Guide to

Business
Planning
The Value System

Supplier Channel
Firm value Buyer value
value value
chain chains
chains chains
Porter, M.E., Competitive Advantage, 1985

The value system is also referred to as the industry value chain. In contrast to the value chain, which considers
value added within a business, the value system extends the value chain beyond the boundaries of the business and
recognises that a business is dependent on relationships with suppliers and buyers . The term value system
underlines the fact that activities are not necessarily organised in a linear fashion, but viewing the activities that make
up the final product as a chain is also useful and underlines the linkage between the concept of the value chain and
the value system.
Competitors may have organised their value chain differently, for example they may have a lower degree of
integration. For example, a mobile phone operator may have its own retail outlets, thus ensuring that the services can
be sold directly to consumers. A competing operator without its own retail outlets will have to ensure adequate levels
commission are paid in order to ensure that independent retailers sell its service. In the first case costs are fixed
whereas in the latter case costs are variable but there is lack of control. In formulating your companys strategy, the
costs, rewards and risks of different strategies should be analysed carefully.
Analysis of the value system may reveal that a source of competitive advantage for your business could be a better
selection of suppliers, for example suppliers that have a labour cost advantage. Make or buy decisions are affected by
a downstream analysis of the value system, and the distribution strategy can be optimised by understanding the
distribution value chain.
Guide to Business Planning