VALUE CHAIN ANALYSIS

Every firm is a collection of activities that are executed to design, generate, market, deliver and support its products or services. Value chain analysis is a systematic way of examining all activities that a firm performs and how they interact.

The value chain disaggregates the firm into strategically separable activities in order to understand the behavior of costs so as to create competitive advantage. A firm creates competitive benefits by:

1. Finding new manner to conduct activities, example, improving efficiency via automation.
2. Managing the linkages among activities better e.g. spending on better product design may reduce after sales service costs.
3. Managing the linkages among customers and suppliers better.
4. Value activities are physically and technologically different activities a firm executes. These are building blocks by which a firm creates products and services valuable to its customers. The value chain by Michael Porter is as shown below.