The Value Chain - A Framework for Business Improvement

At Bua Consulting we use Michael Porter's Value Chain* as the underlying model for many of our strategic IT consulting projects.

The purpose of Porter’s value chain model is to analyse the internal operations of a corporation in order to increase its efficiency, effectiveness, and competitiveness. It does this by identifying the value that each part of the business adds to the final output and thus to the profit. 

Porter identified two types of activities in an organisation, primary activities and supporting activities. The primary activities are the main activities that add additional value to the output of the organisation. The supporting activities support the primary activities and include functions such as admin, finance, procurement and the IT department. The diagram below details the value chain in a typical manufacturing organisation.

The value chain model allows us to conduct a company-wide analysis by systematically evaluating a company’s key processes and core competencies and the IT structures that support them. We can determine the strengths and weaknesses within each activity and the value added by each activity.

In simple terms, the activities that add most value are those that might provide strategic advantage, and those activities that contain the majority of costs are where a company may focus on cost reduction. Technology is a key factor in enabling the unlocking strategic advantages and reducing costs.

Many companies have used the Value Chain to achieve major improvements with German Shopping Giant Aldi perhaps being the most famous advocate.

When we consider Porter's model with regard to IT we can see it fits well with IT implementation. Generally an IT system will either:

• Provide  reports  and information on a business. Thus it must be able to measure and report on each distinct activity of the business including its contribution to profit and the costs each activity incurs. OR
• Either increase productivity or cut costs by streamlining a particular activity or process in a business. We can use Porter's value chain to identify the systems most suitable for each organisation.OR
• Improve collaboration and communication between employees, partners and customers.

For more information on how we have used the value chain with clients read our case study or to discuss how Bua Consulting can assist your business contact us today. Not ready for Porter's Value Chain? Try our Business Technology Diagnostic instead.

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*The value chain, also known as value chain analysis, was described by Michael Porter in his 1985 best-seller, "Competitive Advantage: Creating and Sustaining Superior Performance."