GSM Lecture 4

Management > Global Strategic Management > Internal environment > Resources and capabilities > Distinctive capabilities > Value chain

Value chain

A major objective for firms is to add value to their activities so that their outputs exceed the value of the inputted resources. The success of a competitive advantage depends on whether a firm can organise resources in such a way as to add value that is better than the firm's competitors.

Value can be added in two ways:

1. By producing at a lower cost than competitors
2. By producing products of greater perceived value than those of competitors

Value added is when revenue - total costs = profit

Porter (1985) created a Value chain framework, in which primary and support activities are evaluated.

• Primary activities are those which add directly to the production and distribution of the product
• Support activities aid the primary activities, but do not directly add value.

Value is determined by these activities and the linkages between them.

Value chain illustrated

Value system

System configurations

More configurations

Other considerations

Corporate culture and structure

Performance analysis