The value chain (Porter)

The value chain identifies the activities through which a business creates and delivers value, then compares capability in those activities to locate sources of advantage and weakness.

When to use it

• Use it to determine which activities are most important to success and therefore qualify as key success factors.

Origins

Michael Porter introduced an early formulation in 1984 and developed it as a central strategy tool in his subsequent work on competitive advantage. Like his Five Forces, the framework remains influential because it connects industry position with the work a company actually performs.

What it is

Porter’s 1984 formulation separates primary activities, which directly create and deliver the offer, from support activities, which enable the complete primary system. In services, the inputs may be people, knowledge and tools rather than physical materials, but the analytical logic is the same.

How to use it

Map the primary activities:

• Inbound logistics: receive, store and distribute inputs.
• Operations: transform inputs into products or delivered services.
• Outbound logistics: collect, store and distribute outputs.
• Marketing and sales: create awareness, communicate value, select channels and stimulate purchase.
• Service: maintain or increase value after sale.

The value chain

Primary activities

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service

Margin

Support activities

Firm infrastructure

Human resource management

Technology

Procurement

Then map the support activities:

• Firm infrastructure: leadership, accounting, finance, legal, planning, public affairs and general management.
• Human-resource management: recruitment, development, reward, retention and, where necessary, discipline or exit.
• Technology: research and development of equipment, software, products and processes used across the chain.
• Procurement: acquisition of the inputs and services required by all activities.

Tailor the labels where it clarifies the economics. Technology may become information technology as a support activity while product and production R&D appear as distinct primary activities. Procurement can be strategically central even though the generic diagram labels it support, particularly where outsourcing makes supplier capability part of delivery.

For each activity, compare cost, quality, speed, assets, know-how and customer contribution with relevant competitors. Examine links: a procurement saving that reduces service reliability may destroy more value elsewhere than it creates.

Use the analysis at business or strategic-business-unit level where support activities are genuinely shared. Segment-level chains are useful only when activities and economics differ enough to justify separate mapping.

Top practical tip

Treat support activities as part of every primary activity’s performance and analyse the linkages that create cost or differentiation advantage.

Top pitfall

Do not repeat the same whole-business chain for every segment when infrastructure, people systems and procurement are shared across them.

Further reading

• Porter, M.E. (nineteen eighty-five). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
• Porter, M.E. (nineteen ninety-six). “What Is Strategy?” Harvard Business Review.