What is splitting up the value chain?

Value chain analysis is a strategic framework to identify and allocate resources across different activities or elements in a company to optimize their process, reduce costs, and improve overall efficiency.

The primary activities within a value chain are the direct actions that create and deliver a product or service to customers. Primary activities include: a. Inbound logistics: Receiving, storing, and distributing the inputs to the product such as raw materials and components. b. Operations: Processes involved in the creation or transformation of the inputs into finished products, such as producing, assembling, packaging, and quality control. c. Outbound logistics: Activities that store and distribute finished products to customers, such as warehousing and shipping. d. Marketing and sales: Activities to promote, sell, and distribute the product, such as advertising and sales force management. e. Service: After-sale activities to support and maintain the value of the product, such as customer support and product upgrades.

The supporting activities within a value chain are the indirect actions that help the primary activities function more effectively. Supporting activities include: a. Procurement: Activities related to purchasing inputs used in the value chain like raw materials and components. b. Technology development: Activities to develop and adopt technologies that improve efficiency and effectiveness across the value chain, such as research and development, process innovation, and automation. c. Human resource management: Activities to attract, develop, motivate, and retain employees, such as training, performance management, and remuneration. d. Firm infrastructure: Organizational-wide activities such as management, legal, finance, and administration that support the entire value chain.

Once the primary and support activities are identified, analyze each activity to understand its role, efficiency, and contribution to the overall value creation. Look for opportunities to optimize each activity through cutting costs, streamlining processes, and improving efficiency. Also, identify potential partnerships or outsourcing opportunities to leverage the strengths of external entities and focus on core competencies.

By understanding the value chain, a company can identify its unique capabilities, resources, and efficiencies. These insights can help a company develop strategies to maximize customer value, differentiate itself from competitors, and gain a competitive advantage in the market. In conclusion, splitting up the value chain enables a company to understand and optimize its various activities, both primary and support, to improve efficiency, cut costs, and gain a competitive advantage.