How do you stand out in a competitive landscape? How do you do something that hasn’t already been done? This is a question that every business must face.
There’s no one right way to identify a point of differentiation or figure out how to increase your company’s value. However, if you’re struggling to do so, a value chain analysis can help.
What is Value Chain Analysis?
Value chain analysis is the exercise of critically examining all the processes and activities related to a business in order to determine a competitive advantage.
The best way to do a value chain analysis is to create a visual displaying the value chain of the business. A value chain is simply a list of all business activities, all the way from obtaining materials to offering services post-sale, laid out in categories. Essentially, it is a summary of every process and activity that influences the value of the business.
You can get started creating your value chain with our template in Gliffy, or continue reading to learn why value chain analysis is important and how to do it.
Importance of Value Chain Analysis
Value chain analysis is an essential tool for strategic planning. It allows you to determine where changes can be made to further your competitive advantage in one of two ways: lowering costs or increasing specialization.
The process of listing and analyzing the activities also can help you identify any roadblocks or potential roadblocks that can be addressed.
This exercise can be done in conjunction with other business development and planning exercises such as a SWOT analysis, balanced scorecard, or business model canvas. In fact, you can even use the insights you gain from the value chain analysis to fill in parts of the SWOT analysis, such as the Opportunities section. By completing these exercises together, you can strengthen your business strategy and ensure consistency in how you compete.
Back to topValue Chain Analysis Template
The value chain analysis has three main sections: primary activities, secondary or supporting activities, and margin. Fill in these sections with the corresponding activities and use the visual to determine a point of differentiation.
You can launch and start working from this template in Gliffy now, or keep reading to learn what all the elements of the value chain are and what they mean.
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How to Do a Value Chain Analysis
Step 1: Identify the Elements of the Value Chain
The first step to value chain analysis is to identify all the processes and activities that make up the value chain and determine the cost of each one. All of these can be categorized as either primary or supporting activities.
Primary activities are those that directly influence the production of the product and supporting activities are those that support the business in its ability to carry out the primary activities.
The five primary activities of a value chain are:
- Inbound Logistics: processes and activities related to receiving, storing, and distributing the raw materials necessary to create a product
- Operations: processes and activities related to using materials and labor to create a product
- Outbound Logistics: processes and activities related to distribution of a product
- Marketing & Sales: processes and activities related to promoting a product or service to its intended audience and managing sales
- After-Sales Services: processes and activities related to servicing customers post-sale
Add all the information related to these primary activities to the corresponding spaces of the value chain analysis diagram.
The four supporting activities of a value chain are:
- Infrastructure: processes and activities related to management, planning, and financial departments that keep the organization running and looking toward the future
- Human Resources Management: processes and activities related to hiring and retaining employees
- Technological Development: processes and activities related to researching and obtaining new technology that can be used to increase quality and efficiency; also includes product research and design
- Procurement: processes and activities related to sourcing the materials that will be necessary to create a product
Add the information related to these supporting activities to their corresponding spaces on the value chain analysis diagram.
Note: You may need to collaborate in order to fill out all the primary and supporting activities. There are many activities and processes that contribute to the value of a business, and it’s likely you won’t know every single one on your own. Consider hosting a quick brainstorm session or checking in with your teammates to make sure you don’t miss anything.
If you are using an online diagramming tool like Gliffy, each person can add information to the diagram and it will automatically update wherever that diagram is linked, so it’s easy for everyone to contribute and access information.
All the primary and supporting activities lead into the margin, which is the amount of profit the company makes after all expenses are paid, expressed as a percentage. Your goal is to increase the profit margin either by lowering costs or by specializing your product in a way that will increase customers’ willingness to pay higher prices.
Step 2: Analyze the Value Chain
When you have filled in the primary and supporting activities on the value chain, you can complete the analysis portion of the exercise.
Again, the goal of the analysis is to determine a competitive advantage in either cost or specialization. Whichever you choose, you will analyze all the activities through that lens. Where can you make changes to lower costs (for both the business and the customer), or where can you make changes to produce a more specialized product or experience?
For example, if you want to lower cost, perhaps you see there is a way to change something about a transportation method to lower cost in that area. If you want to create specialization, you might see there is a new service that can be offered to customers that adds more cost for the company but also increases the value of the product and customers' willingness to pay more for it.
Step 3: Create an Action Plan
At the end of the analysis process, there can and ideally should be more than one opportunity to pursue the competitive advantage you wish to achieve, some that are relatively easy to implement and others that will require more resources and time.
Once you have determined where changes can be made to increase value, put together a plan of action to carry out those changes. As part of the plan, consider writing SMART goal statements to help define your objectives.
Start with tasks that will be quick to complete and work up to the more challenging and time-consuming tasks. If a task would take significant time and resources but is expected to have only minimal impact, it is not worth pursuing, so think critically about which tasks should be added to the action plan.
Step 4: Share and Carry Out Your Plan
Share the value chain analysis with relevant stakeholders, including those who will be expected to participate in carrying out the changes you have determined in your action plan.
The value chain analysis diagram is a simple, visual way to refer back to what you have learned and keep yourself and your team motivated to make the changes you have planned. With the help of value chain analysis, your company will begin moving toward that increase in value you’ve been pursuing.
Back to topConstruct Your Value Chain in Gliffy
Are you ready to stand out from the competition? Start working on your value chain analysis with our template, and you’ll be able to easily collaborate and share your vision with others.
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