Business
Value Chain Management
In 1985, Michael Porter published Competitive Advantage: Creating and Sustaining Superior Performance. In this book, he described how organizations can achieve competitive advantage in their industries. Porter's focus in this book was not on an overall competitive strategy, but on what organizations needed to do on a daily basis to achieve results. As Porter (3) stated, "My aim is to build a bridge between strategy and implementation." To create the link between the overall strategy of a firm and how that strategy could be achieved, Porter referred to value. As Porter (3) stated, "competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it." This focus on value led to the concept of the value chain, which refers to the internal processes that occur as the organization creates its product or service.
Value chain management is not just a process that occurs within an organization. Instead, it is closely linked to the competitive environment. This means that value chain management takes into account the industry in which the organization operates. This is referred to as the industry value chain and describes how the industry overall adds value to the consumer. This is an important point because it means that value chain management does not just refer to the series of processes that occur within the organization. As an example, consider the case of Apple's iPod. If creating value was only considered in the context of what happens within the organization, the focus might be purely on the manufacturing process. Apple might consider their value chain as a process where raw materials are converted to the product and where the product is distributed to the consumer. In terms of improving the value of their product, they might consider that saving on raw materials, decreasing production time, and improving distribution will help add value. The problem with this approach...
This real value is identified when the MP3 player industry is considered on a broader level. This broader view shows that value is added more by marketing than by manufacturing. Apple's value chain includes the major activities that instill value in the product. Marketing with the aim of gaining consumer support is one of the key ways to add value. It is this aspect that Apple competes against with the other organizations in the market. This illustrates that value chain management is a process of recognizing what activities add value to the organization and then focusing on these activities to gain competitive advantage. The aim is not to improve everything about the organization, but to improve the processes that will allow the organization to gain an advantage on the competition.
Porter (39) also identified various generic factors that are part of an organization's value chain. These generic factors are: inbound logistics, operations, outbound logistics, marketing and sales, and service. Porter considered that these five areas add value to a firm. Porter (40) also identified several support factors. These support factors are: infrastructure of the organization, human resource management, technology, and procurement. Porter identified these generic factors as a general guideline for organizations, while noting that the industry's competitive factors determine what factors will comprise the value chain for a specific firm. For example, in the case of Apple's iPod, sales and marketing would be a key factor and technology would also be a part of the value chain. In the case of an organization manufacturing and selling nails, sales and marketing is not likely to be a large part of the value chain. Instead, operations may be more important, with the aim being to manufacture the nails as cost effectively as possible so as to maximize profits. For any organization, value chain management is used to identify…
