Micheal Porter's Value Chain

In 1980 Micheal Porter published a model which grouped the activities of an organisation into nine distinct classifications.  In carrying out this process, it is possible to uncover how value is created in goods a business produces and, through strategic analysis, competitive advantage can be gained.  Understanding how a consumer views the organisation is crucial to any organisations success.

valuechain

Margin

The margin is the excess the consumer is willing to pay above the cost of producing the product.  Porter argued that the stronger the linkages and the activities of the business the greater the margin, and hence, profitability.

Primary Activities
 
Relate directly to production, sales, marketing, delivery and service.

Inbound Logistics: Taking in, storage and handling of goods including warehousing, control and movement of goods within the business

Operations: Conversion of the raw materials to the finished product including the labour inputs

Outbound Logistics: This is the distribution element in getting the product to the consumer

Marketing and Sales: Advertising, promotion and sales activities undertaken in informing consumers about products on offer

Service: Includes installation, repair and upgrades to the product portfolio

Support Activities

These add assistance to the primary activities and encompass obtaining the raw materials, human resources and infrastructure for the firm

Procurement: Acquisition of the basic inputs eg components and raw materials

Technology Development: Resource utilisation and systems processes such as design and control systems

Human Resource Management: Obtaining, selecting, recruiting and developing the human element

Firm Infrastructure: Quality assurance and control, planning, finance and legal aspects of operations

It is vital to remember that many aspects of the business activities interrelate and the chain itself should be viewed as a whole.  As the name suggests, the chain is only as strong as it's weakest link.