Question

How valuable is the Hines’s value chain model at overcoming the weaknesses of Porter’s value chain model

Answer 1

In the modern times say in the 21st century, Porter's value chain model has few weaknesses when applied to some of the big organizations where the top priority is that of the customer's satisfaction (thereby creating brand value) and not only the increase in profit margin. Also some of the primary and secondary functions as addressed by Porter as being important are not really that important in today's world with improved competitors which may prevent companies from continual development. Thus, Hines talks more about customer focused value chain model and this model overcomes some of the weaknesses of Porter's model such as:

- Porter's model suggests push strategy which can be dangerous in today's world where any organization which creates a product in bulk at a cheap price and pushes it into the market (like Ford did with cars in 90's) without knowing whether the customers are willing to buy it or not is literally in danger of loosing out to its competitors who using pull model would do a research on what are the preferences of the customers and designs a product accordingly and then sets it out into the market. Therefore, in current times pull strategy proposed by Hines is more relevant.

- As in the above example, Customer satisfaction should be given primary importance rather than focusing on increasing profitability through improving price margin (which is a drawback of Porter's model).

- Porter suggests that Inbound logistics, operations, outbound logistics, marketing & sales and services should be the primary activities of any organization, Hines talks about Teams concerned with marketing,materials,engineering, quality, R&D and design because the theory states that a business’s basic purpose is to create value for users of its products or services. Therefore in value chain analysis, managers divide the activities of their firm into sets of separate activities that add value compared to their operations.

- Porter's model talks about Firm infrastructure, technology development, and procurement being the supporting activities of any organization, Hines talks about Activity-based costing (ABC), HRM , Training , Education, TQM etc. because the theory states that once a company has developed a cost estimate for each of the major activities in its value chain then it is ready to see how this compares with the costs of rival firms.