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Michael Porter’s Value chain concept is one of the most valued concept in today’s market because the value chain tells us how we can differentiate our products by analyzing the chain of events which occur within our company. As differentiation is very important in today’s saturated market, naturally Porter’s Value chain is being referred to in a lot of management studies.
What is Porter’s value chain?
The Porter’s value chain concept says that there is a chain of events which occur in a company right from the procurement of raw materials to the delivery of goods as well as the post sales service.
This chain is made up of 9 steps and the process can be changed in any of the nine steps to add further value to the final product. The value chain model can be a reference for Holistic marketing. If a company wants to add customer value in all the processes that it does, it has to refer to the Value Chain.
The Value-chain of michael porter comprises of total 9 steps
The first 5 are the primary activities which are the basics in any company and are the activities which provide strength and sustainability to the company. The remaining 4 are the support activities or also known as the secondary activities and these are used by the company for differentiation as well as maintenance of the organization. Both, the primary as well as the secondary activities are necessary for the firm to survive.
Overall, we will discuss the primary activities and the secondary activities in relation to each other.
Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following:
- Inbound 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.
- Operations – These are the transformation activities that change inputs into outputs that are sold to customers. Here, your operational systems create value.
- Outbound logistics – 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.
- Marketing and sales – 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.
- Service – These are the activities related to maintaining the value of your product or service to your customers, once it’s been purchased.
These activities support the primary functions above. In our diagram, the dotted lines show that each support, or secondary, activity can play a role in each primary activity. For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities.
- Procurement (purchasing) – This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating best prices.
- Human resource management – This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, so businesses can create a clear advantage with good HR practices.
- Technological development – These activities relate to managing and processing information, as well as protecting a company’s knowledge base. Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation.
- Infrastructure – These are a company’s support systems, and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage.