Value Chain

Understanding How Value is Created Within Organizations

Porter's Value Chain.

How does your organization create value?

How do you change business inputs into business outputs in such a way that they have a greater value than the original cost of creating those outputs?

This isn't just a dry question: it's a matter of fundamental importance to companies, because it addresses the economic logic of why the organization exists in the first place.

Manufacturing companies create value by acquiring raw materials and using them to produce something useful. Retailers bring together a range of products and present them in a way that's convenient to customers, sometimes supported by services such as fitting rooms or personal shopper advice. And insurance companies offer policies to customers that are underwritten by larger re-insurance policies. Here, they're packaging these larger policies in a customer-friendly way, and distributing them to a mass audience.

Key Points

Porter's Value Chain is a useful strategic management tool.

It works by breaking an organization's activities down into strategically relevant pieces, so that you can see a fuller picture of the cost drivers and sources of differentiation, and then make changes appropriately. TQ~