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Michael Porter and the Value Chain
Michael Porter and the Value Chain
"The idea of [Porter's Value Chain] is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits" (Source).
Porter's five forces
Porter's five forces
"Porter's Five Forces Framework is a method of analysing the competitive environment of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels" (Source).
Definition of Business Processes and Value Chain
Definition of Business Processes and Value Chain
Business Process: A coordinated, standardized set of activities conducted by both people and equipment to accomplish a specific task, such as invoicing a customer.
Value Chain: A series of activities that add value to a company’s products or services. Products pass through all activities of the chain, gaining value at each stage.
Primary Activities in the Value Chain
Primary Activities in the Value Chain
Primary activities are directly involved in producing and delivering products to customers. They include:
Inbound Logistics: Activities related to receiving, storing, and disseminating inputs for production.
Operations: Transforming inputs into finished products.
Outbound Logistics: Warehousing and distributing finished products to customers.
Marketing and Sales: Identifying customer needs and generating sales.
Service: Providing after-sale support to customers.
Support Activities in the Value Chain
Support Activities in the Value Chain
Support activities assist primary activities in creating value. They include:
Firm Infrastructure: Organizational structure, management, planning, and control systems.
Human Resource Management: Recruiting, hiring, training, and compensating employees.
Technology Development: Improving products and processes through research and development.
Procurement: Acquiring goods and services necessary for the firm’s primary activities.
Role of Business Processes in the Value Chain
Role of Business Processes in the Value Chain
Business processes are integral to each step of the value chain:
Effective business processes ensure that each primary activity adds maximum value to the product or service.
Support activities enhance the efficiency and effectiveness of primary activities, contributing to overall business success.
For example, in a manufacturing company, inbound logistics might involve receiving raw materials, which are then transformed into finished goods during the operations phase. These goods are stored and eventually distributed to customers through outbound logistics. Marketing and sales activities ensure that customers are aware of the products and motivated to purchase them, while service activities provide necessary after-sales support.
The seamless integration and optimization of these business processes lead to a competitive advantage and increased firm value.
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