Value Chain Analysis: Increasing Value

Desk with laptop, graphs and notebook

You’re a business owner and want to improve your current business model–in other words, increase revenue and reduce costs. The Value Chain Analysis is one of the best ways to renew your model because your profit margin is identified from the beginning of your process to the end of it.

Value Chain Analysis 

Value Chain Analysis is a powerful analytical tool that allows businesses to understand their internal costs and find a competitive advantage. There are two value-adding activities: support and primary activities. Primary activities are when the value is added to the production process. Support activities do not add value directly, instead of providing infrastructure and support to the flow indirectly. 

Identify the Beginning: Suppliers Supplies 

Dr. Michael E. Porter of Harvard Business School introduced the Value Chain Analysis. It introduces the beginning of value by identifying where your supplies start.

Identify the Processes That Bring Value: Suppliers, Firm, and Distributors

As the process of your business moves along, your company adds value to what you deliver to the customer. Either a product or service. As your suppliers go through their operations to create a  product that you sell, they add value to the customers.

When your product reaches your firm, organize the product so that clients can receive the value that they are looking for. For instance, you’ll want a very organized warehouse that makes it easy to track the products that the customer wants. In addition, the more organized, and the quicker the warehouse can send out an order, the greater value your business gives to the customer.

Distributors handle the sales and marketing of your product. They add value when the customer has an easy and pleasant experience with your product. Marketing and sales identify your customers and approach them to communicate what the product solves. They add value to the customer by targeting the relative market segment. By delivering the product to the customers who would gain the most value from it. Does your distributor target the most relative market segment? Do they effectively use marketing to present your product to the right people at the right place and at the right price?

Identify the Value That Customers Actually Receive 

The last part of the Value Chain analysis is crucial. In other words, It helps you identify the differences between the value that your business put in and the value that the customer took out. In this part, you can identify where the disconnect is and adjust your business model accordingly. What is the value given to the customer through your product? From the Value Chain Analysis, did they receive every bit of value that was put in? If not, what value was wasted? Is there a way to eliminate the value wasted? What else are the customers looking for? How did they feel when using your product?  

Value Chain Analysis Margin 

The entire Value Chain analysis points out what your company puts in and what the clients get out. Therefore, If the value exceeds customer expectations, they will be more willing to pay the price, and your margin rises. If the value does not meet expectations, then you can change your business model to increase margin. Always remember, UPOD: under-promise, over-deliver.

Below you can download a FREE example of a generic value chain, originally developed by M. Porter in 1985.

By: Geoffrey Lighten