Michael Porters Value Chain Definition

Value chain refers to a chain of activities where products pass through and in each activity value is added to a product. This was one of Porter’s most important contributions in the school of management among other models like the five forces analysis that gives the intrinsic as well as extrinsic factors attributable to firm trading in a competitive environment. From this model, the most critical thing is that the chain gives more value to the products. (Porter, 1979).

The needs of consumers have changed over time and will still continue to change in the future. This is why organizations are increasingly finding it advisable to capture international attention. International business is characterized by fierce competition as firms try to outdo each other seeking foreign markets. Michael porter suggested that business success is about strategy and put down Value chain as one of the strategies that a firm can adopt in its bid to position itself in the industry (Porter, 1979).

Value chain groups that the value-adding activities into three main categories i.e. inbound logistics, outbound logistics, and support activities. Inbound logistics include mainly operations in the production process while outbound logistics refers to mainly sales and marketing. The support activities will include services that form the basis for the performance of both outbound and inbound logistics (Porter, 1979).

The human resource management, information management and administrative infrastructure will provide support for the performance of these value-adding activities. Remember that an international firm has all these processes. For instance, an international logistics firm can achieve this through the following ways. The firm should be able to determine its competitive space in the international markets first. If the environment appears to be so competitive then it has devised new tactics. An international firm can use the value chain as a basis for effective product development, customer relations and supply networks (Porter, 1979).

The idea of a value chain has gained momentum in some big organizations in that there is an agent need to incorporate the customer needs in product and market development at every level. Porter’s value chain can therefore be said to have influenced the manner in which research and development, production, marketing and sales, product design, distribution, and customer services are executed in the global world.

For instance, an international firm would want to have its suppliers located next to its business premise in order to reduce the transport cost and streamline its core activities. Or suppliers connected to its distribution channel to eliminate the existence of intermediaries who would lead to an unnecessary increase in product cost.

Organizations would also want to ensure that their customers both on the international and domestic are linked to a reliable communication system and that they are able to access and receive any news concerning the organization as to product/service changes or are able to send their recommendations and specifications about a product. The whole idea is to add value by creating a platform from where customers are able to present their grievances to the company and hence achieving good customer care and service.

Any organization that adopts the value Chain model must never fail to prosper whether it’s local or international. This is a form of differentiation model that a firm can use to make itself unique where competition becomes a force to reckon with.

List of references

Porter, M.E. 1979 “How competitive forces shape strategy“, Harvard Business Review, 1979.

Find out your order's cost