Internal Growth: Becomming an industry cost leader

With internal growth, the Entrepreneur  strives to bring new resources together in an innovative combination to create new value.  An internal growth strategy can take the form of  expansion and growth of turnover, volume and profit. 

Porter’s Value Chain is very useful to determine where value is added and for isolating the costs.  The experience curve is also a valuable advantage to develop cost strategies that can be used when competing for market share.

Porter’s Value Chain

Porter's value chain


The concept of the value chain is derived from the perspective that any organisation are made up of subsystems, each of which have inputs, transformation processes and outputs.  These subsystems involve the acquisition and consumption of resources such as money, labour, materials, equipment, buildings, land and management.  Each of these activities in the value chain can be separated and streamlined in order to save costs and improve profits.

Most organisations engage in many activities in the process of converting inputs to outputs. These activities can be classified generally as either primary or support activities that all businesses must undertake in some form.


The Different Activities

According to Porter (1985), the primary activities are:

  • Inbound Logistics: the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required.
  • Operations - are all the activities required to transform inputs into outputs (products and services).
  • Outbound Logistics: the warehousing and distribution of finished goods.
  • Marketing and Sales - activities inform buyers about products and services, induce buyers to purchase them, and facilitate their purchase.
  • Service: the support of customers after the products and services are sold to them.

Secondary activities are:

  • Procurement - is the acquisition of inputs, or resources, for the firm.
  • Human resource management: employee recruiting, hiring, training, development, and compensation.
  • Technological Development - pertains to the equipment, hardware, software, procedures and technical knowledge brought to bear in the firm's transformation of inputs into outputs.
  • The infrastructure of the firm: organizational structure, control systems, company culture, etc.

The Experience Curve

The experience curve is also a valuable advantage to develop cost strategies that can be used when competing for market share.

The learning curve describes the gradual reduction of labour hours as workers become familiar with their jobs.  But the experience curve is different in that it also takes into account orientated situations.  The experience curve can be explained by a combination of learning (the learning curve), specialization, scale, and investment.


Experience Curve