For your business to grow, you need to provide your customers with value or risk losing business to competitors.
How do you know if your product or service is providing customer value? It’s not always easy to identify, especially if you’re operating in a saturated market where customers have a lot of choice.
Fortunately, there is a solution to this problem: value chain analysis.
Analyzing your value chain will help you identify customer value, gain a competitive advantage and increase your profit margin.
In this article, we’ll dive into exactly what a value chain is, how analyzing it can help your business and how to perform a value chain analysis in five steps.
What is a value chain?
A value chain outlines all the activities it takes to create your final product or service from start to finish. This includes customer research, sourcing materials, production and so on.
It provides business leaders and managers with a clear picture of every step in your workflow. As a result, they can clearly identify areas of improvement, including how to gain a competitive advantage and increase profits.
The term was coined in 1985 by Michael E. Porter, a Harvard Business School professor. His book Competitive Advantage introduced the basic value chain concept, outlining how businesses can identify primary and supporting activities to create value for their customers.
Porter’s value chain argument was that if the value a company offered its customers outweighed the cost of producing it, the result would be a bigger profit. Here’s an example of that calculation:
What is value chain analysis?
Value chain analysis is the process of evaluating the activities in your company’s value chain. The goal is to review your processes and practices to find the