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Value Chain Analysis EXPLAINED | B2U | Business To You

Introduction

Introduction

In this video, I want to delve deeper into the internal organization and its activities through a systematic approach known as value chain analysis. By mapping a company's value chain, you can better assess where true value is created and determine the prospects for increasing competitive advantage.

Understanding Value Chains

A company is essentially a collection of activities that it performs to design, produce, market, deliver, and support its product or service. The value chain allows the company to transform inputs into the final product, which ideally has greater value to customers than the original cost of creating it. This added value can be considered profit and is referred to as the margin in the value chain.

Michael Porter's Value Chain Analysis

Michael Porter created the value chain analysis framework and published it in his book "Competitive Advantage: Creating and Sustaining Superior Performance" in 1985. Porter's value chain dissects a company into its strategically relevant activities, creating a clear overview of the organization. The company gains competitive advantage by performing these activities more cheaply or better than its competitors.

Primary and Support Activities

Porter divided the organization's value chain activities into primary and support activities. The primary activities include:

  1. Inbound Logistics: Activities associated with receiving, storing, and disseminating inputs.
  2. Operations: Activities that transform inputs into final products.
  3. Outbound Logistics: Activities that distribute the final product to buyers.
  4. Marketing and Sales: Activities to inform buyers and encourage them to purchase.
  5. Service: Activities to maintain or enhance product value.

Support activities include procurement, technology development, human resource management, and firm infrastructure.

Real-World Example: Besseling Technologies

Besseling Technologies produces advanced cleaning robots for greenhouse rooftops, helping growers worldwide wash their rooftops more efficiently and sustainably. Here's how Besseling's value chain looks in practice:

  1. Inbound Logistics: Involves purchasing inputs like raw materials, electrical wires, and more.
  2. Operations: Consists of machining, production, assembly, and quality control.
  3. Outbound Logistics: Deals with storing and transporting the finished robots to customers globally.
  4. Marketing and Sales: Involves advertising, promotions, and sales efforts.
  5. Service: Provides after-sales service, including installation and repair.

Support Activities at Besseling Technologies

  1. Procurement: Manages the purchase of necessary materials and equipment.
  2. Technology Development: Engages in continuous improvement of the product and production process.
  3. Human Resource Management: Handles recruiting, hiring, and training employees.
  4. Firm Infrastructure: Encompasses general management, planning, finance, and quality management.

Optimization and Coordination in the Value Chain

Optimization and coordination among various activities are crucial for improving competitive advantage. For instance, better inspection of raw materials can reduce the need for internal quality control, and innovation in technology can streamline the production process.

Conclusion

Combining value chain analysis with other frameworks like the VRIO framework, PESTEL analysis, and Porter's Five Forces provides a comprehensive understanding of internal and external factors impacting a business. This holistic view can help in crafting sustainable competitive strategies.

Keywords

  • Value Chain
  • Michael Porter
  • Competitive Advantage
  • Primary Activities
  • Support Activities
  • Optimization
  • Coordination
  • Besseling Technologies

FAQ

What is a value chain?

A value chain is a series of activities that a company performs to design, produce, market, deliver, and support its product or service. The goal is to add value to the product at each step, resulting in a final product that customers value more than the cost of production.

Who created the concept of value chain analysis?

The value chain analysis concept was created by Michael Porter and was first published in his book "Competitive Advantage: Creating and Sustaining Superior Performance" in 1985.

What are the primary activities in a value chain?

Primary activities in a value chain include:

  1. Inbound Logistics
  2. Operations
  3. Outbound Logistics
  4. Marketing and Sales
  5. Service

What are the support activities in a value chain?

Support activities include:

  1. Procurement
  2. Technology Development
  3. Human Resource Management
  4. Firm Infrastructure

How can value chain analysis provide competitive advantage?

By performing the value chain activities more efficiently or effectively than competitors, thereby reducing costs or enhancing differentiation.

Can you give an example of a real-world value chain?

Yes, Besseling Technologies produces advanced cleaning robots for greenhouse rooftops. Their value chain includes inbound logistics (purchasing inputs), operations (machining, production, and quality control), outbound logistics (storing and transporting products), marketing and sales (advertising and promotions), and service (after-sales support).

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