics is an internal activity and encompasses all activities relating to receiving, distributing and storing resources.
The primary activity of operations is about converting the inbound resources into end product. Examples of this are the assembly and also packaging and testing.
The primary activity of logistics includes the distribution of end product to client. Examples of this are order processing, transport and distribution.
Marketing and Sales
Marketing and sales encompass all activities that have something to do with the sales of the product to clients. Examples of this are communication, promotion, price setting and thus many elements of the marketing mix.
Service is about activities after selling. Examples of this are installation, maintenance and repairs.
All activities together result in profit or losses at the end of the value chain. The booked profit or losses can also be compared to all activities that are conducted for this. In other words, have all activities generated enough? Total income - Total costs = Profit Profit / Total incomes x 100 = Margin.
Porter’s Value Chain in practice
The value chain in practice is used in a very different way.
- sometimes to establish the strong points of an organisation globally
- sometimes to compare an organisation to another organisation
- sometimes as Internal Analysis