Understanding Value Chain Analysis: A Comprehensive Guide

Value Chain

Primary Activities

These activities relate directly to the physical creation, sale, maintenance, and support of a product or service.

• Inbound Logistics: All processes related to receiving, storing, and distributing inputs internally.
• Operations: Transformation activities that change inputs into outputs sold to customers. This is where operational systems create value.
• Outbound Logistics: Activities that deliver your product or service to your customer, including collection, storage, and distribution systems. These can be internal or external to your organization.
• Marketing and Sales: Processes used to persuade clients to purchase from you instead of competitors. The benefits you offer and how well you communicate them are sources of value.
• Service: Activities related to maintaining the value of your product or service to customers after purchase.

Support Activities

These activities support the primary functions.

• Procurement (Purchasing): How the organization obtains the resources it needs to operate, including finding vendors and negotiating prices.
• Human Resource Management: How well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, and good HR practices create a clear advantage.
• Technological Development: Activities related to managing and processing information and protecting a company's knowledge base. Minimizing IT costs, staying current with technological advances, and maintaining technical excellence are sources of value creation.
• Infrastructure: The company's support systems and functions that allow it to maintain daily operations.

Value Chain Linkages

• Internal: Connections between activities within the same value chain, but perhaps on different planning levels within the firm.
• External: Connections between different value chains 'owned' by different actors in the total value system.

Downstream and Upstream Linkages

• Downstream (Related to the buyer): Activities that create competitive advantages specific to a country. Reputation, brand name, and service networks in a country grow largely out of its activities and create entry/mobility barriers primarily in that country.
• Upstream (Independent of the buyer): Competitive advantages in upstream and support activities often stem from the entire system of countries in which a firm competes rather than from its position in any single country.

Industry Implications

• Industries where downstream activities are vital for competitive advantage tend to be multidomestic.
• In many service industries, both downstream and upstream activities are tied to buyer location, making global strategies less common.
• Industries where upstream and support activities (technology development and operations) are crucial to competitive advantage tend to have more global competition.