This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.
The Value Chain is the complete set of processes that link everything an organisation does. Let us say you make widgets. The value chain starts with the process of sourcing raw materials, which you then purchase from a supplier, who then delivers them to you, which you process into finished widgets, that you market and sell, after which you deliver them to your customers, who incorporate your widgets into their value chain.
Most often, the value chain is represented as links in a single chain. I think that this is unrealistic. Instead, it is better to think of it as links in multiple chains, all joined up…
Understanding the value chain is essential for any manager who wants to step beyond their parochial role within it. Understanding and analysing your value chain will allow you to:
- spot opportunities to create efficiencies within your part of the value chain
- improve hand-offs with other parts of the value chain
- appreciate the full strategic scope of the value chain and where you fit into it
- determine where most and least value is added and review how to improve the value to cost ratio
- find where your competitive advantages lie
- benchmark your performance against industry norms and best practices
Michael Porter distinguished primary business activities (the value generating activities described in the value chain) from secondary business activities, which are necessary in supporting the primary activities. These include:
- technology and systems infrastructure implementation and maintenance
- personnel and human resource management, including recruitment, development, appraisal, remuneration, succession, discipline
- financial planning and management
We can view these as further side links to the value chain.
Porter was clear that a successful business must ensure that all links between elements of this full value chain are strong, if it is to thrive under the pressures of competition.
Two previous Pocketblogs will add to your understanding of the Value Chain:
You may also like The Strategy Pocketbook