Porter concluded that most value chains share similar characteristics and contain both production and supporting links. Above is an image of michael porter who presented the concept of value chain. Porter s value chain methodology is a powerful management tool, which delineates the concept of value creation. The concept of the value chain was introduced by michael porter in his text competitive strategy porter, 1995, in which he highlights the potential for different organisations within the chain and different functions within organisations to add value and thereby deliver competitive advantage. All calculations and graphs can be found in the appendices. In developing a model that incorporates value, we used michael porters concept of the value chain, defined as a set of activities that an organization engages in to create value for its customers. Michael porters value chain is a series of wellbased actions designed to establish and enhance a certain product or service in the market. As recklies 2001 said, the term value chain was used by michael porter. The value chain concept was first put forward by michael e. Advantage creating and sustaining superior performance by michael e. Porter provides various examples of companies that he thinks have behaved strategically and others which have not. He is the bishop william lawrence university professor at harvard business school, and he was one of the founders of the consulting firm the monitor group now part of deloitte and fsg, a social impact consultancy. The value chain template in powerpoint format includes three slides.
Ifdc report on value chain and business case analysis of agro. Value chain for software product delivery linkedin. The relevant level for constructing a value chain is a firms activities in a particular industry. The link between competitive advantage and corporate social responsibility michael e. Creating and sustaining superior performance porter 1985. Aug 08, 2018 michael porter and mark kramers 2011 article on creating shared value csv constructed what has currently become one of the most influential views on how businesses should operate in society.
Interestingly, the term value system has been as widely accepted as value chain has. Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. On the value chain and international specialization of china. Given the importance of the value chain, michael porter developed a strategic management tool for analyzing a companys value chain. Company value chain useful to separate the business system into a series of value generating activities referred to as the value chain.
Michael porters competitive advantage and business history. As porter and kramer defined the concept, companies can create shared value at three levels. The term value chain was coined by harvard business school professor michael porter in 1985 to describe the set of activities performed to design, produce, market, deliver, and support products figure 2. A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a product or service for the market. As i mentioned in the first part of this series, this model optimizes for. In health care, however, stakeholders have myriad, often conflicting goals, including access to services, profitability, high quality, cost containment, safety, convenience, patientcenteredness, and satisfaction. Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. A strategic vision to improve value by organizing around patients needs, health affairs, mar, 20. For gaining the competitive advantages, porter suggested that going through the chain of organization activities will add more value to the product and services than the sum of added cost of these activities. A firms value chain and the way it performs individual activities are a reflection of its history, its strategy, its. Evan zamora jeff dean juliet lachappell nicole skubic tyler.
Value chains, value streams, value nets, and value. The concept comes from business management and was first described in 1985 by michael porter in his bestseller competitive advantage. Porter developed the value chain to help identify which activities within the firm were contributing to a competitive. Strategic analysis tools topic gateway series 5 one of the key skills of a strategic analyst is in understanding which analytical tools or techniques are most appropriate to the objectives of the analysis. This course is of interest to students seeking more understanding of the business dynamics of real estate and construction. Creating and sustaining superior performance porter, 1985, as a tool of analyzing the firms internal environment and resource base. Value chain analysis of procter and gamble case study. Mapping of porters value chain activities into business. Porters five forces model and porters value chain sony. The value chain the term value chain was used by michael porter in his book competitive adva n tage.
Well known is porters concept of the value chain, gereffis global commodity. Below is an overview of some of the more commonly used strategic analysis tools. Value chains in health care article pdf available in journal of consumer marketing 217. This paper is intended as a discussion piece to lead and give legitimacy to more formalized research in this area.
Moreover, while students educated in social entrepreneurship should be catalysts for this transformation working with practitioners as mentors, advisers, and consultants, a wider change must include rethinking the entire value chain of the business school to create shared value in its operations and societal impact. Porters value chain what is the value chain of porter. He deconstructed production as a series of value creation links. For further materials, see the website of the institute for strategy and competitiveness. The value chain the term value chain was used by michael porter. A diagram of michael porter s value chain based on an image from porter m. A short video for accounting and business students identifying the main elements within porters value chain.
Its a processbased view of an organization, where products move through activities in a sequence and theres value added during each step of the process. A value chain is a set of activities that a company performs in order to deliver a valuable product or service for its customers. Michael porter defines value chain as a representation of a firms valueadding activities, based on its pricing strategy and cost structure. Michael eugene porter is an american academic known for his theories on economics, business strategy, and social causes. In his 1985 book competitive advantage, michael porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Mar 15, 2011 according to michael porter value is the chain of activities for a company that operates in a specific industry. Evan zamora jeff dean juliet lachappell nicole skubic. In the new marketing era, with the rise of retail and ecommerce, companies have realized that your value chain will be further strengthened if you have better coordination between all departments. T he value chain analysis describes the activ ities the organ ization performs and links them to the organizations competitive pos ition. Porters value chain model and competitive advantage in. Porter linked up the value chains between firms to form what he called a.
In his book competitive advantage 1985, michael porter explains value chain analysis. Michael porter proposed the value chain framework in his book competitive advantage. A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product i. The value chain concept was introduced 30 years ago by michael porter in his 1985 bestseller, competitive advantage. This course provides an overview of key concepts in strategic management in the construction, real estate, and architecture industries. The kenya medical supplies agency from its inception in the year 2000 to the year 2007, adopted the michael porter s value chain model push strategy to supply essential drugs to all the public health facilities in the country. A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. Porter has suggested many ground breaking strategic concepts like porter s five forces, competitive strategy, and others.
Michael porter 1985 introduced in his book the competitive advantage the concept of the value chain and book highlighted that the activities within the 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. A series of surveys done by consulting cabinets deloitte touche tohmatsu 1995, or. Value chain analysis methodologies in the context of. However, the chain goes beyond this when i refer to michael porter in his bestselling 1985, competitive advantage. In the ensuing knowledge economy the importance of human capital is being recognized as never. In his book, porter first time introduced value creation concept. Use of the value chain in the process of generating a. According to michael porter, value chain consists all. Value chains, value streams, value nets, and value delivery.
How to reinvent capitalism and unleash a wave of innovation and growth. What are the primary activities of michael porters value. What ought to be done if the creation of business value and social value do not go hand beschorner on porter and kramer 109 bus ethics j rev 117. Mar 23, 2012 the value chain is a concept from business management thatwas first described and popularized by michael porter. 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. Porter harvard business school shared value leadership summit boston, ma may 23, 20 creating shared value as. The concept of a value chain was first described by dr. Porters competitive strategy models five forces model and value chain are two of the competitive strategy models contributed by michael e porter of harvard university professor s of harvard business school. In michael porters description of the value chain, he identifies the various steps, or links, in the. You should be familiar with the original model see figure 1 and the activities described within it. Corporation porters five forces model and porters value chain 2. Porters value chain analysis by michael porter toolshero.
The concept of the value chain was made popular by harvard universitys professor 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. Three waves of itdriven competition have radically reshaped competition in the past 50 years. Porter proposed a generalpurpose value chain that companies can use to examine all of their activities, and see how theyre connected. Most existing big organizations the 800pound gorillas subscribe to michael porter s value chain framework. These activities add value and cost in the process of creating products and services. In any field, improving performance and accountability depends on having a shared goal that unites the interests and activities of all stakeholders.
The backbone of this model is the set of five primary activities that have been identified as porter as being relevant to all businesses. All these activities can be represented using a value chain. The value chain categorizes the genericvalueadding activities of an organization. Strategic management in the design and construction value chain. This perspective about how value is created forces managers to consider and see each activity not just as a cost, but as a step that has to add some increment of value to the finished product or service.
Value chain analysis porter s value chain the concept of value chain was propagated by michael porter in the 1980s in his book competitive advantage. Company value chain useful to separate the business system into a series of valuegenerating activities referred to as the value chain. Kramer 94 disruptive innovation for social change clayton m. The purpose of the value chain model, according to porter, was to systematically examine all the activities a firm performs and how they interact as cited in. Some of the material in this paper comes directly from documents that go back over 20 years, including writing by michael porter, james martin, ralph whittle, and david bovet. All competitive advantage resides in the value chain. You can use the value chain diagram for powerpoint to. Value chain presentation template free powerpoint templates. Porter defines value chain as a representation of a firms valueadding activities, based on its pricing strategy and cost structure. Value chain michael porter was the first person who introduced the term value chain in his book competitive advantage.
He is credited for creating great works, porter s five forces analysis, competitive strategy, national diamond and value chain. A generic, firm specific value chain is shown in figure 1. A companys value chain is typically part of a larger value system that includes companies either upstream suppliers or downstream distribution channels, or both. Gaining such a perspective sets the groundwork for further analysis of individual institutions with respect to their particular value chain advantage and strategically attractive competitive position. Porter defined value as the amount buyers are willing to pay for what a firm provides, and he conceived the value chain as the combination of nine generic value added activities operating within a firm activities that work together to provide value to customers. Porter s value chain is a model used to study the activities that are performed in the creation of a product or service by an organization. Valuebased health care delivery harvard business school. Porter and kramer, who work as a professor and lecturer respectively at harvard business school, assert. Application of the hines value chain model by the kenya. Nov 20, 2012 in his book, stewart tells how in 1969, when michael porter graduated from harvard business school and crossed the charles river to get a doctorate in harvards department of economics, he. The concept comes through business management and was first described by michael porter in his 1985 bestseller, competitive advantage. A value chain is a set of activities that an organization carries out to create value for its customers. A systematic way of examining all the activities a firm performs and how they interact is evaluated through the concept of value chain.
Michael porter in 1985, captures a series of actions that a firmin a specific industryaccomplishes to produce a valuable product or service for the market. The forward thinking statements and recommendations created by the authors are opinions and suggestions only. The care delivery value chain cdvc is a framework that allows a systemic analysis of value creation across the myriad of activities that occur during the care of a patient for a specific medical condition. Value chain analysis and competitive advantage article pdf available in journal of general management 271. Porter five forces analysis industry analysis definition, advantages, and criticism. Food value chain relationships and operating principles3 2 porter, michael e. Porter and kramer understand social needs not as ethically important ends, but rather as economically smart means for successful companies. The value chain from competitive advantage, by michael porter. Porter has dedicated much of his career to studying competitive advantage.
Developed in the early 1980s by harvard business school professor michael porter in his book competitive advantage, the value chain consists of two main components. Value chain analysis is one way of identifying which activities are best undertaken by a business and which are best outsourced. The value chain as a concept disaggregates a firm into its strategically relevant activities. Porter distinguished two important elements of modern value chain analysis. Documents in econstor may be saved and copied for your personal. Capon 2008 defines value chain as a framework for thinking about. It is this synergy between activities that produces value, not the activities in themselves. Porter s value chain template for powerpoint and keynote is designed for professional presenters, who are handling business management and corporate management concepts. Swot, porter s five forces of competition, debt and current ratios and value chain analysis.
Pdf on jan 1, 2014, john mcgee and others published value chain find, read and cite all the research you. The value chain was designed by michael porter in 1985 as a systematic way to examine how competitive advantage develops and to identify where value is added in an organisation. Creating and sustaining superior performance new york. The value chain from competitive advantage, by michael. Porters value chain assumes that an enterprise is a system of. Swot, porters five forces of competition, debt and current ratios and value chain analysis. The value chain analysis sometimes refers to porters value chain analysis model is a wellknown business management tool developed by michael porter in 1985 in his alltime influential book competitive advantage.
Creating and sustaining superior performance cite 1 recommendation. The value chain notion visualizes the process view of an organization, perceiving a manufacturing or service organization as a system comprised of subsystems of inputs, transformation. Porters value chain analysis free management books. One of his bestknown concepts is the value chain, which is used to deliver a product or service to the market and has three key objectives. Michael eugene porter born may 23, 1947 is an american academic known for his theories on economics, business strategy, and social causes. Michael porter s competitive advantage and business history robert e. Porter, known for porter s five forces, laid out his. Value chain analysis of procter and gamble case study value chain analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. The value chain concept was developed and popularized in 1985 by michael porter, in competitive advantage, 1 a seminal work on the implementation of competitive strategy to achieve superior business performance. Smart, connected products are expanding and transcending industry boundaries, disrupting value chains, altering industry. Now, in the third wave, it is becoming an integral part of the product itself. The value chain also known as porter s value chain analysis is a business management concept that was developed by michael porter. Topics include supply chain analysis, market segmentation, vertical integration, competitive advantage, and industry transformation. This concept was originally from business management and popularized by michael porter in 1985.