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Core Marketing Concepts Refresher: The Value Chain

by Sally Wood on June 7, 2013

value

Are you one of those people that have been lumped with marketing duties (even though you are a bona-fide IT nerd)? Or, perhaps you finished your marketing degree way back when Twitter was something only birds could do. Whatever the case may be, we all need to brush-up on our book learning from time-to-time. Believe it or not, some of this stuffy theoretical jargon can help guide day-to-day hands-on marketing tasks. So (for your reading pleasure), today we bring you the first instalment of a dummies guide to core marketing concepts: the Value Chain.

The Value Chain

Michael Porter (a leading professor at Harvard Business School, particularly in the area of company strategy) is the main proponent of Value Chain concept. The objective of the Value Chain concept is to find ways to create more value for your customer. According to Porter’s model, a company is simply a synthesis of activities performed to design, produce, market, deliver and support its product(s). I bet you’re thinking that sounds fairly obvious, aren’t you? Told you. But wait, there’s more.

The Value Chain identifies nine strategically relevant activities that create value or cost for a company. There are five primary activities and four support activities:

  • Primary activities: inbound logistics; operations or converting materials into final products, such as manufacturing; outbound logistics or shipping of final products; marketing and sales; and service.
  • Support activities: procurement, technology development, human resources and general infrastructure like management and finance and legal departments.

To create more value for customers (and thereby increase sales and profits) companies need to analyse its costs and performance in each of the value-creating activities (both primary and support) outlined above and find ways to improve each area.

There is a multitude of ways to do this. Unfortunately, we can’t give you a one-size-fits-all outline of ways to improve your value-creating actives. Improvements need to be tailor-made to suit your company, your industry of operation, your brand.

What we can do is provide some hints on where to start. First of all, you should be looking at ways to streamline process, improve efficiencies and reduce expenditure. So, start with some competitor analysis. Estimate what the costs of your competitors are and benchmark against them. Are you spending too much on manufacturing and not enough on R&D? If so, make a change. Otherwise, your competitors will be releasing brand new products and you’ll be left for dead.

Study the best-in-class practices of the world’ best companies. Often, there might be no need to reinvent the wheel. You might be able to use a pick-n-mix approach to your value-creating activity improvement; simply implement the best parts of other company’s programs (without completely ripping-off other people’s intellectual property – we don’t want any law suits on our hands here).

It is also important to keep in mind that a company’s success depends not only on how well each department performs, but also on how well the company coordinates departmental activities to conduct core business processes. Think about the following core processes. How many different departments are involved in each?

In the new-offering realisation process (which includes researching, developing and launching new products quickly within budget), the R&D department will be heavily involved, as will manufacturing, warehousing, logistics, marketing and finance and sales and human resources and legal and IT. In the customer acquisition process (defining new target markets and prospecting for companies), the marketing, finance and sales teams will need to work together. In the fulfilment management process (receiving and approving orders, shipping goods on time and collecting payment), the manufacturing, procurement, logistics and finance teams will be heavily involved.

A company needs to be a well-oiled machine, with all departments working together to create value for customers, thereby increasing sales and profit.

Marketing.com.au would like to thank Sally for sharing with us Part 1 of this great series of Core Marketing Concept Refreshers. Stay tuned for Part 2!

 

 

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