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Angel Baker
Angel Baker

Porter's Value Chain: How to Create and Sustain Competitive Advantage in 1985 and Beyond


What is Porter's Competitive Advantage?




Competitive advantage is the ability of a firm to outperform its rivals in terms of profitability, growth, or customer satisfaction. It is the result of creating more value for customers than competitors do.




Porter 1985 Competitive Advantage Pdf Download



One of the most influential frameworks for understanding competitive advantage was developed by Michael E. Porter in his book Competitive Advantage: Creating and Sustaining Superior Performance, published in 1985. Porter introduced the concept of the value chain, which disaggregates a firm into its core activities or processes that contribute to creating value for customers.


The value chain consists of two types of activities:


  • Primary activities, which are directly involved in producing and delivering the product or service.



  • Support activities, which provide the necessary resources and capabilities for the primary activities.



By analyzing each activity in the value chain, a firm can identify its strengths and weaknesses, as well as the opportunities and threats in its environment. This allows the firm to determine how it can improve its efficiency, quality, innovation, and customer responsiveness, and thus achieve a competitive advantage over its rivals.


Why is Porter's Competitive Advantage Important?




Porter's competitive advantage is important because it provides a systematic and comprehensive way of analyzing a firm's performance and strategy. It helps a firm to:


  • Understand how it creates value for customers and how it can increase that value.



  • Identify its sources of differentiation and cost leadership, which are the two basic types of competitive advantage.



  • Assess its relative position in the industry and its potential for sustainable competitive advantage.



  • Develop and implement strategic actions that enhance its competitive advantage.



By applying Porter's competitive advantage framework, a firm can gain insights into its strengths and weaknesses, as well as the opportunities and threats in its environment. This enables the firm to formulate and execute effective strategies that create and sustain superior performance.


How to Apply Porter's Competitive Advantage?




To apply Porter's competitive advantage, a firm needs to follow these steps:


  • Identify the value chain activities of the firm.



  • Analyze the cost and value drivers of each activity.



  • Evaluate the linkages and interrelationships among the activities.



  • Identify the sources of differentiation and cost leadership for the firm.



  • Develop and implement strategic actions that enhance the firm's competitive advantage.



In the following sections, we will explain each step in more detail and provide some examples of how to apply Porter's competitive advantage to different value chain activities.


Primary Activities




Primary activities are the activities that are directly involved in producing and delivering the product or service to customers. They include:


  • Inbound logistics



  • Operations



  • Outbound logistics



  • Marketing and sales



  • Service



Inbound Logistics




Inbound logistics refers to the activities that involve managing the inputs and suppliers of the firm. These include:


  • Receiving, storing, and distributing raw materials, components, and supplies.



  • Selecting, negotiating, and managing relationships with suppliers.



  • Implementing quality control and inventory management systems.



To achieve a competitive advantage in inbound logistics, a firm can:


  • Reduce the cost and improve the quality of its inputs by sourcing from reliable and efficient suppliers.



  • Optimize its inventory levels and minimize its storage and handling costs by using just-in-time or lean production methods.



  • Enhance its flexibility and responsiveness by developing close and collaborative partnerships with suppliers.



Operations




Operations refers to the activities that involve transforming the inputs into outputs, or the product or service that the firm offers. These include:


  • Designing, engineering, and manufacturing the product or service.



  • Maintaining and upgrading the production facilities and equipment.



  • Implementing quality assurance and process improvement systems.



To achieve a competitive advantage in operations, a firm can:


  • Increase its efficiency and productivity by using advanced technology and automation.



  • Improve its quality and innovation by adopting best practices and continuous improvement methods.



  • Differentiate its product or service by adding unique features or benefits that meet customer needs and preferences.



Outbound Logistics




Outbound logistics refers to the activities that involve distributing the outputs to customers. These include:


  • Packing, loading, and transporting the product or service.



  • Selecting, negotiating, and managing relationships with distributors and retailers.



  • Implementing order fulfillment and delivery tracking systems.



To achieve a competitive advantage in outbound logistics, a firm can:



  • Reduce its transportation costs and delivery time by using efficient modes and routes of transportation.



  • Increase its customer satisfaction and loyalty by providing reliable and convenient delivery options.



  • Expand its market reach and coverage by using multiple channels of distribution.




Marketing and Sales




Marketing and sales refers to the activities that involve communicating and persuading customers to buy the product or service. These include:



  • Conducting market research and analysis to identify customer needs, preferences, and segments.



  • Developing marketing strategies and plans to position the product or service in the market.



  • Crafting marketing mix elements such as product, price, place, and promotion to create value for customers.



  • Executing marketing campaigns and programs to generate awareness, interest, desire, and action among customers.




To achieve a competitive advantage in marketing and sales, a firm can:



  • Create a strong brand identity and reputation that differentiates the product or service from competitors.



  • Offer a superior value proposition that meets or exceeds customer expectations in terms of quality, performance, convenience, or price.



  • Build long-term relationships with customers by providing personalized service, loyalty programs, or referrals.




Service




Service refers to the activities that involve providing after-sales support and enhancing customer loyalty. These include:



  • Installing, repairing, or maintaining the product or service.



  • Solving customer problems or complaints.



  • Educating or training customers on how to use the product or service effectively.



Support Activities




Support activities are the activities that provide the necessary resources and capabilities for the primary activities. They include:


  • Procurement



  • Technology development



  • Human resource management



  • Firm infrastructure



Procurement




Procurement refers to the activities that involve acquiring resources and services that are used in the value chain. These include:


  • Purchasing materials, equipment, or services from external suppliers.



  • Managing contracts and payments with suppliers.



  • Evaluating and selecting suppliers based on their quality, cost, and reliability.



To achieve a competitive advantage in procurement, a firm can:


  • Leverage its bargaining power and economies of scale to obtain lower prices and better terms from suppliers.



  • Diversify its sources of supply to reduce the risk of disruption or dependency on a single supplier.



  • Integrate its procurement processes with its value chain activities to improve coordination and efficiency.



Technology Development




Technology development refers to the activities that involve improving the products, processes, and systems of the firm. These include:


  • Conducting research and development to generate new ideas and innovations.



  • Applying new technologies to enhance the features or functions of the product or service.



  • Developing information systems to support the value chain activities and decision making.



To achieve a competitive advantage in technology development, a firm can:


  • Invest in research and development to create breakthrough products or services that offer superior value to customers.



  • Adopt new technologies that improve the efficiency, quality, or flexibility of its value chain activities.



  • Use information systems to collect, analyze, and share data and information across the value chain.



Human Resource Management




Human resource management refers to the activities that involve recruiting, training, motivating, and retaining the employees of the firm. These include:


  • Hiring, developing, and evaluating the performance of employees.



  • Providing compensation, benefits, incentives, and recognition to employees.



  • Creating a positive organizational culture and climate that fosters teamwork, learning, and innovation.



To achieve a competitive advantage in human resource management, a firm can:



  • Attract and retain talented and skilled employees who can perform the value chain activities effectively.



  • Motivate and empower employees to contribute to the firm's goals and vision.



  • Develop a learning organization that encourages employees to acquire new knowledge and skills.




Firm Infrastructure




Firm infrastructure refers to the activities that involve coordinating and controlling the value chain activities and functions of the firm. These include:



  • Setting the vision, mission, goals, and strategies of the firm.



  • Establishing the organizational structure, systems, policies, and procedures of the firm.



  • Managing the financial, legal, regulatory, and social aspects of the firm.




To achieve a competitive advantage in firm infrastructure, a firm can:



  • Create a clear and compelling vision, mission, goals, and strategies that guide the value chain activities.



  • Design an optimal organizational structure, systems, policies, and procedures that align with the value chain activities.



  • Manage its financial, legal, regulatory, and social responsibilities in an ethical and sustainable manner.




How to Download Porter's Competitive Advantage Pdf?




If you are interested in learning more about Porter's competitive advantage framework and how to apply it to your own business or industry, you may want to download his book Competitive Advantage: Creating and Sustaining Superior Performance, published in 1985. Here are some sources where you can download it as a pdf file or access it online:



  • Semantic Scholar: This is a free online platform that provides access to academic papers and books. You can download the pdf file of Porter's book from this link.



  • Internet Archive: This is a non-profit digital library that offers free access to books, movies, music, and more. You can borrow or download the pdf file of Porter's book from this link.



  • Open Library: This is an online project that aims to create a web page for every book ever published. You can borrow or download the pdf file of Porter's book from this link.




Conclusion




In conclusion, Porter's competitive advantage is a powerful and comprehensive framework that helps a firm to understand how it creates value for customers and how it can increase that value. By analyzing the value chain activities of the firm, a firm can identify its sources of differentiation and cost leadership, which are the two basic types of competitive advantage. By developing and implementing strategic actions that enhance its competitive advantage, a firm can create and sustain superior performance in its industry.


FAQs




Q1: What are the types of competitive advantage?




A1: There are two types of competitive advantage: differentiation and cost leadership. Differentiation means offering a product or service that is unique or superior to those of competitors in terms of quality, features, benefits, or customer service. Cost leadership means offering a product or service that is similar to those of competitors but at a lower price or cost.


Q2: What are the sources of competitive advantage?




A2: The sources of competitive advantage are the factors that enable a firm to achieve differentiation or cost leadership. These factors can be internal or external to the firm. Internal factors include the value chain activities, resources, and capabilities of the firm. External factors include the industry structure, market conditions, customer preferences, and competitor actions.


Q3: What are the limitations of Porter's competitive advantage?




A3: Some limitations of Porter's competitive advantage are:


  • It may not capture the dynamic and complex nature of the business environment, which is constantly changing and evolving.



  • It may not account for the interdependence and co-evolution of firms and industries, which may create new opportunities and threats for competitive advantage.



  • It may not consider the social and environmental impacts of the value chain activities, which may affect the reputation and sustainability of the firm.



Q4: How to measure competitive advantage?




A4: One way to measure competitive advantage is to use financial indicators such as profitability, growth, or market share. These indicators reflect how well a firm performs relative to its rivals in terms of creating value for customers and shareholders. Another way to measure competitive advantage is to use non-financial indicators such as customer satisfaction, loyalty, retention, or referrals. These indicators reflect how well a firm meets or exceeds customer expectations and needs.


Q5: How to maintain competitive advantage?




A5: To maintain competitive advantage, a firm needs to:


  • Continuously monitor and evaluate its value chain activities and performance.



  • Regularly update and improve its products, processes, and systems.



  • Adapt and respond to changes in the environment and customer preferences.



  • Innovate and create new sources of value for customers.



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