Process Improvement vs. Value Chain Improvement

Process improvements are about improving a firm’s production technology. A key aim of process improvements is to achieve an increase in the productivity of a firm’s inputs, principally labour and capital. This means that any level of output can be produced with fewer inputs, or more output can be produced with the same inputs. Process improvements impact a firm’s cost curves and, ultimately, its supply curve.

In contrast, value chain improvements can have impact more on a firm’s demand side. By choosing and tailoring the configuration of its value chains, a firm decides which value-creating activities to perform for which customers. This directly impacts the firm’s ability to generate revenue.

Because processes make up value chains, the difference between process improvement and value chain improvement is subtle, but profound. The former is tactical, the latter is strategic. Firm’s should avoid confusing one with the other.

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