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such as new product concepts, raw materials, component parts, or professional skills into the
finished goods or services customers value and want to buy. In other words, efficient and
effective value chain management optimizes value for the customers' customer.
marketing managers to focus on defining the company business in terms of customer needs.
Value chain analysis is a means of achieving higher customer satisfaction and managing
costs more effectively. The value chain is the linked set of value creating activities all the way
from basic raw materials' sources, component suppliers, to the ultimate end-use product or
Product development
Production function
Responsible for the creation, assembly or provision of a good or service, for
Sales function
Plays a crucial role in locating customers and then informing and persuading them
supporting customers.
To better understand the activities through which a firm develops a competitive advantage and
creates shareholder value, it is useful to separate the business system into a series of value-
generating activities referred to as the value chain. In his 1985 book Competitive Advantage,
Michael Porter introduced a generic value chain model that comprises a sequence of activities
found to be common to a wide range of firms. Porter identified primary and support activities as
A
Marketing
Inbound Outbound R
> Operations > > & > Service >
Logistics Logistics G
Sales
I
Firm Infrastructure
HR Management
Technology Development
Procurement
The goal of these activities is to offer the customer a level of value that exceeds the cost of the
Operations: the processes of transforming inputs into finished products and services.
Marketing & Sales: the identification of customer needs and the generation of sales.
Service: the support of customers after the products and services are sold to them.
culture, etc.
compensation.
The firm's margin or profit then depends on its effectiveness in performing these activities
efficiently, so that the amount that the customer is willing to pay for the products exceeds the
cost of the activities in the value chain. It is in these activities that a firm has the opportunity to
generate superior value. A competitive advantage may be achieved by reconfiguring the value