A2.4.1 Background



McKinsey worked on the ‘business system concept’ in the 1980’s. This used the idea that a firm is a series of functions (e.g. R&D, manufacturing, marketing, etc) and that insights could be gained by analysing how each was performed relative to competitors.



Professor Michael Porter of Harvard Business School developed further the ideas that McKinsey had put forward and introduced the concept of the ‘value chain’ in 1985.

The concept of the value chain was seen as a powerful tool that would enable strategists to diagnose and enhance competitive advantage. Analysis of the value chain allowed the separation of the particular underlying activities that firms employ to design, produce, market and distribute their products or services. Porter contended that it was these underlying activities that contained the seeds of competitive advantage. By examining them in an integrated way, new but practical perspectives on competitive strategy would be found.