The document discusses Porter's value chain model, which analyzes how organizations create value through their business activities. It divides activities into primary activities like inbound logistics, operations, and service, and support activities like infrastructure, human resource management, and procurement. By understanding these value chain activities, organizations can identify ways to lower costs or improve differentiation to gain a competitive advantage. The value chain model provides a framework for analyzing an organization's systems and how inputs are transformed into valuable outputs for customers.

1. PORTER’S VALUE
CHAIN
Understanding How Value is
Created Within Organizations
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2. How does your organization
create value?
BIG QUESTION
FOR THE
GROWTH OF
YOUR INDUSTRY
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3. Creating value is a
matter of fundamental
importance to
companies, because it
addresses the
economic logic of why
the organization exists
in the first place.
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4. The concept of value chains
was developed by Michael E.
Porter as early as 1979
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5. How does your
organization create value?
Manufacturing
companies
create value by
acquiring raw
materials and
using them to
produce
something
useful.
Retailers bring together a range of products
and present them in a way that's convenient
to customers, sometimes supported by
services such as fitting rooms or personal
shopper advice.
Insurance companies offer policies to
customers that are underwritten by larger re-
insurance policies. Here, they're packaging
these larger policies in a customer-friendly
way, and distributing them to a mass
audience.
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6. The value that's created and
captured
by a company is the profit margin
Value Created and Captured
–
Cost of Creating that Value
=
Margin
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7. The more value an
organization creates, the
more profitable it is likely
to be.
When an organization
provide more value to its
customers, then it build a
competitive
advantage.
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8. COMPETITIVE
ADVANTAGE
When a firm sustains profits that
exceed the average for its industry,
the firm is said to possess a
competitive advantage over its
rivals. The goal of much of business
strategy is to achieve a sustainable
competitive advantage.
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9. Firm A is said to possess a competitive
advantage over its rivals.
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10. MICHAEL
E. PORTER
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11. COST ADVANTAGE
A competitive
advantage exists
when the firm is able
to deliver the
same benefits as
competitors but
at a lower cost
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12. DIFFERENTIATION
ADVANTAGE
A competitive
advantage exists
when the firm is
able to deliver
benefits that
exceed those of
competing
products
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13. Thus, a competitive
advantage enables
the firm to create
superior value for
its customers and
superior profits
for itself.
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14. VALUE CHAIN
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15. PORTER'S CORPORATE
VALUE CHAIN 15

16. The idea of the value chain is based on
the process view of organizations.
How value chain activities are carried out
determines costs and affects
profits.
These activities can be classified
generally as either primary or
support activities that all businesses
must undertake in some form.
PORTER'S VALUE CHAIN
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17. Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers.
Using this viewpoint, Porter described a chain of activities common to all businesses, and he divided them into primary and support activities
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18. PRIMARY ACTIVITIES
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19. SECONDARY ACTIVITIES
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20. Companies use these primary and support
activities as "building blocks" to create a
valuable product or service.
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21. USING PORTER'S VALUE
CHAIN
To identify and understand a company's value chain, follow
these steps.
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For each primary activity, determine which specific sub-activities
create value. There are three different types of sub-activities
IDENTIFY SUB-ACTIVITIES FOR EACHIDENTIFY SUB-ACTIVITIES FOR EACH
PRIMARY ACTIVITYPRIMARY ACTIVITY
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IDENTIFY SUB-ACTIVITIES
FOR EACH SUPPORT
ACTIVITY.
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27. Conclusion
Porter's Value Chain is a
useful strategic management
tool.
It works by breaking an
organization's activities down
into strategically relevant
pieces, so that a firm can see a
fuller picture of the cost
drivers and sources of
differentiation, and then make
changes appropriately. 27
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