VALUE CHAIN ANALYSIS AS A

TOOL FOR STRATEGIC

MANAGEMENT
There are 3 parts of this presentation

1. What is the value chain & value chain analysis?

2. The importance of value chain analysis
3. How to implement value chain analysis
 1. The "value chain analysis method" proposed by Michael Porter, a famous
strategist at Harvard Business School in the United States (as shown below)

上游 下游
upstream downstream
According to Porter, every production and operation activity of an enterprise
is an economic activity that creates value. Then, all the different but
interrelated production and operation activities of an enterprise constitute a
dynamic process of creating value, namely the value chain.

(The link between different value-added activities within the enterprise

is called the value chain)

The value chain divides the production and operation activities of

enterprises into primary activities and secondary activities (main
activities + auxiliary activities).
Value-added activities in production and
management
It divides the activities of increasing value inside and
outside the enterprise into
Primary activities are those that go directly into the
creation of a product or the execution of a service,
including: Inbound logistics, Operations, Outbound
logistics, Marketing and sales, After-sales services.
Secondary activities help primary activities become
more efficient—effectively creating a competitive
advantage—and are broken down into: Technological
development, Procurement, Human resources
management, Infrastructure
Primary activities 

Inbound logistics 内部后勤（进货物流） : Activities related to receiving, warehousing, and

inventory management of source materials and components. (Raw materials are brought in
from the outside)
Operations 生产运营 : Activities related to turning raw materials and components into a
finished product
Outbound logistics 外部后勤（出货物流） : Activities related to distribution, including
packaging, sorting, and shipping. (The finished product is shipped from the inside out)
Marketing and sales 市场销售 : Activities related to the marketing and sale of a product or
service, including promotion, advertising, and pricing strategy
After-sales services 售后服务 : Activities that take place after a sale has been finalized,
including installation, training, quality assurance, repair, and customer service
Secondary activities 

Procurement [prəˈkjʊəmənt] 采购管理 : Activities related to the sourcing of raw materials,

components, equipment, and services
Technological development: Activities related to research and development, including product
design, market research, and process development
Human resources management: Activities related to the recruitment, hiring, training,
development, retention, and compensation of employees
Infrastructure （ related to management activities ） : Activities related to the company’s
overhead and management, including financing and planning
WHAT IS VALUE CHAIN ANALYSIS?
Value chain analysis is a means of evaluating each of the activities in a
company’s value chain to understand where opportunities for
improvement lie.
Conducting a value chain analysis prompts you to consider how each step adds
or subtracts value from your final product or service. This, in turn, can help you
realize some form of competitive advantage, such as:
Cost reduction, by making each activity in the value chain more efficient and,
therefore, less expensive
Product differentiation （产品差异化） , by investing more time and
resources into activities like research and development, design, or marketing that
can help your product stand out
Typically, increasing the performance of one of the four secondary activities can
benefit at least one of the primary activities.
2. THE IMPORTANCE OF CHAIN ANALYSIS
The purpose of the enterprise value chain analysis is to analyze which link in
the operation of the company can improve customer value or reduce
production cost. For any value-adding behavior, the key question is:
(1) whether the cost can be reduced while maintaining the same value
(revenue);
(2) whether the value can be increased while the cost remains unchanged;
(3) Whether the process input can be reduced while keeping the cost income
unchanged;
(4) What is more important is whether the enterprise can realize 1, 2 and 3 at
the same time.
2. THE IMPORTANCE OF CHAIN ANALYSIS
The purpose of the enterprise value chain analysis is to analyze which link in
the operation of the company can improve customer value or reduce
production cost. For any value-adding behavior, the key question is:
(1) whether the cost can be reduced while maintaining the same value
(revenue);
(2) whether the value can be increased while the cost remains unchanged;
(3) Whether the process input can be reduced while keeping the cost income
unchanged;
(4) What is more important is whether the enterprise can realize 1, 2 and 3 at
the same time.
THE IMPORTANCE OF CHAIN ANALYSIS
The framework of the value chain is to break the chain from basic materials
to end users into separate processes to understand cost behaviour and sources
of variance. By analyzing the cost, revenue, and value of each process
system, business units can gain cost differentials and cumulative advantages.
Once a value chain is established, it is very helpful to analyze the value added
by each link of the value chain. The use of value chains is not limited to
enterprises. With the application and popularity of the Internet, the
competition is increasingly fierce, and the trend of combination of value
chain alliance between enterprises is more and more obvious. Enterprises pay
more attention to the construction and development of their core capabilities,
and develop a link in the whole value chain, such as research and
development, production, logistics and other links.
3. Value chain analysis mainly includes the following
three points:

(1) Identify the key activities that support the competitive

advantage of the enterprise. -- Internal single activity, namely
enterprise value activity itself.

Eg: A company focuses on development of research and production after a value

chain analysis, thus helping it to build a competitive advantage.
(2) Identify the links between the various activities within the value chain.
-- Internal relations of enterprises.
This link is manifested as the link between basic activities in the value chain,
between different supporting activities, and between basic activities and
supporting activities.

Eg: There is a connection between human resource management and technology development
among supporting activities. If enterprises attach importance to research and development,
they need to favor research and development in human resource recruitment
(3) Make clear the connection between various value activities in
the value system. - External contacts of the enterprise.
The connection exists not only within the enterprise value chain, but
also in the enterprise value chain and the supplier, channel value chain
and the customer (buyer) value chain (the company and its upstream
and downstream enterprises).

Supplier value chain Sales channel value chain customer (buyer) value
chain

enterprise value chain

Example: Case study question.
In recent years, BYD Auto company has launched a new strategy to extend the
upstream and downstream of the industry. In 2015, BYD Auto acquired
Dongzhou Company, which is specialized in the development, processing and
sales of products for comprehensive utilization of Salt Lake resources, which
integrated the production of auto parts of the auto company.

『 Answer 』 The upstream and downstream of industry reflects the links

between the company and external upstream and downstream enterprises, which
belongs to the (3) point of the value chain analysis and clarifies the links among
various value activities within the value system.
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