How do i use Michael Porter's value chain analysis for an airline company (not aircraft)?

December 19, 2008 1:14 AM

How do i use Michael Porter's value chain analysis for an airline company (not aircraft)?

Hi there, I am just wondering how do i associate the value chain analysis for an airline company? I am mainly focusing on the primary activities (inbound logistics, operations, outbound logistics, marketing & sales and service).

Thank you in advance.

posted by red_rika to Education (2 answers total)

Ok, assuming you've already been through Competitive Advantage, to get the indepth background you'll need, I'd suggest approaching the problem as

• Define the Value Chain - some parts of Porter's generic model won't be applicable to the industry in question; refine, discard, etc until you've got the most basic structure in place
• Identify cost drivers - successful firms relentlessly focus on reducing cost (it's one of only two ways to grow margins); determine which cost drivers are applicable for your industry
• Identify differentiation factors - successful businesses will differentiate themselves from the competition; what are these factors and how do they apply to your firm in question?
• Technology leverage - how does your firm apply technology to the (applicable) components of the Value Chain?
• Linkage - how effectively do various components of the Value Chain communicate with each other?
• Outsourcing - what parts of the Value Chain either already are or should be handed off to specialist firms who can perform the same function cheaper, but at the same (or hopefully better) service levels?

After you've done the preliminary research above, you're going to need quantitative data so you can begin to understand the firm's cost structure, and how each functional component of the chain actually (hopefully!) adds value.

Do you have access to the firm? The data you'll need simply will not be available from annual reports, etc. You'll have to get access to information at a very low, and no doubt sensitive, level of granularity otherwise you can only approach this problem in the abstract.

Hope this helps!

Great question by the way, seems like folks forget about Porter's work on the Value Chain, focusing instead on Five Forces (which is also cool stuff, but the guy has contributed a lot ...)
posted by Mutant at 2:55 AM on December 19, 2008

One thing to also consider is that the "value chain" is, in some circles, giving way to the "value web" - where customers can use alternative pathways to get what they want.

Airlines are a good example of this effect where "travel" can be put into many categories, which are sometimes interchangeable. For example, there are airlines, trains, buses, boats, cars, to get people to desired locations. There are airlines reservations systems, travel agencies, online booking systems, to obtain travel. There are also alternatives to location based travel such as cruise ships where the travel is the location. One could go as far as looking at replacements for travel such as long-distance calls, video conferencing, and online chat.

These are also interconnected in sometimes non-intuitive ways and the success or failure of indirect services can impact the value of the main industry. All of these can have an effect on the value of of an organization and its ability to grow and take advantage of change. Understanding this inter-connectedness can make or break a strategy.
posted by qwip at 8:47 AM on December 19, 2008