The value chain is a critical component of the Business Model Canvas (BMC), a strategic management and entrepreneurial tool that allows businesses to describe, design, challenge, invent, and pivot their business model. The value chain, in particular, is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.

The concept of a value chain was first introduced by Michael Porter in 1985, and it has since become a fundamental element of strategic business thinking. The value chain is essentially a way of looking at a business as a chain of activities that transform inputs into outputs that customers value. The value chain is a powerful analysis tool for strategic planning, and its ultimate goal is to maximize value creation while minimizing costs.

Understanding the Value Chain

The value chain is broken down into two types of activities: primary activities and support activities. Primary activities are directly involved in the creation and delivery of a product or service, while support activities provide the necessary assistance for primary activities to take place.

Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include firm infrastructure, human resource management, technology development, and procurement. Each of these activities adds a form of value to the product or service, and together they form the value chain.

Primary Activities

Inbound logistics refers to the receiving, storing, and distribution of raw materials used in the production process. Operations involve the processes of transforming inputs into finished products. Outbound logistics cover the activities required to get the finished product to the customer, including storage, order fulfillment, and shipping.

Marketing and sales activities are associated with getting buyers to purchase the product, including channel selection, advertising, pricing, and managing the sales force. Service activities include all the things necessary to keep the product working effectively for the buyer after it is sold and delivered.

Support Activities

Firm infrastructure refers to activities such as general management, planning, finance, legal, quality management, and other overhead functions. Human resource management involves recruiting, hiring, training, development, and compensation of employees. Technology development can include research and development activities, automation, and process redesign.

Procurement is the acquisition of goods, services, or works from an outside external source. It is favorable that the goods, services, or works are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location.

Value Chain in the Business Model Canvas

In the context of the Business Model Canvas, the value chain is represented by the 'Value Proposition' building block. This block describes the bundle of products and services that create value for a specific Customer Segment. It is the reason why customers turn to one company over another.

The value proposition can satisfy an existing customer need or want, solve a customer problem, or provide utility to the customer through product performance, newness, customization, design, brand/status, price, cost reduction, risk reduction, accessibility, or convenience/usability.

Creating a Value Proposition

Creating a value proposition involves understanding what customers value, and then delivering it in a way that resonates with them. This requires a deep understanding of the customer's needs, wants, and preferences, as well as a clear vision of how the company's products or services can meet these needs.

Once the value proposition is defined, it needs to be communicated to the customer in a clear, concise, and compelling way. This can be done through various marketing and sales channels, including advertising, sales presentations, product demonstrations, and customer testimonials.

Delivering the Value Proposition

Delivering the value proposition involves all the activities and processes that are necessary to get the product or service to the customer. This includes everything from manufacturing and logistics to customer service and support.

These activities need to be coordinated and managed in a way that ensures the value proposition is delivered as promised, and that the customer's experience with the company and its products or services is positive and satisfying.

Value Chain Analysis

Value chain analysis is a way to visually analyze a company's business activities to see how the company can create a competitive advantage for itself. The idea is to understand how value is created along the chain, and to identify where and how value can be added, costs can be reduced, or both.

Value chain analysis can help a company to understand its cost structure, and to identify its most efficient and cost-effective activities. It can also help to identify the activities that are most valuable to the customer, and to focus on improving these activities to create a competitive advantage.

Steps in Value Chain Analysis

The first step in value chain analysis is to break down the company's operations into its key activities. This includes both primary and support activities. Once the key activities have been identified, the next step is to analyze each activity to determine its cost and value.

The third step is to identify the linkages between activities. These are the interactions between different activities that affect their costs or their ability to create value. The final step is to identify opportunities to reduce costs or add value, and to implement strategies to achieve these objectives.

Benefits of Value Chain Analysis

Value chain analysis can provide a number of benefits to a company. It can help to identify inefficiencies and bottlenecks in the company's operations, and to find ways to improve them. It can also help to identify opportunities for innovation and differentiation, and to develop strategies to exploit these opportunities.

By understanding the dynamics of value creation along the chain, a company can better align its operations with its strategic objectives, and can make more informed decisions about where to invest its resources. This can lead to improved operational efficiency, greater customer satisfaction, and increased profitability.

Conclusion

The value chain is a powerful tool for strategic planning and competitive analysis. By understanding how value is created and delivered in a company, managers can identify opportunities to improve operations, reduce costs, and create a competitive advantage.

The Business Model Canvas, with its focus on the value proposition, provides a framework for understanding and analyzing the value chain. By integrating the value chain into the Business Model Canvas, companies can create a more comprehensive and effective business model that delivers value to customers and drives growth and innovation.