Cancel

Top tips

a paper cut-out symbolizing the value chain

What is the value chain and what is it for?

A chance to keep growing

Reading time: 8 min

The value chain is a strategic analysis tool that determines the competitive advantage of a company with the aim of improving its profitability. Based on this definition, a company's value chain is linked to the organization's activities, the value they provide, and the profits derived from them. A resource that, today, is fundamental to carry out the internal analysis of a company.

What do we understand by value chain?

The value chain examines in depth the activities of the company to understand their costs, current sources, and competitive advantages. It is a tool to optimize processes efficiently, increase production, and build customer loyalty.

If we analyze the value chain of a company, we must take into account that it is made up of primary and secondary activities that may vary within each industry.

First, there are primary activities, those that add value to the final product or service. For example, key aspects such as logistics operations, marketing and sales, and after-sale service must be taken into account.
Then there are secondary activities, which encompass general and financial management of the company, as well as its investments in infrastructure and technology. In this aspect, we will take into account the human resources, technology and R+D, and purchases and procurement departments.

Lets look at an example by taking the hydrocarbons value chain as a reference, which in this case consists of four phases:

The first is exploration for hydrocarbons, where different areas are assessed to identify likely accumulations of this compound.
The second is production, where the hydrocarbons are extracted from the well.
The third phase is refining, in which products are produced.
And the last phase, marketing, supports the various points of sale.

The Porter value chain

Michael E. Porter coined the term ‘value chain’ in 1985 in his book "Competitive Advantage: Creating and sustaining superior performance". And since then it has been studied and implemented by thousands of companies from different sectors to obtain better competitive advantages.

Competitive Advantage

Following this concept, the value chain of a company comprises four important aspects:

Firstly, the degree of integration defines the activities that are carried out in the company.
Secondly, the industrial landscape tries to define the market and the sectors related to the company.
Thirdly, the segment landscape refers to the variations that may affect the product and buyers.
And fourthly, the geographical panorama encompasses countries, cities, and regions where the company operates.

In conclusion, we can define the value chain as a management tool that allows companies to analyze activities that bring value to the product in a detailed manner. This study involves all companies involved in the production of the product or service, from the origin until it reaches the final consumer.

What benefits does the value chain bring to a company?

A deep analysis of the value chain implies a development opportunity, as we can see more clearly why customers choose our product or service. The main aim is to increase the profitability of the company but more specifically this translates into several aspects that we can closely analyze. Some of the benefits of a company's value chain include:

Processes optimization

A fast action that helps to identify opportunities for improvement in the different processes of the company. Decisions like creating strategies to perfect workflows, improving communication, or segmenting customers according to interests are some examples.

Cost reduction

After an analysis, we can assess the costs generated by repetitive processes in order to optimize them. Studying this aspect allows us to see the problem in perspective and restructure the workflow to produce products or services with fewer resources.

Increased production

Identifying the weak points of the workflow to perfect them translates into increased productivity. In this aspect, the tools and methodologies used will be a determining factor. An example would be renewing the necessary machinery to increase production.

Promoting collaboration

When all teams work toward the same goal, productivity increases. By ensuring that all people are aligned with these goals through cross-communication, we can promote a more productive workplace culture.

Customer loyalty

Offering customer service through different channels, automating processes to reduce wait time, and personalizing communications are some of the actions that can be carried out to build loyalty among existing customers.

Repsol and the value chain

At Repsol we prepare policies and launch initiatives that guarantee our commitment to sustainability at all levels.

A culture that is reflected in our value chain and extends to employees, contractors, suppliers, and partners. At Repsol we promote a safe and protected work environment with key action lines on which we focus efforts in terms of health, safety, and environment.

As proof of this, we adhere to the 2000 United Nations Voluntary Principles on Security and Human Rights, with the aim of maintaining the safety of operations in sensitive areas, within a framework that ensures respect for human rights.

We are aware that suppliers are a very important part of our value chain, so we developed a Suppliers’ Code of Ethics and Business Conduct for our mutual benefit. In this line, we also prepared a plan to boost SDGs (Sustainable Development Goals), which is integrated with our target of reaching Net Zero Emissions by 2050 and the 2030 United Nations Agenda.