Michael Porters ValueChain

Developed in 1985 by Michael E. Porter in

Competitive Advantage
Highlights cost advantages and
distinctive capabilities--the
value
capabilities
processes
But note that there is no one template.
template

STRATEGIC COST

Value Chain and the QCT

Triangle

VC allows alignment of processes with

customers. This generates a quality
advantage.
VC focuses cost management efforts.
VC provides for efficient processes which
improves the timeliness of operations.

STRATEGIC COST

Value Chain Benefits

Identifies value processes

Identifies areas for cost improvement

STRATEGIC COST

Value Chain Model

from Michael E. Porters Competitive

Advantage
Firm Infrastructure (General Management)

o
st
Cu

SUPPORT
ACTIVITIES

r
me

Human Resource Management

Va

gi

lue

ar
M

Technology Development

Va

Service and
Support

Sales &
Marketing

Cu
s

to

me

Outbound
Logistics

ar
gin

Ops.

Inbound
Logistics

lue

Procurement

PRIMARY ACTIVITIES

STRATEGIC COST

Value Chain Elements

Customer value added

Margin orientation
Primary activities

Inbound logistics
Operations
Outbound logistics
Sales and marketing
Service and support

STRATEGIC COST

Support Activities

Human resources
(general and admin.)
Tech. development
Procurement

Goal of Value Chain

Driven by customer perceptions

Increase margins
Focus on value processess

Distinctive capabilities
Cost advantages

Some examples

Southwest Airlines
Intel Corporation

STRATEGIC COST

Value Chain Analysis

Document the activities

Understand the cost and margins at each step.

Map the value chain to the industry value chain

Use Activity Based Costing

Look for core competencies

Map the cost structure

Note that external values drive cost advantages

STRATEGIC COST

Discovering Your Own

Value
Processes
Distribute a summary of the value chain model.

Create functional process lists.

lists

Transfer lists to color-coded labels.

labels

Pin the process on a large VC diagram.

Identify appropriate processes as:

$ (cost advantage)
CC (core competency)

STRATEGIC COST

Using the Value Chain

Helps you to stay out of the No Profit Zone

Presents opportunities for integration
Aligns spending with value processes
Provides for reconfiguration of the value chain

outsourcing
off-shoring
co-location with customers or suppliers
redesign for efficiency

Involves chain partners: customers & suppliers

STRATEGIC COST

Value Chain and the TBC

Triangle

Technical:

Behavioral:

Increases knowledge of no profit zones

Increases knowledge of forward and/or backward integration opportunities
Identifies value processes
Identifies win-win alliance opportunities

Focus shifts to the customer

Focus shifts from conflict to partnering with customers & suppliers

Cultural

Creates externally focused mindset

Generates information sharing environment with respect for confidentiality

STRATEGIC COST