Value Chain Analysis

Abstract

Michael Porter (1985) first suggested the concept of value chain to illustrate how value adds along a chain of activities, which leads to an end product or service. The goal of this analysis is to identify activities that are a source of cost or differentiation advantage and to identify those that could yield to the firms/projects competitive advantage, thereby helping to create products or services at a price which the customers are willing to pay for. Porter distinguishes between two sets of activities. Activities that are directly associated with the creation or delivery of a product or service are termed primary activities and support activities are those that are linked to each primary activity that aims to improve its efficiency and effectiveness. This article aims to elaborate on the methodology of Value Chain Analysis, discussing its current and future application along with its benefits and limitations.