Porter’s value chain analysis is a unique tool and idea that helps any business bring more value to its self. By definition, value added is just the increase in value of a product due to additional features. However, here we talk about increasing value to the business as a whole.
Before preparing a value chain analysis for your own business, let us understand from the diagram above. The diagram above can be seen as 2 exhibits. Exhibit A, are the Support activities and Exhibit B are the Primary activities. First off, only when they both work together, the margin can be increased, otherwise, there will be an imbalance in the Business. The Primary activities are client facing activities, which means, that in such activities there is some sort of interaction with the client. On the other hand, the support activities are non-client facing activities, meaning that there is no interaction with the client. The first thing we have to learn here is that the business needs to focus on all aspects equally in order to grow. Often, say in a meeting, the sales manager will give suggestions based on his point of view, the marketing manager will come from a market criterion, the finance manager will be worried about the cost and the general manager will be worries about how to sync all of these. That is the exact problem. Given that every manager is going to come up with just his part of the plate, an efficient decision can be hard to make. This problem is solved by Porter’s value chain, because it pushed all aspects together.
The above diagram as an illustration to help any business develop their own Value chain analysis. Consider a Software company, who were asked to list their 3 key activities. Order taking, Specification and Scheduling are the 3 main activities that a business performs in order to generate revenue and keep running. Next step, they focus on each of the main activity individually, and factors that will help them perform that particular activity in a better way. Following this, they conclude which part of each activity, really adds value to the business and in what aspect, meaning whether it is a client-facing activity or a non-client facing activity. Then, they conclude the changes they need in each part of each activity, in order to make the activity more valuable. Eventually, when they work in all of those, it turns out to be a balance of Primary and Secondary activities, the Exhibit A and B, which we mentioned earlier.
Interestingly, the value that is added from these activities, is not just profit or bigger market share. More importantly, they first help in increasing Customer’s loyalty, Ethical conducts, Efficiency in delivery of service, customer’s confidence and worker’s rhythm etc. All of these benefits, then further help in increasing profit and revenue, etc. So the primary benefit and reason to follow value chain, is adding value, not in term of money, but things aside from money.