Digital value chain

The Value Chain concept in the Digital Era

The Value Chain concept in the Digital Era

The Value Chain concept was introduced by Michael Porter back in 1985. Simply put, any company is a set of activities contributing to the value the company creates for the customers. For example, the firm buys raw materials and adds value to them at each stage of the manufacturing process. Porter divided all the activities into two groups. The first one represents primary activities:

· inbound logistics

· operations

· outbound logistics

· marketing and sales

· service

The second group represents support activities:

· firm infrastructure

· HR management

· technology development

· procurement

This idea totally fitted the XX century economy, when physical goods manufacturers were the primary value-added producers. But in the digital era, this concept needs fine-tuning.

The most obvious idea is that customers (even in the B2B industries) share their opinions on their experience of using the products and services they bought on social media, and goods manufacturers and service providers must manage this process, at least to an extent. But the digital age creates even more complicated value chains.

Caterpillar Inc. is the world’s largest construction-equipment manufacturer. The company equips its machinery with hundreds of sensors that trace the machines’ and some critical parts’ state. It helps the firm refine its products and improve its inventory management system (Caterpillar always knows how many spare parts of a particular kind are needed in a particular region). Moreover, it paves the road to new services and revenue streams, from preventive repair to advising clients on energy saving and efficiency improvement.

If in the XX century value chain looked like a line, along which physical goods and information moved in one direction, and money went in the opposite one, in the XXI century, it looks rather like a loop. Customers share invaluable data with a manufacturer, which helps the latter provide additional value for customers and improve the products. But it requires new kinds of activities, in addition to those mentioned by Porter. We will discuss it in one of the following articles — don’t forget to subscribe.

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