The Value Chain according to Porter

The value chain is an important construct for understanding the distribution of returns arising from design, production, marketing, coordination and recycling. Essentially, the primary retunrs accure to those  parties who are able to protect themselves from competition. This ability to insulate activities can be capsulated by the concept of rent, which arises from the possession of scarce attributes and involves barriers to entry (Kaplinsky and Morris, 2000)

The Value Chain according to Porter

The value chain concept was developed by Michael Proter who is highly reputed and well know as the leading expert when it comes to company´s management strategies. In 1985 he published a book called “Competitive Advantage: Creating and Sustaining Superior Performance”, in which he firstly described and defined the business management concept of the value chain. Nowadays the book is still highly recognized as for example even Philip Kotler, the distinguished Professor of International Marketing is cited on the back cover of that book “Porter´s books on competitive strategy are the semina works in the field” (Porter, 1985)

In chapter 2 of the book Porter explains why a value chain is so important for companies “The value chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors” (Porter, 1985). Further, Porter claims that the value chain is embedded in the value system consisting of several value chains:

The supplier value chain is responsible to create and deliver the inputs that are used within the firm value chain, hence suppliers may have an influence on the firm´s performance.

The channel value chains describes that a product passes through a channel on its way to the customer that may affect the buyer´s behaviour.

The buyer value chain defines the role of the company and the product that are determined by a buyer´s needs.

Porter emphasis that in order to do the value chain, it is important not only to understand the firms value chain but also how the firms value chain fits and is embedded into the whole value system. This is how competitve advantage is gained and sustained.

Interview with Michael Porter about the Five Competitive Forces for defining the Value Chain


Literature

Kaplinsky & Morris – A Handbook for Value Chain Research, 2000

Michael Porter – On Competition, 2008

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