Strategy Library

Value chain analysis

When analyzing a value chain, all the functions or activities involved are examined with regard to their value contribution to the development of the sales product.

Description of value chain analysis

When creating services or products in a company, a variety of specialist functions are involved. The production of the services usually begins with the delivery of the raw materials required for the end product, continues in the various production departments and ends with the delivery of the finished product to the customer. In each of these steps, also referred to as primary activities, the product is given a corresponding added value.

The concatenation of these primary activities leads to a chain-like representation, the so-called value chain. Michael E. Porter, who first published this value chain model in 1985, put it this way:

"Every business is a collection of activities that design, manufacture, distribute, deliver, and support its product, all of which can be done in a value chain."

In addition to the primary activities mentioned above, there are also supportive activities in the company, through which the actual value creation becomes possible. These include all departments that create and maintain the corporate infrastructure, such as the management or even the IT department.

What is the goal of a value chain analysis?

When analyzing a value chain, all the functions or activities involved are examined with regard to their value contribution to the development of the sales product. The aim is to differentiate between value-adding and non-value-adding activities and then derive appropriate measures to reduce the possible waste of available resources and thus optimize the cost structure of the product in terms of competitiveness.

How do you do a value chain analysis?

When performing a value chain analysis, each individual activity is gradually captured and placed in the actual position of the existing value chain. The decisive factor here is to record every participating activity or specialist function. Once the value chain is created in its structure, it goes to the analysis of the individual value contributions. For this purpose, the assigned costs are to be determined for each activity and compared to the result of the respective activity. The question of whether the activity contributes value or can be eliminated, since its function has no influence on the end product or is not perceived by the customer, provides decisive indications of possible optimization potential.

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