What is a value chain?A value chain is a concept describing the full chain of a business's activities in the creation of a product or service -- from the initial reception of materials all the way through its delivery to market, and everything in between. Show
The value chain framework is made up of five primary activities -- inbound operations, operations, outbound logistics, marketing and sales, service -- and four secondary activities -- procurement and purchasing, human resource management, technological development and company infrastructure. A value chain analysis is when a business identifies its primary and secondary activities and subactivities, and evaluates the efficiency of each point. A value chain analysis can reveal linkages, dependencies and other patterns in the value chain. The value chain concept was first described in 1985 by Harvard Business School professor Michael Porter, in his book Competitive Advantage: Creating and Sustaining Superior Performance. A diagram of a value chain's five primary activities and four secondary activities.How do value chains work?The value chain framework helps organizations identify and group their own business functions into primary and secondary activities. Analyzing these value chain activities, subactivities and the relationships between them helps organizations understand them as a system of interrelated functions. Then, organizations can individually analyze each to assess whether the output of each activity or subactivity can be improved -- relative to the cost, time and effort they require. When an organization applies the value chain concept to its own activities, it is called a value chain analysis. Primary activitiesPrimary activities contribute to a product or service's physical creation, sale, maintenance and support. These activities include the following:
As management issues and inefficiencies are relatively easy to identify here, well-managed primary activities are often the source of a business's cost advantage. This means the business can produce a product or service at a lower cost than its competitors. Secondary activitiesThe following secondary activities support the various primary activities:
Benefits of value chainsThe value chain framework helps organizations understand and evaluate sources of positive and negative cost efficiency. Conducting a value chain analysis can help businesses in the following ways:
A value chain analysis can offer important benefits; however, when emphasizing granular process details in a value chain, it's important to still give proper attention to an organization's broader strategy. How to conduct a value chain analysisA value chain analysis is a process that helps organizations understand points in their value chain, as well as relationships between these different points. Conducting a value chain analysis helps a company identify factors that create or hinder cost efficiency in its business model. When undergoing a value chain analysis, businesses should regard the framework as a starting point rather than a complete start-to-finish process. Here are some steps that companies can take to understand their value chains:
Examples of value chainsHere are some examples of tech/e-commerce giant Amazon's primary activities. Inbound logistics. Amazon's primary inputs can be identified as products sold through its own fulfillment services, as well as data center resources that fuel Amazon Web Services (AWS) cloud offerings. Here, Amazon can use its size as a large operation to lower the costs per unit of items it purchases from external suppliers. Operations. This is where Amazon transforms its inputs into outputs. Amazon's core offering, its online marketplace, offers a secure platform that makes e-commerce easy for both customers and sellers. As Amazon's fulfillment and logistics can offer two-day shipping to Prime members, the result is a secure, user-friendly customer experience with dramatically lower shipping times than competitors for a similar price point. Another Amazon business unit, AWS, transforms inputs into outputs by creating and maintaining cloud servers, storage and other data center resources into a streamlined service for client organizations to host applications and other data. Outbound logistics. Amazon's outbound logistics includes Amazon fulfillment centers, digital delivery, co-sourcing and outsourcing, and brick-and-mortar stores.
Marketing and sales. According to Statista.com, Amazon spent approximately $22 billion in marketing and advertising costs in 2020, using the financial power of a company of its size to maintain its role as one of the most recognizable brands today. Service. In its mission to be the most customer-centric company, Amazon is known for its simple and easy return process, as well as its high customer satisfaction ratings for AWS cloud services. This was last updated in February 2021 Continue Reading About value chain
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Is the collection of activities that transform inputs into outputs that customers value?Organizational Process
The collection of activities that transform inputs into outputs that customers value.
What best defines line of authority?The chain of command within an organization that confers the power to order subordinates to perform a task within their job description.
Is a hybrid organizational structure in which two or more forms of departmentalization are used together?Matrix departmentalization is a hybrid structure in which two or more forms of departmentalization, such as the product and functional forms are used together.
Which type of departmentalization violates the principle of unity of command?In a matrix, each employee reports to at least two or more managers. In other words, the matrix organization violates the unity of command principle that is often prevalent in traditional organizations.
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