Porter's value chain

In one paragraph

Every business is a chain of activities, each adding some value and incurring some cost. Advantage comes from doing specific links better or cheaper than rivals — not from being generally good.

Primary activities run along the chain: inbound logistics (getting materials in), operations (making the thing), outbound logistics (getting it to the customer), marketing and sales, and service (after-sales).

Support activities sit across all of them: procurement, technology development, human resource management and firm infrastructure (finance, planning, legal).

What it is for

It forces a specific question rather than a general one. Not 'are we competitive?' but 'in which of these nine activities are we genuinely better, and in which are we carrying cost for no advantage?'

That produces two decisions: invest in the links that differentiate you, and consider outsourcing the ones where you are neither better nor cheaper than someone who specialises.

How to actually use it

• Map your own nine boxes and mark each one better, same, or worse than your main competitor. Almost nobody is better at more than two, and those two are your actual strategy.
• Look hardest at Service. It is the most commonly under-invested link and the one customers remember.

Where it breaks down

• Designed for manufacturing, and it fits linear physical processes better than services, software or platforms where value is co-created with the customer.
• It analyses your own chain; increasingly the relevant chain runs across several organisations.

If you are being examined on it

Pick two activities and go deep on how they create advantage, rather than describing all nine.

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