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Tuesday, August 27, 2013

The Value Chain


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 shown in the following diagram:

Porter's Generic Value Chain    

Inbound
Logistics
>
Operations
>
Outbound
Logistics
>
Marketing
&
Sales
>
Service
>
M
A
R
G
I
N
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 activities, thereby resulting in a profit margin.

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