A public, private or nonprofit organization has at least one type of customer. Customers in this group perceive a value for each product or service delivered by an organization. In value chain management, an organization focuses on analyzing the core activities occurring inside and outside of its structure. These activities affect how customers perceive value.
In studying the activities in an organization's sphere, you must think in terms of the effect of each activity on its competitive advantage. An organization has an advantage over other providers of the same goods or services in a consumer market unless it has a monopoly or is the first to create the market.
Creating a Profit
Primary and secondary activities in a business relate to production, distribution and support. Primary services focus on producing and distributing a product or service. Secondary activities support production and distribution. If managers can successfully manage the connections between all of these primary and secondary activities and keep total costs in the value chain (including production, delivery and support) below the total a customer will pay, a value is created for the customer and a profit is created for the company.
A company in a value chain such as a food market might work with other producers, processors and retailers to create a better connection with customers. Working together, different players in the same market benefit the customer and each other. They generate interest in their products and services in the market, and each player develops a specialty. The relationships with all businesses in the value chain work to maximize value for customers. These companies also maximize their profits within their specialty.
Return on Investment
Whether a business is a producer/supplier, processor, distributor or retailer, it will seek a return on investment for its participation in a value chain. This investment might seem far off when an organization first joins a value chain. Remember that the success of the value chain depends on the ability of its different members to work together toward common goals, such as increasing product value for customers. Get a bigger return on investment by improving communication among members of the value chain, by getting more players involved and by suggesting new ideas that will benefit customers.