Michael Porters ValueChain

Developed in 1985 by Michael E. Porter in Competitive Advantage Highlights cost advantages and distinctive capabilities--the value processes But note that there is no one template.

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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Value Chain and the QCT Triangle

VC allows alignment of processes with customers. This generates a quality advantage. VC focuses cost management efforts. VC provides for efficient processes which improves the timeliness of operations.

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Value Chain Benefits

Identifies value processes

Identifies areas for cost improvement

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from Michael E. Porters Competitive Advantage

SUPPORT ACTIVITIES Firm Infrastructure (General Management) Human Resource Management Technology Development Procurement Inbound Logistics Ops. Outbound Logistics Sales & Marketing Service and Support

Value Chain Model

PRIMARY ACTIVITIES STRATEGIC COST MANAGEMENT - BA122B Spring 2009 4-4

Value Chain Elements

Customer value added Margin orientation Primary activities

Support Activities

Inbound logistics Operations Outbound logistics Sales and marketing Service and support

Human resources (general and admin.) Tech. development Procurement

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Goal of Value Chain

Driven by customer perceptions Increase margins Focus on value processess

Distinctive capabilities Cost advantages Southwest Airlines Intel Corporation

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Some examples

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

Value Chain Analysis

Document the activities Understand the cost and margins at each step.

Use Activity Based Costing Look for core competencies

Map the value chain to the industry value chain

Map the cost structure

Note that external values drive cost advantages

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Distribute a summary of the value chain model. Create functional process lists.

Discovering Your Own Value Processes

Transfer lists to color-coded labels.

Pin the process on a large VC diagram. Identify appropriate processes as:

$ (cost advantage) CC (core competency)

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Using the Value Chain

Helps you to stay out of the No Profit Zone Presents opportunities for integration Aligns spending with value processes Provides for reconfiguration of the value chain

outsourcing off-shoring co-location with customers or suppliers redesign for efficiency

Involves chain partners: customers & suppliers

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STRATEGIC COST MANAGEMENT - BA122B Spring 2009

Value Chain and the TBC Triangle

Technical:

Increases knowledge of no profit zones Increases knowledge of forward and/or backward integration opportunities Identifies value processes Identifies win-win alliance opportunities

Behavioral:

Focus shifts to the customer Focus shifts from conflict to partnering with customers & suppliers

Cultural

Creates externally focused mindset Generates information sharing environment with respect for confidentiality

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