An organization, its suppliers and its intermediaries make up a value chain. This means all of these enterprises execute activities to add value to the product that will be purchased by a consumer or organization. Value chain is credited to Michael Porter in his 1985 book Competitive Advantage. In it, Porter points out that “competitive advantage” is the ability for an organization to put “generic strategy” into practice.
Value chain analysis is how an organization can create the greatest possible value for its customers. Value chain analysis explains the activities that occur in an organization and relates them to an analysis of the competitive strength of the business. Organizational activities can be grouped under two headings:
(1) Primary Activities – ones that are directly concerned with creating and delivering a product (e.g. component assembly).
(2) Support Activities – ones that are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is not typical for an organization to tackle all primary and support activities.
The goal of your value chain analysis is to help your company identify areas that can be optimized for maximum efficiency and profitability.