Managerial Processes on Direct and Indirect Value Chain | Management Optional Notes for UPSC PDF Download

Using Porter's Value Chain

To identify and understand your company's value chain, follow these steps.

Step 1: Identify subactivities for each primary activity.

• Direct Activities - Doing the Main Work: Direct activities are the main things that directly add value. For example, in a book publisher's sales and marketing, it's like making sales calls, doing advertisements, and selling online – the core actions that bring in money.
• Indirect Activities - Making Things Run Smoothly: Indirect activities are like the behind-the-scenes helpers. They don't create value by themselves, but they make the direct activities work well. In the book publisher's case, it's managing the sales force and keeping customer records – the background work that supports the main actions.
• Quality Assurance - Ensuring Everything is Top-Notch: Quality assurance activities make sure that both direct and indirect activities meet high standards. In the book publisher's sales and marketing, this could mean checking and improving things like proofreading and editing advertisements to make sure they are the best they can be.

Step 2: Identify subactivities for each support activity.

• For each of the Human Resource Management, Technology Development and Procurement support activities, determine the subactivities that create value within each primary activity. For example, consider how human resource management adds value to inbound logistics, operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and quality assurance subactivities.
• Then identify the various value-creating subactivities in your company's infrastructure. These will generally be cross-functional in nature, rather than specific to each primary activity. Again, look for direct, indirect, and quality assurance activities.

Step 3: Identify links

• Identify Relationships: Find the connections between different tasks that create value. This is important for gaining a competitive edge using the value chain framework.
• Investigate Links: Take the time to explore how activities are linked. For example, look at how training the sales team (an HR task) can impact the amount of products sold. Another link could be between the time it takes to process orders and the number of customer service calls from people upset about delayed deliveries.
• Boosting Advantage: Understanding these connections is crucial for improving competitive advantage. For instance, by improving HR practices related to the sales team, you can potentially increase sales. Similarly, by speeding up order processing, you may reduce customer complaints and service calls.
• Highlighting Importance: Recognize the significance of these links. They show how different aspects of a business are interrelated and influence each other. This understanding allows for strategic improvements to enhance overall performance and success.

Step 4: Look for Opportunities to Increase Value

• Evaluate Subactivities: Examine each task and connection you've found in detail.
• Consider Enhancements: Think about ways to improve or change these tasks to provide more value to customers. This applies to both internal and external customers (customers can be people inside or outside your company).
• Maximize Customer Value: Focus on making changes that will give the most benefit to your customers. This could involve improving internal processes, like employee training, or external processes, such as speeding up product deliveries.
• Strategic Improvements: Look for strategic ways to enhance each task or connection. For instance, if there's a link between employee training and increased sales, consider investing more in training programs to maximize this connection.
• Overall Improvement: The goal is to enhance overall value. By making thoughtful adjustments to different aspects of your business, you can offer better products or services to your customers, both inside and outside the company.