Which of the following are among the primary activities of a firms value chains?

Every executive in the world spends part of their day wondering how to make their products and services stand out while still turning a profit. That’s the dream of all businesses: create great products and earn a lot of revenue.

Though it’s easy to articulate, it’s not easy to accomplish. So what’s the secret ingredient—the difference between the companies that rise to the top and those that crash and burn? Companies succeed or fail for various reasons, but one of the most powerful reasons is their competitive edge.

Value chain is a model that helps companies determine their competitive edge and then refine their business practices so they’re operating with maximum efficiency and the largest possible profit margins.

If you’re wondering how all that gets accomplished, keep reading. In this piece, we cover:

• What is a value chain?
• Components of Porter’s value chain
• Benefits of value chains
• How to create a value chain model
• Value chain examples

What is a value chain?

Value chain is a business model used to examine all company activities involved in taking a product or service from idea to sellable item. Ideally, companies can use the value chain model to strengthen their point of view and widen their profit margin—more efficiency, fewer costs.

Generally speaking, there are two ways to improve the “value” in your value chain:

1. Increase the social value of your company and products via product quality and brand credibility so consumers will purchase more.
2. Decrease the cost of your product and the cost of production for that product so profit margins are wider and customers will purchase more.

By either improving value or decreasing costs based on your company’s value chain, you create a competitive advantage in the market and hone your sales strategies.

Components of Porter’s value chain

The industry’s current understanding and model of the value chain comes from Michael Porter’s 1985 book, Competitive Advantage. Considering how quickly trends move in sales, the fact that we still use this model speaks to how well it works and how much it’s benefitted companies over the years. Porter breaks value chain analysis [VCA] into five primary activities and four secondary activities that together create value greater than the cost of performing those activities individually.

That premise makes sense: profit is created when the overall cost of producing your product is less than the amount you sell that product for. However, many companies fail to diligently track every aspect of product creation and therefore miss opportunities to increase profit margins.

The VCA chart is broken into two sections: primary activities and secondary [or support] activities. Primary activities focus on the manufacturing of goods and services while secondary activities back up primary activities.

Primary activities

Primary activities include:

• Inbound logistics: Availability of raw materials, warehousing, and distribution [essentially anything in your supply chain]
• Operations: Creating products from raw materials
• Outbound logistics: Delivery of products to customers, including warehouse, transportation, and distribution
• Marketing and sales: All advertising and sales interactions and activities
• Service: All forms of customer support interaction and brand credibility

Secondary activities

Secondary activities include:

• Infrastructure: Any administrative, finance, management, planning, or legal operations needed to support primary activities
• Technology development: Any technological improvements made to existing machinery, hardware, or software in the name of supporting primary activities
• Human resource management: Hiring and placing workers
• Procurement: All purchases related to buying raw materials or any fixed assets [for example, vendor fees and selection]

The key to a successful value chain analysis is figuring out which processes could be run more efficiently and implementing fixes in a timely fashion.

Benefits of value chains

The value chain framework enables your company to understand and analyze where cost efficiency is good or poor within the organization. When you look at your company’s value chain analytically, you can:

• Back up decisions regarding different business activities
• Pinpoint areas of ineffectiveness and correct them
• Understand the links and responsibilities between different aspects of your business
• Optimize efficiency while lowering expenses
• Create a cost advantage over competitors
• Understand exactly where your business is succeeding

It might seem like a lot of work to review every single company activity to determine competitive advantage, but that insight makes a difference. Just as KPIs and reporting inform your sales decisions, a comprehensive value chain analysis informs decisions across your entire business.

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