Porter’s Value Chain

PRESENTATION

BUSINESS MANAGEMENT

BCG - Porter's Value Chain

INDEX

Section 01- Porter´s Value Chain

Create a Value

Michael Porter

Elements in Porter´s Value Chain-Primary activities -Support activities

Using of Porter's Value Chain

- How does your organization create value? -How do you change business inputs into business outputs in such a way that they have a greater value than the original cost of creating those outputs?

SECTION 01

Porter's Value Chain

The value that's created and captured by a company is the profit margin:

Value Created and Captured – Cost of Creating that Value = Margin

Manufacturing companies create value by acquiring raw materials and using them to produce something useful. Retailers bring together a range of products and present them in a way that's convenient to customers, sometimes supported by services such as fitting rooms or personal shopper advice.

The value that's created and captured by a company is the profit margin:

CREATE A VALUE

The more value an organization creates, the more profitable it is likely to be. And when you provide more value to your customers, you build competitive advantage. Understanding how your company creates value, and looking for ways to add more value, are critical elements in developing a competitive strategy.

Michael Porter discussed this in his influential 1985 book "Competitive Advantage," in which he first introduced the concept of the value chain.

Elements in Porter's Value Chain

• Rather than looking at departments or accounting cost types.
• Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers.

• Using this viewpoint, Porter described a chain of activities common to all businesses, and he divided them into primary and support activities, as shown below.

" It can help you improve efficiency and focus, thus your margin. Clarity around how your business works helps you make strategic decisions. "

Elements in Porter's Value Chain

Primary Activities

Inbound Logistics

Operations

Outbound logistics

These are all the processes related to receiving, storing, and distributing inputs internally. Your supplier relationships are a key factor in creating value here.

These are the transformation activities that change inputs into outputs that are sold to customers. Here, your operational systems create value.

These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization.

support Activities

Primary Activities

Procurement (purchasing)

Marketing and sales

Service

This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating the best prices.

These are the processes you use to persuade clients to purchase from you instead of your competitors. The benefits you offer, and how well you communicate them, are sources of value here.

These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased.

EXAMPLE

The most famous coffee retailer Starbucks has an impeccable VC, which benefits the company, investors, customers, and coffee growers alike. Its VC consists of various activities that add value to its coffee.

support Activities

Human resource management

Technological development

Infrastructure

This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers.

These activities relate to managing and processing information, as well as protecting a company's knowledge base.

These are a company's support systems, and the functions that allow it to maintain daily operations.

Using Porter's Value Chain

To identify and understand your company's value chain, follow these steps.

Step 1 – Identify subactivities for each primary activity

• For each primary activity, determine which specific subactivities create value. There are three different types of subactivities

Step 2 – Identify subactivities for each support activity. Step 3 – Identify links Step 4 – Look for opportunities to increase value

"Practically all the activities of the value chain depend on innovation and technological integration ."

What is a value chain example?

Tesla, which utilizes the concept of Value Chain for producing cars, has become the most valued electric car company globally. This is because it adds value to its product at every stage of product development till the delivery of the vehicle to customers. As a result, it has boosted its profit, held the investors glued to the company, and made customers and suppliers happy.