The value chain

The Value Chain is a model that helps you to look at all aspects of an organisation to better understand how competitive advantage can be gained. It works on the assumption that all parts of a company can create or reduce value for customers. All factors of a company form the value chain of each organisation.

The model is divided into Primary Activities and Support Activities. Primary activities include

  • Inbound logistics – receiving goods and storage; this might include warehousing and inventory management
  • Operations – assembling the product, taking the inputs and creating the product
  • Outbound logistics – product storage, transportation and distribution
  • Marketing and sales – persuading potential customers to buy the product
  • Service – for example, servicing of the product, after-care, installation.

Support activities are

  • Infrastructure – finance, legal, management
  • Human resource management – recruitment, performance management, retention, reward
  • Technology development – the research and development process, product improvements and redesigns
  • Procurement – buying raw materials, negotiating contracts.

What is it used for?

This is a tool for assessing how companies can become more competitive. It can help to determine how all of the parts of a company can work better together or more efficiently for competitive advantage by leveraging synergies or integration possibilities. It can also be used to better understand customer needs or to assess the strengths and weaknesses of the competition.

How do I use it?

To use this model, it is necessary to break down the different company activities and analyse each in detail. When you look at all of the component parts in detail, it is then possible to identify

  • Areas of synergy
  • Integration possibilities between different areas
  • Strengths and weaknesses.

Action can then be taken to improve your company’s competitive advantage.

What are its limitations?

The value chain has some limitations:

  • It can be challenging to quantify competitive strengths
  • Carrying out this type of analysis can take a lot of resources (people and time)
  • Value must be assessed from the customer’s perspective
  • It is necessary to adapt the model to work for different types of organisation.

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