An analysis of porters value chain

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To analyse the specific activities through which firms can gain a competitive advantage, it is useful to model the firm as a chain of value creating activities. For this purpose, Porter identified a range of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain.

According to Porter (1985),

" Competitive Advantage arises out of the way firms organise and arrange discrete activities".

Through using the Value Chain, the activities performed by a firm competing in a particular industry can be grouped into categories as shown in the model below:

Upstream Activities Downstream Activities

Porter distinguishes between primary activities and support activities. Primary activities are
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As mentioned, gaining competitive advantage requires that a firm's value chain be managed as a system rather than a collection of separate parts. Reconfiguring the value chain by relocation, reordering or even eliminating certain activities can often lead to a major improvement in competitive position.

Upstream and Downstream

A firm's value chain links to the value chains of the upstream suppliers and downstream buyers. The result is a larger stream of activities known as the value system. The development of a firm specific competitive advantage not only depends on the firms value chain but also on the value system of which the firm is a part. In most industries, it is rather unusual that a single company performs all activities from product design, production of components, and final assembly to delivery to the final user by itself. Most often, organisations are elements of a value system or supply chain. Hence, value chain analysis should cover the whole value system in which the organization operates.

Within the whole value system, there is only a certain value of profit margin available. This is the difference of the final price the customer pays and the sum of all costs incurred with the production and delivery of the product/service. It depends on the structure of the value system, how this margin spreads across the suppliers, producers, distributors, customers, and other elements of the value system. Each member of the system will use its
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