Innovation and Porter’s Value Chain

First, let’s remind ourselves of the Value Chain Model. Portner’s insight was to identify all the primary functions of a business and all the support functions of a business and seek to understand what the firm did exceptionally well, and what it must do at least moderately well. While other strategists had thought and written about the linkages between internal operations, Porter was one of the first to create the concept of the Value Chain. Today we often think of the value chain as extending “upstream” to suppliers and “downstream” to distribution channels and even to customers or consumers. The tool is a powerful metaphor when thinking about where and how a firm adds value.

Primary activities are the ones we usually think of as distinct operations or departments and are the “direct” costs in a business – inbound and outbound logistics, “operations” which could be manufacturing or development, marketing and sales, and service. Support activities are those that we traditionally think of as “overhead” – Human Resources, Information Technology, Procurement, and what Porter called Firm Infrastructure – legal, financial, management and so forth.

les cinq forces de porter

by Jeffrey Phillips

I’m reviewing the relationship between a number of tried and true strategic management models and innovation, to see if those models and concepts hold up under the increasing importance of innovation.  A few days ago I reviewed Porter’s Five Forces model and concluded that while Porter didn’t explicitly call out innovation, it was clear that the Five Forces model embraced innovation.  Today, we’ll look quickly at another Porter model – the Value Chain Analysis – and investigate how it holds up innovation.

In the 1980s, Michael Porter wrote a number of books about corporate strategy that became the basis for much of the education of MBAs, at least where strategy was concerned.  Few MBAs in the 80s and 90s failed to study Porter’s Five Forces or Value Chain Analysis. Since many of those MBAs minted in that period are now in leadership positions in their firms, it behooves us to understand the models they carry around with them, and whether or not those models are open and extensible where innovation is concerned, or whether they ignore or resist innovation. Leer más “Innovation and Porter’s Value Chain”

Innovation and Porter’s Five Forces

I’ve been pondering the “truths” we hold dear and wondering whether or not the mental models we were taught in college and graduate school hold up under the changes occurring in our economy.  Do the great business thinkers of the past twenty or thirty years and their models and descriptions hold true, especially when we introduce innovation into the mix?  Over the next few months I’ll look at a couple of the models we hold dear and place innovation within the context of the model, to see if the model is extensible enough to account for innovation, or whether we may want to revise our thinking to account for innovation.

First up:  Porter’s Five Forces.  Michael Porter wrote the book on corporate strategy.  Well, he actually wrote a number of books about corporate strategy, competitive advantage and a number of other topics.  The books that were mantras when I was in school were Competitive Strategy and Competitive Advantage.  In these books and others Porter introduced models, tools and methods to analyze the firm and its competitive position and its competitive advantage.  Two of these tools, the “Five Forces” model and the Value Chain model, are ones that have become ingrained in the way we think about businesses strategically.  What I wanted to know is:  does the model hold up in light of an increased emphasis on innovation?
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