Strategic Management: Formulation and Implementation

The Value Chain

Porter conceptualized the value chain model as the basic tool for analyzing the sources of competition advantage.

The value chain of a firm is the grouping of primary and secondary activities that make up the product or service provided to the customer (see Figure 9-4).

The firm can be viewed as having a flow of primary activities that directly produce the services or product.

There are five generic categories of primary activities:

Inbound logistics
Activities associated with receiving, storing, and disseminating inputs to the product (e.g., material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers).
Activities associated with transforming inputs into the final product form (e.g., machining, packing, assembly, printing, and facility operations).
Outbound logistics
Activities associated with collecting, storing, and physically distributing the product to buyers (e.g., finished goods warehousing, delivery vehicle operation, order processing, and scheduling).
Marketing and sales
Activities associated with providing a means by which buyers can purchase the product and inducing them to do so (such as advertising, promotion, channel selection, channel relations, and pricing).
Activities associated with providing service to enhance or maintain the value of the product (e.g., installation, repair, training, and product adjustment).

The secondary chain activities support the primary activities. These give the infrastructure for successful product and service provision. They can be divided into four generic categories:

It refers to the function of purchasing inputs used in the firm's value chain. Some items such as raw materials are purchased by the traditional purchasing department, while other items are purchased by plant managers, office managers or salespersons.
Technology development
Technology development consists of a range of activities that can be broadly grouped into efforts to improve the product and the process.
Human resource management
It consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel.
Firm infrastructure
It consists of a number of activities including general management, planning, finance, accounting, legal, government affairs, and quality management. Firm infrastructure is sometimes viewed as "overhead," but can be a powerful source of competitive advantages.