Value chain analysis is a description of / an overview of the sub-activities that help create product value in relation to the product price. The best known model is Michael Porter's value chain model.

We all know the saying; "you are no stronger than the weakest link in the chain". The analogy can be transferred to Porter's value chain analysis. In Porter's value chain analysis, there are nine different activities that paint an overall picture of your business. The activities are divided into support activities and primary activities. Together, they form a chain that brings value to the customer. In other words, when you examine each of the nine activities, you get an overview of your company's competitiveness. And as with the saying, it is important to find the weakest link(s) so that the link can be made even stronger and competitiveness thereby improved.

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Support activities

These activities are not in direct contact with the company's product, but are activities that support the primary activities. These are activities that ensure flow and that things go smoothly – that is, a kind of service body for the primary activities.

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The company's infrastructure – here we describe the organizational structure of the company with financial systems, planning systems, IT systems, etc.m. and the general operation throughout the company.

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Human Resources &HR – here is described how the company develops, motivates, educates and retains the employees who contribute to value creation. It therefore covers all the activities that support this.

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Product and technological development as well as research &development – here we describe the composition of established and new products to ensure high efficiency, quality in production and innovation of products. It is also important to relate to how the company is proactive in relation to technological development, so that the company always has an efficient production facility.

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Purchasing function/supplies – here you will describe the activities related to procurement for the company (e.g. raw material, services, machinery, premises, buildings and furniture) and choice of suppliers, as well as e.g. framework agreements with the selected suppliers.

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Primary activities

These activities are directly related to the company's product. These are the links that the product has to go through before the product is out by the customer who then experiences the value with the product.

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Inbound Logistics – this describes purchasing and inventory management activities as well as ordering activities, receipt and control activities related to the product that the company sells.

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Produktion – this describes the processes and procedures that transform raw materials into finished goods. This could include planning the number of products, series sizes, designing and developing the product.

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Outbound warehouse management – This describes how to handle the finished items. This means from warehouse management, customer ordering, packing and distribution of the goods.

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Marketing & Sales – here they describe the activities that should make the customer want to buy from you. These include sales processes, promotions, sales materials, advertisements, ads and communication.

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After-sales service – here the activities that are carried out after the sale to get the customer full value – and are happy to buy again. This could include installation, guidance, warranty, complaint, repairs and customer service.

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Pitfall

In Denmark we have a fixer culture which in many respects is good. But unfortunately, I have experienced a number of companies that initiate large and expensive value chain analyses in order to subsequently lean-optimize. Both are good if this is done when the strategy is laid out and thus a direction is laid down for the development of the company. If this direction is not determined, you risk lean-optimizing in a direction that may not be at all the way the company should be developed. Therefore, a value chain analysis must not only be prepared so that you can then tick the check mark by now it is completed and you can thus lean-optimize. Together with your other strategy material, it must be translated into concrete actions that may be lean optimization.

An easy and simple approach is to use MakeMyStrategy™ as structures and summarize all your work into one comprehensive and coordinated action plan.

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Hole in one

Gert Ekberg Westergaard Jensen

Managing Director and Partner

Ason A/S

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