Michael E. Porter, Harvard Business professor and leader of the Harvard Institute for Strategy and Competitiveness, first coined the term “value chain” in his 1998 book “Competitive Advantage: Creating and Sustaining Superior Performance.” According to Porter, the value chain consists of specific activities that are consistent from one business to the next. These activities may add value to a company’s products and services, and to contribute to the organization’s competitive advantage. The SWOT Analysis is a useful tool for identifying opportunities for an organization to improve and capitalize on the existing value chain to maintain a sustainable competitive advantage.
In Porter’s model, primary value chain activities include inbound logistics, operations, outbound logistics, marketing and sales, and services used in almost all businesses. Porter says organizations may take steps to improve or add value to each of these specific activities to improve the organization’s competitive advantage. There are also a variety of support activities, including Human Resource development, procurement, infrastructure and technology, which must also be considered when conducting a SWOT analysis.
The SWOT analysis is a tool commonly used by organizational leaders to identify the organization’s strengths, weaknesses, opportunities and threats, or SWOT. While current opportunities are typically identified within the opportunity portion of the SWOT analysis, the other portions are equally useful in identifying and creating future opportunities to improve the organization’s value chain.
Competitive advantage occurs when consumers perceive that a specific organization’s products provide a greater value than the business’ competitors. Competitive advantage is the element that encourages consumers to pay more for what they perceive as a superior brand than they would normally spend on a similar product from a competitor with a lesser brand name. For example, consumers are often willing to pay more for a pair of athletic shoes with a particular logo than for the same shoe without the logo. You can achieve this phenomenon through the identification of opportunities for improvement of specific value chain activities.
A company’s strengths and weaknesses consist of internal factors that might impact the organization’s ability to create and maintain a sustainable competitive advantage within its specific industry. For example, a weakness might be the organization’s previous inability to differentiate its products from others within the industry. In such case, the business should search for opportunities to add value to the product to make it more desirable.
Opportunities and threats are external factors that impact the organization’s ability to maintain a competitive advantage. One example of an existing opportunity to add value to a product without adding cost is the availability of a newer, better product ingredient at a lower cost than a similar ingredient commonly used by competitors.