Managers can find out which parts can be optimized for better performance. Michael porters competitive advantage and business history. Low cost and fullservice airlines both compete in the airline. Although the search for strategies that foster competitive advantage are frequently based on porters 1985 value chain model, this paper conceptualizes an. Porter suggested that activities within an organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive.
Porters value chain analysis free management books. Porters value chain model and competitive advantage in. Porter s groundbreaking concept of the value chain disaggregates a company into activities, or the discrete functions or processes that represent the elemental building blocks of competitive advantage. Porter is a marketing classic that explains the basic laws of product differentiation and targeting potential buyers. Using clear graphics and examples, this chapter illustrates how the value chain functions as a powerful tool for finding potential sources of competitive advantage. Ankli 1 university of guelph strategic planning as a formal discipline originated in the 1960s and early 1970s. The value chain from competitive advantage, by michael. Porter s value chain is a model that is sometimes included in a marketing principles textbook, but is more commonly found in a book on marketing strategy. The value chain definition refers to the functional activities of a business that add value to its customers. The value chain approach examines and analyses the specific operations through which a firm can generate value and develop inexpensive edge. This creates a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable. Value chain analysis is an important strategic tool for business management.
A value chain is a chain of activities for a firm operating in a specific industry. There are many advantages of value chain analysis, which all result in a companys ability to understand and optimize the activities that lead to its competitive advantage and high profit levels. There are two basic types of competitive advantage. All these activities can be represented using a value chain. Value chain change due to ict and evalue chain change due to ict and ebusiness. The value chain from competitive advantage, by michael porter. In his book, porter first time introduced value creation concept. Porter, how competitive forces shape strategy, hbr marchapril 1979, p.
The value chain analysis sometimes refers to porter s value chain analysis model is a wellknown business management tool developed by michael porter in 1985 in his alltime influential book competitive advantage. Following diagram shows porter s competitive advantage model. The value chain the term value chain was used by michael porter in his book competitive adva n tage. Note that a cost advantage can be created by reducing the costs of the primary activities, but also by reducing the costs of the support activities. The value chain is a tool for systematically examining the activities of a firm and how they interact with one another and affect each others cost and performance. According to michael porter, value chain consists all. The analysis of the value chain activities can be done to understand the competitive advantage sources.
Porter 1 suggests that value chain analysis can be a useful. The task of any business is to deliver customer value at a profit. A business strategy of through a value chain and comparative advantage analysis of amazons trademarks and intangibles amazon is considered the preeminent online retailer in the world. Porters value chain analysis is a tool that can be used to determine exactly how your company goes about the task of creating value. A firms value chain and the way it performs individual activities are a reflection of its history, its strategy, its. Porter proposed a generalpurpose value chain that companies can use to examine all of their.
The basic idea behind the project was that porter s value chain model 1985 for the analysis of firmlevel competitive advantage was basically only applicable to manufacturing. Michael porter underscored the need to assess competitive advantage in terms of the various component activities and processes value chain comprised of primary and support activities. Porters value chain analysis by michael porter toolshero. The value chain also known as porters value chain analysis is a business management concept that was developed by michael porter. A value chain analysis provides the companies with a view of the activities in their production process. Marketing involves satisfying consumers needs and wants. The value chain the term value chain was used by michael porter. Porter s value chain is a model that can be used as part of the strategic analysis stage of the strategic planning process and is particularly useful to assess whether an organisation has a sustainable competitive advantage. A value chain is a set of activities and accomplishments that an organization carries out to create value for its customers.
First introduced by porter in 1985, the value chain concept has allowed managers to see a whole world of relationships that had previously been invisible to them. The value chain activities and competitive advantage in. Creating and sustaining superior performance porter 1985. Value chain analysis is mentioned extensively in the first half of the book competitive advantage in 1985 by michael porter. To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value generating activities referred to as the value chain. Apple value chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the business. Porter next turned to economic development and competitiveness, where his work focused on the microeconomic underpinnings of national and regional economic development. The business management concept of the value chain was introduced and described by michael porter in his popular book competitive advantage.
Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. Michael porter outlined the value chain model in his book competitive advantage. Michael porter discussed this in his influential 1985 book competitive advantage, in which he first introduced the concept of the value chain. Competitive advantage introduces a whole new way of understanding what a firm does. The idea of the value chain is based on the process view of organisations, the idea of seeing a manufacturing or service organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Porter s original work on industry structure, the value chain, and strat egic positioning has informed much of his other research. It creates competitive advantage by giving companies new ways to outperform their rivals.
Michael porter s competitive advantage and business history robert e. Using porters value chain the marketing study guide. Porters competitive forces andv l ch i m d ld value chain. Porters competitive forces andv l ch i m d ld value chain models. It was created at a time when being big and having scale was in itself a key aspect to competitive advantage and profitability.
Michael porter defines value chain as a representation of a firms value adding activities, based on its pricing strategy and cost structure. Access to society journal content varies across our titles. Given that a frameworks intellectual antecedents not only determine its current content, but. All competitive advantage resides in the value chain. Though firms in the same industry may have similar chains the value chains of competitors often differ.
Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firms cost of creating it. Value creation creates added value which leads to competitive advantage. In his book competitive advantage 1985, michael porter explains value chain analysis. Value chain analysis value chain competitive advantage. It soon became a fad, but faded equally quickly when the promised successes did not materialize see 3, 14, and 17 for recent examples.
A value chain is a set of activities that an organization carries out to create value for its customers. The term value chain was used by michael porter in his book competitive advantage. If you have access to a journal via a society or association membership, please browse to your society journal, select an article to view, and follow the instructions in this box. A firm gains a competitive advantage by performing these activities better or at lower cost than competitors. This type of optimization does not just bring efficiency but can also be a source of competitive advantage as in the case of starbucks. New models for value creation and competitive advantage in. Competitive advantage grows fundamentally out of value a firm. T he value chain analysis describes the activ ities the organ ization performs and links them to the organizations competitive pos ition. Value chain analysis can be used to formulate competitive strategies, understand the sources of competitive advantage, and identify andor develop the linkages and interrelationships between activities that create value. Porter s generic strategies for achieving the competitive advantage and value chain model can be used together to set strong competitive advantage basis. Each activity assessed in terms of competitive advantage extended enterpriseis the vehicle to gain or lose competitive advantage. Creating and sustaining superior performance in 1985. It is undertaken in an effort to help the firm position itself against its competitors in the pursuit of competitive advantage.
A companys value chain is a system of interdependent activities, which are. As you might have guessed, the value chain is a set of activities that will lead to the creation of value. Figure 1 below illustrates the essence of apple value chain analysis. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits. Pdf value chain analysis and competitive advantage. Value chain analysis and competitive advantage prescott. Ultimately, added value also creates a higher profitability for an organization. Value chain michael porter was the first person who introduced the term value chain in his book competitive advantage. This presentation draws on ideas from professor porter s books and articles, in particular, competitive strategy the free press. Porter 1 suggests that value chain analysis can be a useful approach in developing strategy. Value chain is a model that helps to analyze specific activities through which firms can create value and competitive advantage.
138 19 1518 644 1261 1161 713 1346 1523 1043 126 281 1523 183 535 1153 738 729 678 759 134 1227 606 591 1510 820 953 482 1536 1500 1433 546 121 9 1550 7 235 748 1252 45 905 946 670 834 384 1436