What does the term "value chain" refer to?

The term "value chain" refers to the full range of activities businesses engage in to bring a product or service to market. This concept, introduced by Michael Porter, emphasizes how various activities—ranging from the initial conception of a product to its final delivery to consumers—contribute to the overall value that customers perceive. Each step in the value chain can add value or incur costs, and understanding this process helps businesses identify areas where they can improve efficiency, reduce costs, and enhance competitiveness.

This framework highlights the interconnections between activities, such as procurement, operations, marketing, and after-sales service, illustrating how they collectively contribute to a company’s competitive advantage. By analyzing the value chain, businesses can optimize their processes and ultimately increase profitability while delivering higher value to customers. This nuanced understanding of the value chain is crucial for strategic planning and operational improvements in any organization.