VALUE CHAIN ANALYSISVALUE CHAIN ANALYSIS

A tool developed by Mr. A tool developed by Mr. Michael Porter in his book Michael Porter in his book “Competitive Advantage”“Competitive Advantage”

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VALUE CHAIN VALUE CHAIN ANALYSISANALYSIS

Is a linked set of value-creating Is a linked set of value-creating activities that begin with basic raw activities that begin with basic raw materials coming from suppliers, materials coming from suppliers, moving on to a series of value-added moving on to a series of value-added activities involved in producing and activities involved in producing and marketing a product or service, and marketing a product or service, and ending with distributors getting the ending with distributors getting the final goods into the hands of the final goods into the hands of the ultimate consumer.ultimate consumer.

INDUSTRY VALUE CHAIN INDUSTRY VALUE CHAIN ANALYSISANALYSIS

TWO SEGMENTS:TWO SEGMENTS:

UPSTREAMUPSTREAM

DOWNSTREAMDOWNSTREAM

INDUSTRY VALUE CHAIN INDUSTRY VALUE CHAIN ANALYSISANALYSIS

An industry can be analyzed in terms of An industry can be analyzed in terms of profit margin available at any point along the profit margin available at any point along the value chain.value chain.

In analyzing the complete value chain of a In analyzing the complete value chain of a product, note that even if a firm operates up and product, note that even if a firm operates up and down the entire industry chain, it usually has an down the entire industry chain, it usually has an area of expertise where its primary activities lie.area of expertise where its primary activities lie.

A company’s A company’s center of gravitycenter of gravity is the part of is the part of the chain that is most important to the company the chain that is most important to the company and the point where its greatest expertise and and the point where its greatest expertise and capabilities lie – its core competencies.capabilities lie – its core competencies.

INDUSTRY VALUE CHAIN INDUSTRY VALUE CHAIN ANALYSISANALYSIS

According to Galbraith, a company's According to Galbraith, a company's center of gravity is usually the point at center of gravity is usually the point at which the company started.which the company started.

After a firm successfully establishes After a firm successfully establishes itself at this point by obtaining a competitive itself at this point by obtaining a competitive advantage, one of its first strategic advantage, one of its first strategic technique is to move forward or backward technique is to move forward or backward along the value chain in order to reduce cost along the value chain in order to reduce cost or to guarantee distribution. This process, or to guarantee distribution. This process, called vertical integration.called vertical integration.

CORPORATE VALUE CHAIN CORPORATE VALUE CHAIN ANALYSISANALYSIS

CORPORATE VALUE CHAIN CORPORATE VALUE CHAIN ANALYSISANALYSIS

Each of a company's product lines Each of a company's product lines

has its own distinctive value chain. has its own distinctive value chain.

Because most corporations make several Because most corporations make several

different products or services, an internal different products or services, an internal

analysis of the firm involves analyzing a analysis of the firm involves analyzing a

series of different value chains.series of different value chains.

CORPORATE VALUE CHAIN CORPORATE VALUE CHAIN ANALYSISANALYSIS

The systematic examination of The systematic examination of

individual value activities can lead to a individual value activities can lead to a

better understanding of a corporations better understanding of a corporations

strengths and weaknesses. According to strengths and weaknesses. According to

Porter, “differences among competitor value Porter, “differences among competitor value

chains are key source of competitive chains are key source of competitive

advantage”advantage”

CORPORATE VALUE CHAIN CORPORATE VALUE CHAIN ANALYSISANALYSIS

It involves the following three steps:It involves the following three steps:

1. Examine each product line’s value chain in terms 1. Examine each product line’s value chain in terms of the various activities involved in producing that of the various activities involved in producing that product or service.product or service.

2. Examine the “linkages” within each product line’s 2. Examine the “linkages” within each product line’s value chain.value chain.

3.3. Examine the potential synergies among the value Examine the potential synergies among the value chains of different product line or business units.chains of different product line or business units.