Topic No.

01, 02 & 03
Value chain
History of value chain –

The value chain concept was first described in 1985 by Harvard Business School professor
Michael Porter, in his book Competitive Advantage: Creating and Sustaining Superior
Performance.

Value
Definition - the amount of money that something is worth

What is Value with example-

Value is the worth in goods, services or money of an object or person. An example of value is
the amount given by an appraiser after appraising a house.
An example of value is how much a consultant's input is worth to a committee.
Value chain
A value chain is a progression of activities that a firm operating in a specific industry performs
in order to deliver a valuable product (i.e., good and/or service) to the end customer.

Meaning of Value chain –

A value chain is a series of consecutive steps that go into the creation of a finished product,
from its initial design to its arrival at a customer's door. The chain identifies each step in the
process at which value is added, including the sourcing, manufacturing, and marketing stages of
its production.

Importance of value chain:

1) The value chain gives companies a competitive advantage in the industry, while the
supply chain leads to overall customer satisfaction.
1) The value chain concept separates useful activities (which allow the company as a
whole to gain competitive advantage) from the wasteful activities (which hinder the
company from getting a lead in the market).
2) Focusing on the value-creating activities could give the company many advantages.
3) Value chains help increase a business's efficiency so the business can deliver the most
value for the least possible cost.
4) The end goal of a value chain is to create a competitive advantage for a company by
increasing productivity while keeping costs reasonable.

5) Support decisions for various business activities.

6) Diagnose points of ineffectiveness for corrective action.
7) Understand linkages and dependencies between different activities and areas in the
business.
8) Optimize activities to maximize output and minimize organizational expenses.
 9) Potentially create a cost advantage over competitors.
10) Understand core competencies and areas of improvement.
For example, the ability to charge higher prices; lower cost of manufacture; better brand
image, faster response to threats or opportunities.

Scope of Value Chain –

1) A value chain helps segregate the strategically relevant activities of a firm to
understand the cost behavior of each activity.
2) Strategic relevance could be in terms of the potential impact on the execution of cost
leadership or differentiation strategies.
3) A company conducts a value-chain analysis by evaluating the detailed procedures
involved in each step of its business.
4) The purpose of a value-chain analysis is to increase production efficiency so that a
company can deliver maximum value for the least possible cost.
5) A value chain helps segregate the strategically relevant activities of a firm to
understand the cost behavior of each activity.
6) Strategic relevance could be in terms of the potential impact on the execution of cost
leadership or differentiation strategies.

Characteristics of value chain –

1) The chain includes all of a product's stages of development, from its design, to its
sourced raw materials and intermediate inputs, its marketing, its distribution, and its
support to the final consumer.
2) The first is its flow, also called its input-output structure.
3) The chain includes all of a product’s stages of development, from its design, to its
sourced raw materials and intermediate inputs, its marketing, its distribution, and its
support to the final consumer.
4) A value chain has another, less visible structure.

5) The value chain concept has several dimensions.

5) This is made up of the flow of knowledge and expertise necessary for the physical
input-output structure to function.
6) The second dimension of a value chain has to do with its geographic spread.
7) The third dimension of the value chain is the control that different actors can
exert over the activities making up the chain.