Michael Porters ValueChain

 

Developed in 1985 by Michael E. Porter in Competitive Advantage Highlights cost advantages and distinctive capabilities capabilities--the value processes But note that there is no one template template.

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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Value Chain and the QCT Triangle



 

VC allows alignment of processes with customers. This generates a quality advantage. VC focuses cost management efforts. VC provides for efficient processes which improves the timeliness of operations.

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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Value Chain Benefits



Identifies value processes Identifies areas for cost improvement

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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from Michael E. Porters Competitive Advantage

SUPPORT ACTIVITIES Firm Infrastructure (General Management) Human Resource Management Technology Development Procurement Inbound Logistics Outbound Logistics Sales & Marketing Service and Support

Value Chain Model

Ops.

PRIMARY ACTIVITIES STRATEGIC COST MANAGEMENT - BA122B Spring 2009 4-4

Value Chain Elements

  

Customer value added Margin orientation Primary activities

    

Support Activities


Inbound logistics Operations Outbound logistics Sales and marketing Service and support

 

Human resources (general and admin.) Tech. development Procurement

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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Goal of Value Chain

  

Driven by customer perceptions Increase margins Focus on value processess

 

Distinctive capabilities Cost advantages Southwest Airlines Intel Corporation

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Some examples
 

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

Value Chain Analysis

 

Document the activities Understand the cost and margins at each step.


Use Activity Based Costing Look for core competencies Note that external values drive cost advantages

Map the value chain to the industry value chain



Map the cost structure



STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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Distribute a summary of the value chain model. Create functional process lists lists. Transfer lists to color-coded labels labels. Pin the process on a large VC diagram. Identify appropriate processes as:
 

Discovering Your Own Value Processes

$ (cost advantage) CC (core competency)

STRATEGIC COST MANAGEMENT - BA122B Spring 2009

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Using the Value Chain

   

Helps you to stay out of the No Profit Zone Presents opportunities for integration Aligns spending with value processes Provides for reconfiguration of the value chain
   

outsourcing off-shoring co-location with customers or suppliers redesign for efficiency

Involves chain partners: customers & suppliers

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STRATEGIC COST MANAGEMENT - BA122B Spring 2009

Value Chain and the TBC Triangle



Technical:
 

 

Increases knowledge of no profit zones Increases knowledge of forward and/or backward integration opportunities Identifies value processes Identifies win-win alliance opportunities

Behavioral:
 

Focus shifts to the customer Focus shifts from conflict to partnering with customers & suppliers

Cultural
 

Creates externally focused mindset Generates information sharing environment with respect for confidentiality
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STRATEGIC COST MANAGEMENT - BA122B Spring 2009