A value chain is the full range of activities – including design, production, marketing and distribution – businesses conduct to bring a product or service from conception to delivery. Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its final product / service. In this case, analyzing processes helps identify activities that help reduce costs or increase differentiation. In other words, value chain represents the internal activities a firm engages in when transforming inputs into outputs. Michael Porter introduced the generic value chain model in 1985[1] as a strategy tool to analyze a firm’s internal activities. In summary, focusing on these activities leads to competitive advantage[2]. Porter noted that any firm could be divided into two main segments, each of which creates a certain value:
Primary activitiesThe primary activities help create the products and distribute them to buyers. The five primary activities are:
Although, primary activities add value directly to the production process, they are not necessarily more important than support activities. Secondary activitiesPresently, competitive advantage derives from technological improvements or innovations in business models or processes. Therefore, such support activities as information systems, R&D, or general management. Sometimes, they are the most important source of differentiation advantage. On the one hand, primary activities are usually the source of cost advantage. On the other hand, secondary activities are almost exclusively internal steps. Notwithstanding, these tasks support the primary activities. The four secondary activities are:
According to Investopedia, the primary goal of using the value chain analysis is creating or strengthening your business’s competitive advantage.
Value chain analysis is a process of dividing various activities of the business in primary and support activities and analyzing them, keeping in mind, their contribution towards value creation to the final product. And to do so, inputs consumed by the activity and outputs generated are studied, so as to decrease costs and increase differentiation. APAMLAHarvardVancouverChicagoIEEE Think Insights (November 24, 2022) Value Chain Analysis. Retrieved from https://thinkinsights.net/strategy/value-chain-analysis/. "Value Chain Analysis." Think Insights - November 24, 2022, https://thinkinsights.net/strategy/value-chain-analysis/ Think Insights March 6, 2018 Value Chain Analysis., viewed November 24, 2022,<https://thinkinsights.net/strategy/value-chain-analysis/> Think Insights - Value Chain Analysis. [Internet]. [Accessed November 24, 2022]. Available from: https://thinkinsights.net/strategy/value-chain-analysis/ "Value Chain Analysis." Think Insights - Accessed November 24, 2022. https://thinkinsights.net/strategy/value-chain-analysis/ "Value Chain Analysis." Think Insights [Online]. Available: https://thinkinsights.net/strategy/value-chain-analysis/. [Accessed: November 24, 2022] Yes No
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