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Value Chain Framework
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Analyse activities through which firms can create value. Explanation of Value Chain Framework of Michael Porter. ('85) |
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The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage.
The activities of the Value Chain
Creating a cost advantage based on the value chainA firm may create a cost advantage:
Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing the costs of the support activities. Recently there have been many companies that achieved a cost advantage by the clever use of Information Technology.
Once the value chain has been defined, a cost analysis can be performed by assigning costs to the value chain activities. Porter identified 10 cost drivers related to value chain activities:
A firm develops a cost advantage by controlling these drivers better than its competitors do. A cost advantage also can be pursued by "Reconfiguring" the value chain. "Reconfiguration" means structural changes such as: a new production process, new distribution channels, or a different sales approach.
Normally, the Value Chain of a company is connected to other Value Chains and is part of a larger Value Chain. Developing a competitive advantage also depends on how efficiently you can analyze and manage the entire Value Chain. This idea is called: Supply Chain Management. Some people argue that network is actually a better word to describe the physical form of Value Chains: Value Networks.
Book: Michael E.
Porter - Competitive Advantage -
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Compare with: Porter Five Forces | Porter Competitive Advantage | Porter Diamond Model | Parenting Advantage | Core Competence | BCG Matrix | Growth Phases | Distinctive Capabilities | Organizational Configurations | 3rd Party Logistics (3PL) | Outsourcing | Just-in-time | Bricks and Clicks | Value Stream Mapping | Delta Model | Vertical Integration | Horizontal Integration | Vendor Managed Inventory | Kraljic Model
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| § Gian Z. (Netherlands) | Value chains and Industries | "That would be a combination of focus, core competencies and specific vertical markets (within banking you can further segment, uncovering even more broad trends...) In my opinion it all boils down to the strategy and positioning of that particular company. The framework is particularly interesting (to me...) when setting up new organizations... It can then be used as a blueprint." |
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| § Warren Miller (USA) | Value Chains and Industries | "Porter's value chain is much overrated. Unlike his five-forces framework, for which he recently wrote an update in HBR, he never published anything in HBR about his value chain framework. Colleagues of mine have had great difficulty using it as an analytical tool to appraise a company. And it doesn't resonate with clients at all. All in all, it's a better tool conceptually than it is in practice." | |
| § Wendy (UK) | Value Chains & Industries | "Elias, I agree. Organisations tend to focus on those parts of the value chain in which they perceive there is the greatest opportunity to differentiate themselves from the competitors, and thus save costs or add more value in order to win more market share/ retain existing share." | |
| § Gustav (Denmark) | Value Chain | "I think that the work by Stabell and Fjelstad is a valuable supplement to Porter value Chain model. They divide organisations into 3 groups: Value Chains, Value Shops and Value Networks. Industries like banking, insurance, telephone companies and airlines work as value networks. Software companies, entrepreneurs, etc work as value shops. And physical product focused companies work as value chains." |
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| § Enzo Zamboni (Argentine) | Value Chain and Industries | "I agree ,elias..but depend of the point of view from the organization to Michael Porter´s Value Chain,example: in the Biotech and Nanotech companies the critical path is teh Human resources Management and the technology development..is our case.." |
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| § Marc (USA) | How to apply the value chain | "The linkage is the key. Wal-Mart is a great example. Their distribution network is "inbound logistics." However, they gain great leverage by linking it to their IT capability. The linkage is the key to the model." | |
| § deji (united kingdom) | good | "this is very good and striaght forward." | |
| § Amna (Pakistan) | Management Studies | "V good question" | |
| § dilip singh (india) | value chain | "that is really helpfull to me........" | |
| § shane Julien (New York) | outbound logistic | "how to apply the outbound logistic" |
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| § Elias (Israel) | Value Chain and Supply Chain | "The value chain of an individual company is normally part of the total supply chain of value-creating activities. While Porter's value chain concept decomposes all activities of one firm into its parts and analyses each individual activity and their interdepencies, the supply chain concept tries to optimize the supply system as a whole by taking into account the interdependencies between the activities in multiple firms." |
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| § Jeff (USA) | Primary and Support Activities | "Primary. Watch the picture in this article closely. The bottom half are making up all Primary activities. The activities in the top half are making up the Support activities in the Value Chain." | |
| § blshaw (USA) | Inventory Replenishment | "Regarding landrine's question: Inventory Replenishment is part of a primary value process. You must also identify your POV. Either you are replenishing your customer's inventory (e.g. You are Procter & Gamble and your customer is Walmart); or you are having your inventory replenished (e.g. You are Walmart and Procter & Gamble is your supplier). Also, see SCOR model from Supply Chain Council." |
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| § Rob (SA) | Value Networks | "The notion is sound, but it depends on the nature of the business as to which approach fits best. Please refer to Kotler (2004) for the specific marketing use of the value network." |
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