The Value Chain
To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:
Porter's Generic Value Chain
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Firm Infrastructure
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HR Management
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Technology Development
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Procurement
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The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin.
The primary value chain activities are:
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Inbound Logistics: the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required.
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Operations: the processes of transforming inputs into finis
