Value Chain Analysis
A value chain analysis is a tool that is commonly used in strategic management initiatives. Developed by Michael Porter, the value chain analysis determines a firm’s competitive advantage, core competencies, and shareholder value. In order to conduct a value chain analysis, a firm’s business systems are categorized as value generating activities into a flow chart format. Some common value generating activities included in the flow chart format are inbound logistics, operational processes, outbound logistics, sales & marketing processes, and customer service processes. The supporting activities that are utilized by a firm in order to achieve maximum value and benefit are also included in the value chain analysis.
These supporting activities are listed underneath the flow chart format. Some common supporting activities include human resources, technology, organizational structure, corporate culture, company systems, and more. In order to measure competitive advantage, core competencies, and shareholder value in the value chain analysis, Porter created two measurement tools: cost advantage and differentiation. A firm’s cost advantage is determined by measuring its capacity utilization, method of market entry, strategic partnerships and external relationships, and training and development. A firm’s differentiation is determined by measuring its scale, internal relationships, staff knowledge and competency, geographic location, and unique selling proposition.