The Origin of Value Chain Model

Value chain is a concept proposed by Michael Porter in his book “Competitive Advantage” in 1985. In this book, Porter explains that “Competitive Advantage” is the ability for a firm to put “generic strategy” into practice, generic strategy includes,

  • Cost Leadership: aiming to offer the lowest price to customers.
  • Differentiation: selecting the important attributes that buyers want so company can get premium price.
  • Focus: doing each strategy according to each market segment.

Generic Value Chain
Value chain is mentioned extensively in the first half of the book and by definition, it’s a “strategic framework” about activities that foster generic strategy.

This is classic value chain model. As you can see, it represents various function under “one” company.

Value System
Another related concept is “Value System”, it’s simply how each value chain (company) is connected with each other.

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