Explain in detail Porter’s Generic Value Chain with the help of a diagram.
Michael Porter gave the value chain analysis concept in his 1985 book ‘The Competitive Advantage’. He suggested that activities within an organisation add value to the service and products that the organisation produces and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage.
If these activities are run efficiently, the value obtained exceed the costs of running them and customers return to the organisation and transact freely and willingly.
He suggested that the organisation is split into ‘primary activities’ and ‘support activities’.
- Primary activities include:
(a)Inbound logistics: Here, goods are obtained from the suppliers and are used for producing the end product.
(b)Operations: Here, raw materials and goods are manufactured into the final product.
(c)Outbound logistics: Distribution of finished goods is known as outbound logistics.
(d)Marketing and sales: Here, marketing mix is used to form an effective strategy to the target group through the promotional mix.
(e) Services: After the product/service has been sold, sales training, guarantees and warranties etc. play its part.
- Support activities: These help the primary activities achieve competitive advantage. They include:
(a) Procurement: It is to obtain the best possible quality available in the market for their budget.
(b) Technological development: Technology can be used to obtain a competitive advantage. Technology can be used to reduce cost and thus adding value, research and development to develop new products on the internet so that customers can have all time access to the firm.
(c) Human resource management: Here, the organisation will have to recruit, train and develop the right people for the organisation to be successful. Staff will have to be motivated and paid the ‘market rate’, if they are to stay with the organisation and add value.
(d) Firm infrastructure: Organisation needs to ensure that their finances, legal structure and management structure work efficiently and help drive the organisation forward.