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Value Chain AnalysisValue Chain Analysis
Brad Kleindl,Missouri Southern State University–JoplinIntroduction 525
Basics of the Value Chain Framework 525
Additional Perspectives on the Value Chain
Concept 526
E-commerce Value Chain 526
Five-Forces Concept 527
Business Models 528
E-commerce Value Chain Strategies 529
Value Chain Development 530Industry Examples of Virtual Value Chains 531
PC Industry 531
E-marketplaces 534
Small and Medium-Sized Enterprises (SMEs) 534
Conclusion 535
Glossary 535
Cross References 535
References 535
Further Reading 536INTRODUCTION
Michael Porter developed the value chain strategic frame-
work in his 1985 bookCompetitive Advantage: Creating and
Sustaining Superior Performance. Porter recognized that
firms do not consist of isolated sets of functions; instead,
they are chains of value-creating activities that gain com-
petitive advantage by delivering value to their customers
(Porter, 1985). These activities are tied together through
a communication process that extends from a firm back-
ward to suppliers and forward to customers. Porter’s orig-
inal work was influenced by the communication technol-
ogy of the mid-1980s including computing, telemarketing,
EDI systems, and databases.
As the 1980s moved into the Internet era of the early
1990s and then to the e-commerce era of the later 1990s,
a number of new information technology (IT) tools and
techniques emerged. These go beyond the communica-
tion revolution of the Internet and include new business
practices that are reshaping where firms create value and
how functions are linked together in business models
(Chabrow, 2000). The tools and techniques outlined in
this encyclopedia are becoming the weapons of choice in
restructuring value chains to gain competitive advantage.
These new value strategies are also fostering the restruc-
turing of business models as businesses learn how to
organize their value chain components to provide value
and develop and maintain long-term relationships with
customers.
Firms such as Amazon.com, Dell, eBay, and others have
pioneered online retail sales models that link technology
functions from a Web-based point of sale backward to in-
ventory and suppliers and forward to after-sales service
and support. Covisint has been developed and supported
by the automotive industry to bring efficiencies to the sup-
ply chain. These firms have identified business models
and activities that deliver value to their customers. This
chapter will outline how the use of tools and techniquesoutlined in this encyclopedia relates to Porter’s value
chain framework, indicate how these activities are linked
in business models, and explain how these concepts relate
to an e-commerce value chain.BASICS OF THE VALUE CHAIN
FRAMEWORK
InCompetitive AdvantagePorter analyzes how firms gain
competitive advantage. A firm’s profitability is determined
by the industry structure in which it operates and the sus-
tainable competitive advantages a firm can obtain. In the
value chain analysis process, Porter disaggregates the ac-
tivities of buyers, suppliers, and the firm into a chain of
interrelated value-creating activities. A firm’s value chain
is seen as consisting of nine generic interlinked activities
including theprimary activitiesof inbound logistics, oper-
ations, outbound logistics, marketing and sales, and ser-
vice, and thesupport activitiesof procurement, technology
development (including R&D), human resource manage-
ment, and infrastructure (systems for planning, finance,
quality control, information management, etc.).
Each of these broad activities of a business, such as
manufacturing, marketing, and management, is subdi-
vided into a set of interrelated activities. Each industry
is likely to have its own unique value chain structure, and
every firm within an industry may decide to structure its
value chain differently to gain distinctive advantages. For
example, firms may decide to outsource activities where
they cannot provide value efficiently.
Firms can use the value chain framework to gain com-
petitive advantages that come from performing value ac-
tivities at a lower cost or to differentiate the value chain
in a way that allows higher prices. A firm can evaluate
competitors’ value chains to determine relative strengths
and weaknesses. It can also look for ways to strengthen
linkages within its current value chain. Porter recognized525