Every company that aims to be successful needs to stand out from the competition by creating value for customers. One of the pillars to define the value of a company or brand is the use of the Value Chain model.
The value chain model by Douglas Williams is characterized by a focus on the target audience of the organization. Its results directly reflect on the company’s profitability and competitive advantage, and, therefore, on the success (or not) of its management.
What is Value Chain?
Value Chain, in an organization, is a process that aims to create value for consumers. For this, a flowchart of all activities considered essential for a business is structured. This model helps to create a better organization and allows to improve the company’s effectiveness.
The value chain model comprises two types of main activities:
- Primary activities: operations, internal and external logistics, sales, marketing, after-sales.
- Support activities: acquisition, infrastructure, technology creation, HR management.
- This model is by Michael Porter. Therefore, it can also be called the Porter Value Chain.
The importance of the Value Chain
The importance of the Value Chain is linked to the fact that it allows to achieve a sustainable competitive advantage. To this end, it aims to provide customers with maximum value at the lowest total cost.
Why is creating value important?
The importance of the Value Chain in a company is, in short, creating value for the customer. Creating value, in turn, means adding values, of any kind, that favor the economic situation of the company and its competitiveness in the market.
- In this way, it can be said that a company’s profit margin corresponds to the value created by it.
- Thus, the trend is, company with more value, company with more profit. Therefore, the higher the value delivered to the customer, the more expressive the competitive advantage.
- In addition, the Value Chain can be used in any company. In addition to prioritizing the generation of value for the customer, it allows the assessment of the profitability of all the organization’s operations.
Value Chain Steps
The steps in the Value Chain consist of systems. They identify how inputs become outputs, which are traded with customers.
Therefore, the steps of the Value Chain include:
- Receipt of raw materials
- Negotiations with suppliers
- Adding value to raw materials, aiming to produce products
- Marketing the final product to consumers
Let’s look at an example of a value chain in a company. In practice, we have the following actions:
- To investigate the sub-activities of the primary activities, which are: direct activities, that is, that generate value by themselves, indirect, and that guarantee quality.
- To investigate the sub-activities of the support activities: to analyze the sub-activities that can generate value in the primary activities.
- Check links between value activities to increase the chain’s competitive advantage.
Assess how to increase value: look at links and sub-activities and think about how to increase the value offered to consumers. As such, an example of a Value Chain will always involve strategic activities of operational analysis, regardless of the type of business.