Michael Porter, a Harvard Business School professor, coined the term ‘value chain’ in the 1980’s. The concept and term took off. The value chain is one of the must-know business concepts for everyone. Every organization performs a sequence of activities to produce a product or offer a service. These activities add value to customers who continue purchasing the company’s products and services. These value-adding activities provide income to satisfy shareholders, provide employment, and ensure the company continues to be viable.
According to Wikipedia:
Products pass through all activities of the chain in order, and at each activity the product gains more value. The chain of activities gives the products more added value than the sum of the independent activity’s value.
Finding the right organizational structure or process has become difficult and is a major soul searching activity. Several years ago, Fortune Magazine said: “getting from here (the vertical, functional organization) to there (the horizontal, process-based one) is quite possibly the greatest management challenge of our times.”
Life Lesson Earned: Outsourcing and off shoring are part of the value chain conundrum. What should a company do internally and what should the company outsource? Determine where and how your work process and outputs support the value chain. This is a critical part of your value add.