What is the difference between value chain and business model?

In creating and delivering value for a business it is necessary to outline the entire gamut of activities in terms of production and marketing. This is what value chain does and marvellously well too. But the question is then, how can a business capture value? This vexed question was addressed to, only by business model as described below:

Value Chain concept was introduced by Professor Michael Porter.  It is an analytical tool useful in identifying and evaluating specific activities through which a firm creates and delivers value. Professor Porter divided the activities into two types: primary activities that cover items such as in-bound logistics, operation, out-bound logistics, marketing & sales and finally sales support.

Support activities are activities including firm infra-structure, human resource management, technology development and procurement.  Limitation of scope is the glaring lacunae in value chain. In any case Porter did not intend value chain to be comprehensive one portraying entire gamut of activities of a business including that of capturing value.

A better model need to be found and that task fell on the shoulders of Swiss business theorist Alexander Osterwalder who pioneered business model canvas to explain all the essential activities of a business. He incorporated production, marketing and financial functions along with value proposition in sequential order.

He summed up his argument: “A business model describes the rationale of how an organization creates, delivers, and captures value”.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist