What is the value chain, and how does it apply to product-oriented companies?
The value chain refers to all the activities a company carries out to design, produce, market, and distribute a product, with each activity adding a portion of the value perceived by the customer. Formalized by Michael Porter in 1985, this model is used to identify where value is created and where competitive advantages lie. For product-oriented companies, quality and the flow of product information directly determine the performance of this chain.
What is the value chain?
The value chain is a representation of a company’s internal activities, broken down into successive links that transform resources into a product sold at a profit. Each link incurs costs and generates value: the profit margin corresponds to the difference between the total value perceived by the customer and the cumulative cost of all activities.
The concept was introduced by Michael Porter in *Competitive Advantage: Creating and Sustaining Superior Performance*. It serves two purposes: it sheds light on an organization’s cost structure and helps identify sources of differentiation from competitors. A company builds a competitive advantage when it performs one or more activities at a lower cost or with higher quality than the market average.
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