The Internet Encyclopedia (Volume 3)

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526 VALUECHAINANALYSIS

Procurement

(Purchasing of inputs)

Human Resource Management

(Recruiting, hiring, training, development, and compensation)

Firm Infrastructure

(General management, planning, finance, accounting, quality control, management, etc.)

Technology Development

(R&D and other technology needed to support the firm,s activities)

Operations

Transforms

inputs into final

form.

Margin

Inbound

Logistics

Receiving, storing,

and disseminating

product inputs.

Outbound

Logistics

Physical

distribution of

outputs.

Marketing

& Sales

Provides

distribution

channel and

supporting for

buyers.

Service

Enhances

value of

product through

support.

Primary

Activities

Support

Activities

Figure 1: Porter’s generic value chain for a firm.

that communication is the key to developing linkages to

enhance value within the broader spectrum of suppliers’,

firms’, and customers’ value chain activities. A single or-

der from marketing could create information for man-

ufacturing, procurement, accounting, and service. Infor-

mation could be passed backward to suppliers and for-

ward to customers to inform them of expected shipping

time.

Figure 1 outlines Porter’s generic value chain. This in-

cludes a breakdown of primary activities into inbound

logistics, operations, outbound logistics, marketing and

sales, and service, supported by procurement, technol-

ogy development, the firm’s infrastructure, and human

resource management. The value chain should deliver a

margin, or a difference between the potential value deliv-

ered and the cost of creating that value.

In the mid-eighties firms could use information tech-

nology to enhance the value chain and gain competitive

advantages. The early information revolution influenced

the competitive environment in three ways: it changed the

industry structure altering the rules of competition, it cre-

ated competitive advantages by giving companies a means

of outperforming competitors, and it spawned new busi-

nesses. Improvements in information technology would

lead to increased power of buyers and increased rivalry

within industries (Porter and Millar, 1985). The Internet

and associated technologies such as wireless communica-

tion has increased the pace of the communication revolu-

tion. Porter (2001) added to his strategy and value chain

frameworks in light of the growth of the Internet and other

technology based applications. The growth of informa-

tion technology has opened a new window on the value

creation process.

ADDITIONAL PERSPECTIVES ON THE

VALUE CHAIN CONCEPT

Cartwright and Oliver (2000) proposed a value web for

firms whose products have high information content,

service firms, and firms that operated in the electronic

marketplace. This perspective considers value creation as

taking place when several organizations share common

technologies or intellectual capital to serve markets. A

value web links the horizontal and vertical relationships

that exist in competitive systems and recognizes that

alliances can be virtual and arrangements temporary.

Rayport and Soviokla (1995) increased the importance

of information within a value chain by describing a virtual

value chain. In this view, a firm captures information

along its entire value chain and then uses that information

to enhance value and improve customer relationships.

The firm treats information, such as database informa-

tion, as a product that can be sold or used to enhance

value.

E-COMMERCE VALUE CHAIN

This encyclopedia outlines a number of e-commerce tools

and techniques that offer a new perspective to the value

chain. The e-commerce value chain views information

technology as part of a business’s overall value chain that

adds to the competitive advantages of a business (Carr,

2001; Fingar & Aronica, 2001; Rayport & Soviokla, 1995).

Porter (2001) has noted that the Internet affects the value

creation process in a number of ways. First, the Inter-

net has made increased operational efficiency possible.

Internet protocol (IP) standards allow flexible and uni-

fied technology systems that can be used across applica-

tions and by a firm’s multiple constituencies. IP standards

link the supply chain (through extranets), foster internal

communication (through intranets), and communicate

with external constituencies (through the Internet). One

study found that on average 61% of U.S. organizations

used some Internet-based business solution. This has re-

sulted in a cumulative cost savings from 1998 to 2001 of

$155 billion and is expected to produce an additional

$373 billion in cost savings by 2005. In Porter’s view, oper-

ational efficiency does not necessarily allow for the devel-

opment of competitive advantages. In fact, when all firms

use the same technology to obtain the same efficiencies,

they are forced to compete on price, lowering the overall

profitability in the industry.

The assessment of a firm’s e-commerce value chain

requires an analysis of the competitive forces within an

e-commerce environment, specification of the functional

business model to be used (how functions are interlinked),

and the identification of the value activities that will al-

low the e-commerce value chain to be structured for a

competitive advantage. This requires an understanding of