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Porter's value chain analysis

A value chain is a set of activities that an organisation carries out to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine their activities and see how they are connected.

Elements in Porter's value chain

Central in this model are systems rather then departments or accounting cost types. Taking the viewpoint of systems Porter described a chain of activities, divided into primary and support activities.

Visualisation of Porter's value chain Source:

Primary activities

These activities directly relate to the physical creation, sale, maintenance, and support of the product or service. These activities are:

Inbound logistics: All processes related to receiving, storing, and distributing inputs internally.

Operations: All transformation activities that change inputs to outputs that are sold to customers.

Outbound logistics: The activities that deliver the product or service towards the consumer. Things like collection and distribution systems.

Marketing & sales: The processes and activities to persuade customers to buy the product from the organisation in favour of competitors.

Service: Activities that maintain the products value for the customers that bought it.

Support activities

These activities support the primary functions. Procurement: All the activities of the organisation to get the resources it needs to operate.

Human resource management: All activities around recruiting, selecting, hiring, rewarding, training and motivating employees.

Technological development: Activities concerning managing and processing information, as well as protecting a company's knowledge base.

Infrastructure: The company's support systems, and the functions that allow it to maintain daily operations.

Porter's value chain analysis