Enterprise Value Chain – What Does It Consist Of, and What Function Does It Serve?
The enterprise value chain is a concept that has been known since the 1980s, created by Michael E. Porter. It encompasses all the activities and processes occurring within a company, aimed at creating value for customers. This model distinguishes between primary and supporting activities. What else is worth knowing about it?
Value Chain – Definition and Basic Concepts
The basic activities include production, sales, and customer service, while the supporting activities are related to human resource management, the use of technology, or purchasing. Analyzing a company from the perspective of Porter’s value chain allows estimating how useful individual processes and actions taken by the company are in achieving its goal – that is, value for the customer or user.
Enterprise Value Chain – Analysis and Optimization
The term “value chain” first appeared in the book by economist and Harvard Business School professor Michael Porter titled Competitive Advantage: Creating and Sustaining Superior Performance in 1986. In it, he highlighted the potential sources of competitive advantage a company might have over other market participants, which boil down to the value the company can deliver to its customers.
Where can such values be found? Depending on the type of company, these might be, for example, product attributes such as quality or ease of use – all the factors a customer is willing to pay more for. Another value could be a lower price for products or services. Therefore, to analyze a business and search for customer value, Porter created a tool that simplifies identifying the actions and processes occurring within a company that, when linked together, allow this value to be created.
Additionally, scanning a company for its unique selling points helps pinpoint which processes, activities, or actions need improvement to make it even more competitive in the market.
Porter's Value Chain – Key Elements and Application
- Value chain analysis allows for identifying which activities bring the most value and which can be improved. A company can reduce unnecessary expenses and optimize processes, leading to improved profitability.
- It enables process optimization, which leads to cost reduction and increased efficiency.
- By understanding how different elements of the chain influence the value of the offer, the company can better compete in the market, offering unique benefits to customers.
- By analyzing the value chain, a company can identify areas where innovation can or should be introduced, potentially leading to the development and implementation of new products or services.
- Improving individual elements of the chain allows the company to better meet customer expectations, influencing their loyalty, long-term relationships, and referral rates. It helps understand what customers truly value in the offer, which allows better tailoring of products and services to their needs.
- Understanding the value chain helps with better risk management; by identifying potential problems at different stages, the company can quickly and easily eliminate them.
- It facilitates cooperation between different departments of the company, as each part of the value chain must work in harmony to achieve a common goal.
- Understanding the value offered by individual stages of the chain allows for better positioning of products in the market, which leads to building a better marketing strategy.
Thus, the value chain is a key analytical tool that allows companies to deeply analyze and optimize their activities, leading to increased competitiveness and efficiency, as well as better adaptation to market needs. It supports strategic thinking within the company, helping it achieve better results and meet customer needs, which change along with market development and updates to legal, environmental, and sometimes ideological or cultural requirements.
ESG Value Chain – Importance for Sustainable Development
Therefore, in modern times, it is worth including ESG (Environmental, Social, Governance) actions as an integral part of the company's value chain. Integrating ESG criteria into a company's value chain can bring numerous benefits and positively impact the company's development.
Examples of Implementing the Value Chain in Companies
How can a well-planned ESG strategy become part of a company's value chain? There are several ways, encompassing different areas of business operations:
Sustainable Procurement and Supplier Selection
When choosing suppliers, companies can prefer those who follow sustainable development principles and ethical labor practices. This can enhance the brand's reputation and minimize risks related to human rights violations or fair trade.
Production and Operations
Here, it's worth focusing on energy efficiency. Implementing solutions that reduce or even recover energy and water use in production processes can lead to savings and reduced environmental impact.
Waste management and recycling. Minimizing waste and implementing recycling processes can not only improve efficiency but also strengthen the company's image as environmentally responsible.
Marketing and Sales
Currently, educating customers and how we talk about the company’s products or services is very important. Communicating values related to ESG, such as sustainability or ethical sourcing, can attract conscious consumers for whom these values are equally important.
Investments in Innovative Products
Creating products that are more environmentally friendly or have a positive social impact can open up new markets and attract new, conscious customers.
Employee Relations
Implementing ESG principles can support the creation of a sustainable and ethical organizational culture, which attracts new talented employees and increases the engagement of current ones in creating value for the customer.
Investing in sustainability training can raise employee awareness and skills in this area.
Risk Management
Regularly assessing risks related to ESG can help identify potential threats that may affect the company's operations.
Collaboration and Partnerships
Collaboration, for example, with selected NGOs, research institutions, or other companies in the ESG field can bring additional benefits and innovations that will add value to the company.
Reporting and Transparency
Regular reporting on ESG progress increases transparency and can build trust among stakeholders.
Integrating ESG into the value chain not only supports sustainable development but can also contribute to increasing competitiveness and long-term success in the market.