With such a large number of companies and businesses operating globally today, competition has become much more fierce and challenging than at any other time. However, this is not an obstacle for not starting and building new businesses that seek a place within the consumption needs of the world population.
In this regard, one of the most important concepts that must be understood to successfully complete any business project is what is known as the Value Chain.
What is the value chain?
The value chain is a strategic tool used to study the various activities carried out by a given business organization , with the aim of identifying its sources of competitive advantage and thus generating a certain value for the final product.
Thus, we can see that a company's value chain is comprised of all its value-generating activities , as well as the margins these activities contribute. In short, the value chain consists of the strategic activities through which a business seeks to increase its value and competitive advantage.
How does the value chain operate within the operation of a company?
The value generated as a result of business activities works as follows : in the case of manufacturing industries, they generate value when they transform raw materials into products needed by the population.
Of course, the added value is already found in the final manufactured product, since unprocessed raw materials do not serve people for their daily consumption.
For this reason, a retail retail company offers a large number of products that contain a high added value as they are already processed, a value that increases by providing all these items to the customer in one place, a space that has been provided by the establishment of sale so that people can acquire everything they need, which entails an additional cost that is also an added value to the final product, and for which the client will end up paying in order to continue obtaining their basic consumption needs, through articles already processed and in a single sale site.
How is the competitive advantage of one company generated over another?
A company's competitive advantage over another arises when it manages to increase its profit margin , which can be achieved either by lowering costs or increasing sales. Profit margin is the difference between the total value generated and the collective cost of performing and carrying out value-generating activities for a business organization.
Value activities
To fulfill its function, the value chain relies on fundamental support activities, which can be divided into two main parts: primary activities and secondary activities. Below, we will examine the main characteristics of each of these strategic methods that enhance competitive advantage and, consequently, a company's added value.
Primary activities
Primary activities consist of the methods used to physically create products, as well as their sales process and the after-sales service that accompanies this operation . It's worth noting that these activities can be further divided into sub-activities. Within the value chain model, five main types of primary activities can be clearly distinguished, which are presented below:
- Internal logistics: It is the set of operations for the reception, storage and distribution of raw materials, which is very important to ensure that no setbacks or eventualities of any kind are generated that affect the production or distribution line of any commercial entity.
- Operations: Once the required raw materials are available, this activity refers to the processing capacity of these elements in order to transform them into the final product. Therefore, it is a fundamental step to ensure the production that the commercial entity will have.
- External logistics: If internal logistics refers to the maneuvers to ensure the possession and assortment of raw materials with which the final product has been produced, external logistics, on the other hand, has to do with this same methodology, but applied to external processes, that is, when the product leaves the production center and is delivered either to wholesalers, distributors or even to end consumers.
- Marketing and sales: This activity, as its name could indicate, is essential for the product to be made known to the consumer population.
- Service: This activity can be associated both with after-sales service and with everything related to information and maintenance that may include the purchase of a product. It is about ensuring the loyalty of customers by providing them with a product that already in their hands includes certain important guarantees, such as ensuring the return in case of damage or imperfections, or the provision of advice against any eventuality such as failure in delivery or support for install the product, etc. All these guarantees are intended to maintain and enhance the final value of the product, thereby substantially preserving the level of consumer satisfaction.
Supporting or secondary activities
It is important to remember that in order for the primary activities to be carried out efficiently and smoothly, they are in turn supported by the so-called secondary activities of the value chain. These processes are carried out as follows:
- Organization infrastructure: It is made up of all those activities that provide sustainability and that maintain the basic operation of any company, that is, activities such as planning, accounting, administration and finances.
- Human resources management: As its name indicates, this support activity has to do with the maintenance and conservation of personnel, that is, it consists of the search, hiring and motivation of the staff of workers who work in the company. It is important to take this element into account, since the human resources of a company are one of its most fundamental structures and that can define its long-term success.
- Technology development, research and development: For every company to continue operating with the greatest efficiency and providing the best and most innovative products to all its customers, technological development is vital to stay at the forefront within the range of products and / or services it offers, which in Ultimately, they will always give you a quality image with which you can always differentiate yourself from your competitors.
- Purchasing: This factor has to do with the ability to generate the most efficient and useful purchases for the company. In essence, it is about how to manage the processes of purchasing machinery, components, advertising for the promotion of the company or services that are used to maintain the morale of its workers, as well as its optimal functioning.
Tips to successfully apply the value chain
Tip 1: Since a business organization's value chain should reflect the implemented business strategies, when deciding how to improve that value chain, one should be clear about the positive characteristics that differentiate it from competitors, or alternatively, one can promote a lower cost structure.
Tip 2: When faced with a long list of changes to implement for the modernization of the company, it is very important to prioritize and focus on those changes that will have the most positive impact on the customer.
Tip 3: It is recommended to delve deeply into each element of the value chain, both in determining its primary activities and its support activities. This way, elements that may be functioning inefficiently and have significant potential for improvement can be identified, ultimately increasing the company's overall competitive advantage.
Tip 4: The value chain is primarily determined according to an internal analysis of the company, so it is recommended, for greater efficiency, to conduct studies on the external circumstances that may influence the value and competitive advantage of the business.
Conclusion
As seen in this article, knowledge of the value chain can be really useful to considerably increase the added value and competitive advantage of a business organization. Taking this data into account, better decisions can be made to carry out any initiative aimed not only at the establishment, but also at the preservation and development of any type of business or company. For this reason, it is so important to understand and effectively apply the value chain in all business-type initiatives, as it will be the basis through which the solidity of our company or business will be sustained.