Use value chain to assess the activities of an industry and of an organization

The Value Chain framework helps assess how an industry or an organization performs its activities to create and deliver value to customers. This tool, developed by Michael Porter, breaks down a company’s operations into primary activities and support activities to identify areas of competitive advantage or inefficiency.

What is a Value Chain?

It’s like a step-by-step process of how a company creates, delivers, and supports its product or service.

1. Primary Activities: Directly related to creating and delivering the product/service.
2. Support Activities: Enable the primary activities to happen effectively.

Value Chain of an Industry

Example: E-commerce Industry 🛒

1. Primary Activities:
   • Inbound Logistics 🚛: Receiving and storing goods from suppliers.
     • Example: Warehouses storing products for platforms like Amazon or Flipkart.
   • Operations ⚙️: Processing orders and managing inventory.
     • Example: Automation in warehouses like Amazon’s robots.
   • Outbound Logistics 📦: Delivering products to customers.
     • Example: FedEx or Amazon Prime’s next-day delivery.
   • Marketing & Sales 📣: Attracting customers through ads and offers.
     • Example: Facebook Ads, Google Ads.
   • Services 🤝: Supporting customers post-purchase.
     • Example: 24/7 customer care on platforms like Zappos.
2. Support Activities:
   • Procurement 🛠️: Sourcing products from vendors.
   • Technology Development 💻: Building platforms for a seamless shopping experience.
     • Example: Amazon’s recommendation engine.
   • Human Resource Management 👩‍💼: Recruiting delivery staff and IT specialists.
   • Firm Infrastructure 🏢: Managing corporate policies, finance, and logistics.

Value Chain of an Organization

Example: Tesla ⚡

1. Primary Activities:
   • Inbound Logistics: Procuring raw materials like lithium for batteries.
   • Operations: Manufacturing electric cars in highly automated factories.
   • Outbound Logistics: Delivering cars directly to customers or showrooms.
   • Marketing & Sales: Building brand awareness through online platforms and showrooms.
   • Services: Providing updates via over-the-air software and maintenance services.
2. Support Activities:
   • Procurement: Securing contracts with battery suppliers like Panasonic.
   • Technology Development: Innovating in battery efficiency and self-driving systems.
   • Human Resource Management: Hiring top engineers and designers.
   • Firm Infrastructure: Managing global operations and financing.

Steps to Assess Activities

1. Identify Activities: Break down all primary and support activities in the value chain.
2. Benchmark Against the Industry: Compare how well the organization performs versus competitors.
   • Example: Tesla’s automated factories versus traditional carmakers’ assembly lines.
3. Analyze Value Creation: Look at how each activity adds value to customers.
   • Example: Amazon’s fast delivery enhances customer satisfaction.
4. Identify Cost Drivers: Spot activities where costs are high and consider ways to reduce them.
   • Example: Reducing shipping costs by using localized warehouses.
5. Spot Differentiation Opportunities: See where your company can stand out.
   • Example: Apple’s premium design makes its products unique.

How Value Chain Creates Competitive Advantage

1. Cost Advantage: Streamline operations to cut costs.
   • Example: Walmart’s efficient supply chain.
2. Differentiation Advantage: Enhance activities to stand out.
   • Example: Starbucks’ cozy ambiance and premium coffee experience.