Value Chain Analysis

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Value

A value is an amount (i.e. total revenue) that buyers are willing to pay for a firm's products. The margin provides the main difference between the total value (or revenue) and the total cost of performing all of the firm's activities.  

The value chain is a tool developed by Dr. Michael Porter (Harvard Business School)
 

What is a value chain analysis?

A value chain analysis Is a process where a company identifies its primary and secondary activities that add value to its final product. Then, they analyze these activities to reduce costs or increase differentiation. In other words, this strategy tool reveals where a firm's competitive advantages or disadvantages are. 

M. Porter introduced the generic value chain model in 1985. The value chain represents all the internal activities a firm engages in to produce goods and services. It divides into two categories:

- Primary Activities (operations, distribution, sales)

- Support Activities (R&D, Human Resources)