Tuesday, November 10, 2009

The Value Chain

To analyze the specific activities through which firms can create a competitive advantage, it is useful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain and is depicted below:

Primary Value Chain Activities

> Operations > Outbound
> Marketing
& Sales
> Service

The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.

  • Inbound logistics include the receiving, warehousing, and inventory control of input materials.

  • Operations are the value-creating activities that transform the inputs into the final product.

  • Outbound logistics are the activities required to get the finished product to the customer, including warehousing, order fulfillment, etc.

  • Marketing & Sales are those activities associated with getting buyers to purchase the product, including channel selection, advertising, pricing, etc.

  • Service activities are those that maintain and enhance the product's value including customer support, repair services, etc.

Any or all of these primary activities may be vital in developing a competitive advantage. For example, logistics activities are critical for a provider of distribution services, and service activities may be the key focus for a firm offering on-site maintenance contracts for office equipment.

These five categories are generic and portrayed here in a general manner. Each generic activity includes specific activities that vary by industry.

source: http://www.quickmba.com/strategy/value-chain/


syed hassan raza said...

Amazing work on the operating activities of a typical merchandizing business. All those activities that we learnt about in accounting like purchasing, sales and collection activities have been mentiones in marketing terminology.

Rabbia Nasir Amin said...

nice reconciliation of accounting and markeyong !!=)
good work indeed