Value Chain

The Value Chain is a useful concept to understand how a company’s interrelated activities create competitive advantages. The details of a potential value chain can vary greatly by industry. Michael Porter, for example, outlined five generic primary value chain steps (inbound logistics, operations, outbound logistics, marketing/sales, service) and four generic support value chain steps (procurement, technology development, HR management, company infrastructure). But it’s obvious that for a financial services company, inbound and outbound logistics are not very meaningful value chain steps.

The analysis of a company’s value chain can be an interesting first step to understand its competitive position. Process flows within each value chain step help to further identify individual value creating activities. The framework is also helpful when looking at outsourcing decision, or when trying to understand how a firm links its activities to suppliers, distributors, or other cooperation partners. Often these linkages can provide significant advantages in an industry “ecosystem.”