Porters' value chain
Michael Porter published the Value Chain Analysis in 1985 as a response to criticism that his Five Forces framework lacked an implementation methodology that bridged the gap between internal capabilities and opportunities in the competitive landscape. This framework focused on industry attractiveness as a determinant of the profit potential of all companies within that particular industry. However, significant differences in performance exist between companies operating within the same industry that can be explained either by the company 's participation in a successful strategic group or by a firm 's specific competitive advantages.
Value Chain Analysis helped identify a firm 's core competencies and distinguish those activities that drive competitive advantage. The cost structure of an organisation can be subdivided into separate processes or functions assuming that the cost drivers for each of these activities behave differently. When the value chain, used by the organization to develop a product, is capable of creating additional value but with no additional costs, a competitive advantage is realized. As shown in figure 1 below, Porter distinguishes two types of activities that constitute the value chain, primary activities and support activities.
Primary activities:
These are line activities associated with production, transformation, delivery, and sales. They are classified into four main categories:
Inbound Logistics: are activities involved in receiving, storing, and provisioning the inputs needed to deliver a product. They include warehousing and control of materials and inventory. Inbound logistics: materials handling, warehousing, inventory control, transportation;
Operations: are activities that package, maintain, and transform inbound logistics into the final product. These activities can lead to differentiation and lower costs if performed in an efficient manner. Operations: machine operating, assembly, packaging, testing and maintenance;
Value Chain Analysis helped identify a firm 's core competencies and distinguish those activities that drive competitive advantage. The cost structure of an organisation can be subdivided into separate processes or functions assuming that the cost drivers for each of these activities behave differently. When the value chain, used by the organization to develop a product, is capable of creating additional value but with no additional costs, a competitive advantage is realized. As shown in figure 1 below, Porter distinguishes two types of activities that constitute the value chain, primary activities and support activities.
Primary activities:
These are line activities associated with production, transformation, delivery, and sales. They are classified into four main categories:
Inbound Logistics: are activities involved in receiving, storing, and provisioning the inputs needed to deliver a product. They include warehousing and control of materials and inventory. Inbound logistics: materials handling, warehousing, inventory control, transportation;
Operations: are activities that package, maintain, and transform inbound logistics into the final product. These activities can lead to differentiation and lower costs if performed in an efficient manner. Operations: machine operating, assembly, packaging, testing and maintenance;