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What Is a Value Chain?

Understanding value chains, components of a value chain, examples of value chains.

• Business Essentials

Value Chain: Definition, Model, Analysis, and Example

A value chain is a series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer's door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production.

A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of a value-chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost.

Investopedia / Dennis Madamba

Key Takeaways

• A value chain is a step-by-step business model for transforming a product or service from idea to reality.
• Value chains help increase a business's efficiency so the business can deliver the most value for the least possible cost.
• The end goal of a value chain is to create a competitive advantage for a company by increasing productivity while keeping costs reasonable.
• The value-chain theory analyzes a firm's five primary activities and four support activities.

Because of ever-increasing competition for unbeatable prices, exceptional products, and customer loyalty, companies must continually examine the value they create in order to retain their competitive advantage . A value chain can help a company to discern areas of its business that are inefficient, then implement strategies that will optimize its procedures for maximum efficiency and profitability.

In addition to ensuring that production mechanics are seamless and efficient, it's critical that businesses keep customers feeling confident and secure enough to remain loyal. Value-chain analyses can help with this, too.

The overarching goal of a value chain is to deliver the most value for the least cost in order to create a competitive advantage.

Michael E. Porter, of Harvard Business School, introduced the concept of a value chain in his book, Competitive Advantage: Creating and Sustaining Superior Performance . He wrote: "Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product."

In other words, it's important to maximize value at each specific point in a firm's processes.

In his concept of a value chain, Porter splits a business's activities into two categories, "primary" and "support," whose sample activities we list below. Specific activities in each category will vary according to the industry.

Primary Activities

Primary activities consist of five components, and all are essential for adding value and creating competitive advantage:

• Inbound logistics include functions like receiving, warehousing, and managing inventory.
• Operations include procedures for converting raw materials into a finished product.
• Outbound logistics  include activities to distribute a final product to a consumer.
• Marketing and sales  include strategies to enhance visibility and target appropriate customers—such as advertising, promotion, and pricing.
• Service  includes programs to maintain products and enhance the consumer experience—like customer service, maintenance, repair, refund, and exchange.

Support Activities

The role of support activities is to help make the primary activities more efficient. When you increase the efficiency of any of the four support activities, it benefits at least one of the five primary activities. These support activities are generally denoted as overhead costs on a company's income statement :

• Procurement concerns how a company obtains raw materials.
• Technological development is used at a firm's research and development (R&D) stage—like designing and developing manufacturing techniques and automating processes.
• Human resources (HR) management  involves hiring and retaining employees who will fulfill the firm's business strategy and help design, market, and sell the product.
• Infrastructure  includes company systems and the composition of its management team—such as planning, accounting, finance, and quality control.

Starbucks Corporation

Starbucks (SBUX) offers one of the most popular examples of a company that understands and successfully implements the value-chain concept. There are numerous articles about how Starbucks incorporates the value chain into its business model.

Trader Joe's

Another example is privately held grocery store Trader Joe's , which also has received much press about its tremendous value and competitive edge. Because the company is private, there are many aspects of its strategy that we don't know. However, when you enter a Trader Joe's store, you can readily observe instances of Trader Joe's business that reflect the five primary activities of the value chain.

1. Inbound logistics. Unlike traditional supermarkets, Trader Joe's does all of its receiving, shelving, and inventory-taking during regular store hours. Although potentially maddening for shoppers, this system creates a ton of cost savings in terms of employee wages alone. Moreover, the logistics of having this work take place while customers are still shopping sends the strategic message that "we're all in this together."

2. Operations.  Here's an example of how a company could apply the value chain creatively. In primary activity number two above, "converting raw materials into finished product" is cited as an "operations" activity. However, because converting raw materials is not an aspect of the supermarket industry, we can use operations to mean any other regular grocery store function. So, let's substitute "product development," as that operation is critical for Trader Joe's.

The company selects its products carefully, featuring items that you generally can't find elsewhere. It's private-label products account for more than 80% of its offerings, which often have the highest profit margins , too, as Trader Joe's can source them efficiently in volume. Another vital piece of product development for Trader Joe's is its taste-testing and chef-partnership programs, which ensure high quality and continuous product refinement.

3. Outbound logistics. Many supermarkets offer home delivery, but Trader Joe's does not. Yet here, we can apply the activity of outbound logistics to mean the range of amenities that shoppers encounter once they are inside a Trader Joe's store. The company has thought carefully about the kind of experience it wants us to have when we visit its stores.

Among Trader Joe's many tactical logistics are its in-store tastings. Usually, there are a few product tastings happening simultaneously, which create a lively atmosphere, and often coincide with the seasons and holidays. The tasting stations feature both new and familiar items that are prepared and served by staff.

4. Marketing and sales. Compared to its competitors, Trader Joe's barely does any traditional marketing. However, its entire in-store experience is a form of marketing. The company's copywriters craft product labels to appeal specifically to its customer base. Trader Joe's' unique branding and innovative culture indicate that the company knows its customers well—which it should, as the firm has actually chosen the type of customers it prefers and has not deviated from that model.

Via this indirect marketing of style and image, Trader Joe's has succeeded in differentiating itself in the marketplace, thus sharpening its competitive edge.

5. Service.  Customer service is paramount for Trader Joe's. Generally, you see twice as many employees as shoppers in their stores. Whatever work they are doing at the moment, the friendly, knowledgeable, and articulate staff are there primarily for you . Employees welcome shoppers' interruptions and will instantly rush to find your item or answer your question. In addition, the company has always employed a no-questions-asked refund program. You don't like it, you get your money back—period.

This list could go on and on before ever reaching the four support activities cited above, as Trader Joe's is a wildly successful example of applying value-chain theory to its business.

Michael E. Porter. " Competitive Advantage: Creating and Sustaining Superior Performance ." Simon and Schuster, 2008.

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What Is a Value Chain Analysis? 3 Steps

• 03 Dec 2020

Successful businesses create value with each transaction —for their customers in the form of satisfaction and for themselves and their shareholders in the form of profit. Companies that generate greater value with each sale are better positioned to profit than those that produce less value.

To evaluate how much value your company is creating, it’s critical to understand its value chain. Below is an overview of what a value chain is, why it’s important to understand, and steps you can take to conduct one and help your company create and retain more value from its sales.

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Understanding the Value Chain

The term value chain refers to the various business activities and processes involved in creating a product or performing a service. A value chain can consist of multiple stages of a product or service’s lifecycle, including research and development, sales, and everything in between. The concept was conceived by Harvard Business School Professor Michael Porter in his book The Competitive Advantage: Creating and Sustaining Superior Performance .

Taking stock of the processes that comprise your company’s value chain can help you gain insight into what goes into each of its transactions. By maximizing the value created at each point in the chain, your company can be better positioned to share more value with customers while capturing a greater share for itself. Similarly, knowing how your firm creates value can enable you to develop a greater understanding of its competitive advantage .

Components of a Value Chain

According to Porter’s definition, all of the activities that make up a firm's value chain can be split into two categories that contribute to its margin: primary activities and support activities.

Primary activities are those that go directly into the creation of a product or the execution of a service, including:

• Inbound logistics : Activities related to receiving, warehousing, and inventory management of source materials and components
• Operations : Activities related to turning raw materials and components into a finished product
• Outbound logistics : Activities related to distribution, including packaging, sorting, and shipping
• Marketing and sales : Activities related to the marketing and sale of a product or service, including promotion, advertising, and pricing strategy
• After-sales services : Activities that take place after a sale has been finalized, including installation, training, quality assurance, repair, and customer service

Secondary activities help primary activities become more efficient—effectively creating a competitive advantage—and are broken down into:

• Procurement : Activities related to the sourcing of raw materials, components, equipment, and services
• Technological development : Activities related to research and development, including product design, market research , and process development
• Human resources management : Activities related to the recruitment, hiring, training, development, retention, and compensation of employees
• Infrastructure : Activities related to the company’s overhead and management, including financing and planning

What Is Value Chain Analysis?

Value chain analysis is a means of evaluating each of the activities in a company’s value chain to understand where opportunities for improvement lie.

Conducting a value chain analysis prompts you to consider how each step adds or subtracts value from your final product or service. This, in turn, can help you realize some form of competitive advantage, such as:

• Cost reduction , by making each activity in the value chain more efficient and, therefore, less expensive
• Product differentiation , by investing more time and resources into activities like research and development, design, or marketing that can help your product stand out

Typically, increasing the performance of one of the four secondary activities can benefit at least one of the primary activities.

How to Conduct a Value Chain Analysis

1. Identify Value Chain Activities

The first step in conducting a value chain analysis is to understand all of the primary and secondary activities that go into your product or service’s creation. If your company sells multiple products or services, it’s important to perform this process for each one.

2. Determine Activities' Values and Costs

Once the primary and secondary activities have been identified, the next step is to determine the value that each business activity adds to the process, along with the costs involved.

When thinking about the value created by activities, ask yourself: How does each increase the end user’s satisfaction or enjoyment? How does it create value for my firm? For example, does constructing the product out of certain materials make it more durable or luxurious for the user? Does including a certain feature make it more likely your firm will benefit from network effects and increased business?

Similarly, it’s important to understand the costs associated with each step in the process. Depending on your situation, you may find that lowering expenses is an easy way to improve the value each transaction provides.

3. Identify Competitive Advantage Opportunities

Once you’ve compiled your value chain and understand the cost and value associated with each step, you can analyze it through the lens of whatever competitive advantage you’re trying to achieve.

For example, if your primary goal is to reduce your firm’s costs, you should evaluate each piece of your value chain through the lens of reducing expenses. Which steps could be more efficient? Are there any that don’t create significant value and could be outsourced or eliminated to substantially reduce costs?

Similarly, if your primary goal is to achieve product differentiation, which parts of your value chain offer the best opportunity to realize that goal? Would the value created justify the investment of additional resources?

Using value chain analysis, you can uncover several opportunities for your firm, which can prove difficult to prioritize. It’s typically best to begin with improvements that take the least effort but offer the greatest return on investment .

One Piece of the Puzzle

Value chain analysis can be a highly effective means of understanding and contextualizing your business’s processes, but it’s just one tool at your disposal. There's a host of other frameworks and concepts that can help you evaluate organizational performance, craft winning strategies, and be more effective in your role.

Ready to learn additional frameworks that can enable you to make smarter business decisions? Explore our eight-week course Economics for Managers and other online Strategy courses , and find out more about how to develop effective pricing strategies.

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The Straightforward Guide to Value Chain Analysis [+ Templates]

Published: May 31, 2023

What's your business' competitive edge? A value proposition helps businesses identify what sets them apart from competitors.

But how can you tell if your business activities create the most value for your customers and result in a strong profit margin? One way to get there is through conducting a value chain analysis.

Let's take a deeper look into value chain analysis and learn how you can analyze your business activities.

We’ll cover:

What is a value chain?

• What is a value chain analysis?
• Porter’s Value Chain Analysis

How to Create a Value Chain Analysis

Value chain analysis example, value chain analysis templates.

• A value chain is used to describe all the business activities it takes to create a product from start to finish (e.g., design, production, distribution, and so on). A value chain analysis gives businesses a visual model of these activities, allowing them to determine where they can reduce costs.

What is Value Chain Analysis?

Value chain analysis is a strategic process where a firm evaluates its internal activities to identify how each contributes to the firm's competitive advantage. The ultimate goal of a value chain analysis is to pin down the practices and processes that differentiate a firm from its competitors — for better or worse.

Value chain analysis is a way for businesses to analyze the activities they perform to create a product. Once the activities are analyzed, a business can use the results to evaluate ways to improve its competitive advantage.

While one of the goals of value chain analysis is to improve operational efficiency, its final and most important goal is to establish an advantage over competitors.

Competitive Advantage

Competitive advantage is what sets your business apart from competitors. You'll need a clear idea of your target market to develop an advantage.

If you're an entrepreneur interested in clearly defining your business' target audience, find the ideal niche market for launching or selling your products. You’ll also need to know the benefit your product provides to the target market and understand your competitors’ offerings.

As you complete your value chain analysis, you’ll identify the edge you’re trying to gain over the competition. Firms typically choose between two types of competitive advantage: cost advantage and differentiation advantage.

Cost Advantage

A cost advantage strategy aims to become the lowest-cost provider in your industry or market. Companies that excel with a low-cost strategy have extreme operational efficiency and use low-cost materials to reduce the overall price of their product or service.

Examples include McDonald's and Walmart.

Differentiation Advantage

When using a differentiation strategy, you offer a unique or highly specialized product to gain a competitive advantage. The business needs to dedicate time and resources to innovation, research, and development.

A successful differentiation strategy allows the business to set a premium price for its product or service. Examples include Starbucks and Apple.

It's best to pick a single competitive advantage to focus your efforts on. Depending on which competitive strategy you choose, the goal of your value chain analysis will be to either reduce costs or differentiate to improve margins.

Then, you'll have a clear idea of your business' goals and how you plan to provide value. It also narrows the scope of changes that need to be made to improve efficiency.

Value Chain Analysis Template

Use this template to outline and visualize your:

• Outbound Logistics
• Technology Development
• Inbound Logistics

You're all set!

Click this link to access this resource at any time.

Fill out the form to access the free template.

Porter's value chain analysis.

But how would you choose which competitive advantage to go for? Using Porter’s value chain model, you can look at your business activities, pinpoint a unique value proposition , and determine the best way to establish dominance over your competition.

Michael Porter, a Harvard Business School professor, introduces a simple value chain model in his book Competitive Advantage . He lays out the steps for performing a value chain analysis and places business activities into two categories: primary and support.

Identifying the primary and support activities is critical in creating a value chain analysis. You’ll know where you spend the most resources, where your business can improve, and where your competitors may have an edge over you.

Let’s take a look at these activities below.

Primary and Support Activities

Primary and support activities are the processes and systems a business uses to develop its offering. The five primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and services. Support activities are firm infrastructure, HR management, technology development, and procurement.

Primary Activities

There are five primary activities, including all the actions that go into creating a business' offering. Let's explore them below.

• Inbound logistics. This is how materials and resources are gained from suppliers before the final product or service can be developed. In your analysis, take a look at the locations of your suppliers and shipping costs from their facility to yours.
• Operations. Operations are how the materials and resources are produced, resulting in a final product or service. Here, you may look at the cost of running your warehouse, machinery, and assembly lines.
• Outbound logistics. Once a product is finished, it needs to be distributed. Outbound logistics describes this process. Consider your shipping costs to consumers, warehousing fees, distributor relations, and order processing operations.
• Marketing and sales. This is how your product or service is presented and sold to your ideal target market. In your analysis, take into account advertising costs, promotional costs, reach, and cost-per-acquisition .
• Services. This is the support a business provides for the customer, which can include support and training for the product, warranties, and guarantees. You’ll look at repair costs, product training costs, product adjustment frequency, and more.

Support Activities

Support activities help the primary activities in creating an advantage over competitors. They include:

• Firm infrastructure. This entails all the management, financial, and legal systems a business has in place to make business decisions and effectively manage resources.
• Human resource management . Human resource management encompasses all the processes and systems involved in managing employees and hiring new staff. This is especially important for companies that provide in-person service.
• Technology development. Technology development helps a business innovate. This can be used in various steps of the value chain to gain an advantage over competitors by increasing efficiency or decreasing production costs.
• Procurement . This is how the resources and materials for a product are sourced. The goal is to find quality supplies that fit the business' budget.

Value chain analyses require research and can take time to develop. Below are the general steps it takes to create a value chain analysis.

Value Chain Analysis Steps

• Determine the business' primary and support activities.
• Analyze the value and cost of the activities.
• Refer to your competitors' value chains.
• Understand your customer base's perception of value.
• Identify opportunities to gain a competitive advantage.

It’s now time to bring it all together in a unified process to create a value chain analysis. Let’s get started.

1. Determine the business' primary and support activities.

Together, the primary and support activities make up the value chain. They include each action required in developing a product or service, from raw material to final product.

2. Analyze the value and cost of the activities.

The team tasked with creating the value chain analysis should brainstorm ways each activity provides value to customers and the business as a whole. Compare the activity to the competitive advantage you're trying to achieve and see if it supports the goal.

After the value analysis is complete, look at the cost of the activities. Is the activity labor-intensive? How much does X raw material cost?

Asking similar questions will help identify which activities are cost-effective and which are not. This is where areas for improvement can be identified.

3. Refer to your competitors' value chains.

A value chain analysis improves your competitive advantage, so any business that conducts one should keep that information close to the chest. In all likelihood, you won't happen upon a nuanced, in-depth picture of your competitors' primary and support activities.

Still, you can get some concept of your industry peers' value chains through competitive benchmarking — using relevant metrics to compare your company to competitors’. The practice is multifaceted and is used for three primary functions:

• Strategic benchmarking , comparing business models and strategies.
• Process benchmarking , comparing business and operational processes.
• Performance benchmarking , comparing business outcomes based on a set of metrics.

Once you've identified the benchmarking category you'd like to pursue, you can pick the competitors you'd like to measure yourself against. Then, you'd choose metrics that you can realistically collect data for and leverage resources that enable the relevant research.

4. Understand your customer base's perception of value.

The customer is always right. So however valuable your customers perceive your product or service to be is exactly how valuable it actually is. Customer perception might be the most crucial factor in framing your competitive advantage, so you need to have a pulse on it.

Customer surveys, digging into any, and doing anything that will cue your target market’s perception of you are central to conducting a fully realized value chain analysis.

5. Identify opportunities to gain a competitive advantage.

Once the value chain analysis is complete, the primary stakeholders in the business can see an overview of where the business is excelling and where improvements can be made operationally.

Begin with the improvements that take minor changes and provide high-impact results. After the easy wins are identified, you and your team can tackle the bigger challenges that might be hindering efficiency.

The value chain analysis gives businesses a clear idea of how to adjust their actions and processes to provide the most value to their target market and increase profit margins for the company.

Still not sure how it all works? Let’s take a look at an example.

Completing a value chain analysis allows businesses to examine their activities and find competitive opportunities.

For example, McDonald's mission is to provide customers with low-priced food items. The analysis helps McDonald's identify areas for improvement and activities that add value to their products and services.

Below is an example of a value chain analysis for McDonald's and its cost leadership strategy.

• Inbound Logistics : McDonald's has pre-selected, low-cost suppliers for the raw materials for their food and beverage items. It sources suppliers for items like vegetables, meat, and coffee.
• Operations : The business is a franchise, and each McDonald's location is owned by a franchisee. There are more than 39,000 McDonald's locations worldwide.
• Outbound Logistics : Instead of formal, sit-down restaurants, McDonald's has restaurants that focus on counter-service, self-service, and drive-through service.
• Marketing and Sales : Its marketing strategies focus on media and print advertising, including social media posts, magazine advertisements, billboards, and more.
• Services : McDonald's strives to achieve high-quality customer service. It provides its thousands of employees with in-depth training and benefits so they can best assist their customers.
• Firm Infrastructure : The McDonald’s corporation has both C-suite executives and Zone Presidents who oversee the firm’s operations in various regions, with a general counsel overseeing legal matters.
• Human Resource Management : It maintains a career page where job seekers can apply to both corporate and restaurant roles. It pays hourly and salaried rates and promotes its tuition assistance program to attract talent.
• Technology Development : The restaurant has invested in touch kiosks to facilitate ordering and increase operational efficiency.
• Procurement : The firm uses Jaggaer , a digital procurement firm, to establish relationships with key suppliers across various regions of the world.

Here are a few value chain analysis templates to help you develop your own.

1. HubSpot's Value Chain Analysis Template

Available via Google Sheets and Google Slides, this interactive version of Porter's Value Chain Analysis can be customized to outline your company's value chain. Get your free copy .

2. Porter's Value Chain Analysis Model

This Porter's value chain analysis template provides a general overview of business activities.

3. Template for Cost Profit Margin

If you're analyzing the cost versus expected profit margin from your primary and support activities, this template's for you.

4. Template for Educational Institutions

Rather than analyzing the activities that go into creating a product or service, this model looks at the value chain involved in developing academic research.

5. Template for Products

Use this template to analyze the activities it takes to create a product from raw material to finished product.

6. Template for Financial Acquisitions

Grow Your Business with Value Chain Analysis

Your value chain analysis will help you identify areas for improvement and the activities that provide the most value to your customers and your business as a whole. Eliminating inefficient business activities speeds up production, improves your competitive advantage, and increases profit margins.

Editor's note: This post was originally published in November 2018 and has been updated for comprehensiveness.

Don't forget to share this post!

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Outline your value chain analysis with this free template.

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Value Chain Analysis: Overview, How To Use It (With Examples)

Every business wants to gain a competitive edge. But putting together a highly effective strategy to identify and capitalize on competitive opportunities is easier said than done.

Lowering costs or improving operational efficiency can be difficult if you aren’t clear about how your organization’s activities fit together to create value for your customers. 

Michael Porter's value chain analysis may be your solution. In this article, you’ll get an overview of the most important concepts and the step-by-step process you can use to conduct a value chain analysis.

• Value chain analysis is a framework that aids strategists in analyzing internal activities that impact business success.
• It can be used by businesses of all sizes to gain a competitive advantage through differentiation and low-cost strategies.
• Pros: Value chain analysis shows how the activities in a company’s value chain are linked to each other and influence competitive advantage.
• Cons: Businesses must have in-depth knowledge about their operations and market to effectively use value chain analysis.

What Is a Value Chain?   

Let’s start with the definition of the value chain. A value chain is a set of activities, processes, and inputs that go into the creation of the final product and deliver value to a  business’ customers. 

All companies have value chains. Here are some examples: 

• An e-commerce store’s value chain allows a person to visit a website, buy a product, and then have it arrive at their doorstep.
• A brewing company’s value chain turns hops, water, and barely into a bottled drink that can be sold at bars or stores.
• A professional services firm’s value chain turns expertise, methods, and experience into specialized tax advisory services for multinational enterprises. 

The output of any value chain is the value or utility it provides consumers. Organizations make their money from the difference between the costs of the value chain and the value they offer (profit margin).

An example of a value chain diagram illustrating the concept. Image source: Harvard Business School

What is value chain analysis? 

A value chain analysis is a strategic framework that helps you analyze nine business activities needed to create a product or service and deliver it to its customers. The goal is to discover gaps and identify opportunities to: 

• Increase operational efficiency
• Reduce wasted resources 
• Increase financial performance and profitability
• Increase the quality of a product and reduce costs simultaneously
• Identify a sustainable competitive advantage

A value chain analysis offers a different perspective for businesses engaging in strategic planning to increase their competitive advantage. Rather than focusing on each activity separately, businesses should look at all crucial activities together.

“Management should work to organize the set of activities so they reinforce each other rather than conflict or cancel each other out… This approach forces managers to look beyond the boundaries of their own unit or organizations and see themselves as part of a larger system. Managing interdependencies becomes as important as managing within the organization’s walls.” - Michael E. Porter, Junaid Nabi, and Thomas H. Lee.

What is a competitive advantage? 

According to the value chain framework, companies can increase their competitive advantage by differentiating products or services or lowering costs.

Both of these actions will increase value for consumers and a larger profit margin for the company.  

Cost advantage

A cost advantage strategy aims to increase competitive advantage by lowering the cost of manufacturing a product or offering a service. Businesses should consider this approach if they want to become a cost leader in the market or if there is very little room for product differentiation.

Some examples of companies include Amazon , Walmart , Ford , and Toyota .

Differentiation advantage 

A differentiation strategy aims to increase competitive advantage by increasing the perceived value in the customer’s mind and justifying a product’s price tag. As an example, let's look at Apple. When it comes to iPhone's perceived value, it means the difference between spending a thousand dollars on the iPhone instead of buying a rival's cheaper alternative (but not necessarily lower quality). Diversification is a good strategy for companies who are unable to compete on cost or want to get out of a race to the bottom.

Some additional examples of companies include Starbucks and Coca-Cola.

Primary and Support Activities

Porter’s value chain model divides businesses into nine internal activities under two categories: primary and secondary activities.

Primary activities 

Primary activities directly impact the success of products and services in the market. These activities include inbound logistics, operations, outbound logistics, and marketing and sales.

Inbound Logistics involves receiving, storing, managing, and transporting the materials or components needed for a product or service. For example, a steel manufacturer would need to secure iron ore, coal, silica, and other source materials needed to produce final products in their factories. 

Here are some examples of activities:

• Receiving materials
• Designating storage space
• Ensuring proper storage
• Managing inventory

Operations refer to business processes that turn source materials into finished products. This includes designing and manufacturing products or services. For example, a vehicle manufacturer’s operations could include raw material quality checks, assembly processes, and quality assurance during and after the production process.

Outbound Logistics involves storing, transporting, and distributing finished products to consumers on time and in line with market demand. For example, a semiconductor company based in China or Taiwan must get products to various companies worldwide to make money. This whole process might include activities such as:

• Logistical planning
• Distribution

Marketing and Sales are activities related to promoting, advertising, and pricing products and services. For example, a professional services firm must get its offer in front of the right audience that needs its services and will pay for them.

Example activities:

• Market research
• Digital marketing
• PR activities
• Selecting advertising channels
• Advertising campaigns

After-Sales Services are activities that ensure a positive customer experience after a sale has happened. For example, an appliance maker or car manufacturer must offer after-sale support and services to ensure their customers are happy. 

• Customer service
• Account management
• Returns and replacements
• Client success

Support activities

Support activities indirectly impact the value chain of products and services for businesses. 

Procurement activities deal with the sourcing, selecting, and purchasing of raw materials, equipment, and components for a business.

Infrastructure relates to managerial, financial, and legal systems that help an organization make decisions, operate, and manage resources.

Human Resource Management deals with an organization's people and includes recruitment, training, compensation, and employee management.

Technological Development relates to innovation research, development, and implementation at various value chain stages to improve efficiencies and products.

How to Perform a Value Chain Analysis in 6 steps

Your business should perform a value chain analysis on a regular basis. In an ever-changing market, it's crucial to keep an eye on how you stack up against your competitors. Follow these steps to assess your value and refine your operations.

1. Identify primary and support activities 

The first step is to determine what is the perceived value of your product or services, and identify the activities in the process chain that create the most customer value. Break down all business activities of the organization into either primary or support activities. Each activity should also be broken down into its basic elements. 

This involves a correct identification of direct activities (activities that generate value on their own), indirect activities (activities that support direct activities), and quality assurance (activities that ensure direct and indirect activities meet the requirements). 

For example, if you’re analyzing your inbound logistics activities, you’ll need to look at receiving, storage, warehousing, inventory management, etc. 

💡Tip: This step requires adequate knowledge of the company’s operations. Organize a brainstorming session and bring in various stakeholders from your organization. You’ll get access to different perspectives and insights that you might not be able to discover on your own.

2. Evaluate the cost of each activity

If you want to compete based on cost, you need to focus on the cost of each activity. Go through the business’s primary and support activities and answer these two questions:

• What does the activity cost the company?
• How much does it contribute to overall product cost?

Let’s say that you are a manufacturer of wooden chairs. The overall product cost of a chair is $85. In the next steps, you should identify each activity and percentage that contribute to the overall cost. 

Is there an activity that accounts for a large percentage of the cost? If so, you should look at opportunities to reduce the costs of that specific activity first. 

If your goal is to create a cost advantage, then you also need to understand the cost drivers. Michael Porter identified 10 cost drivers:

• Economies of scale
• Capacity utilization
• Linkages among activities
• Interrelationships among business units
• Degree of vertical integration
• Timing of market entry
• A policy of cost or differentiation
• Geographic location
• Institutional factors

Porter's 10 cost drivers are factors that can affect an activity's cost. By controlling these cost drivers, an organization can improve efficiency, create value, and differentiate itself from the competition.

3. Identify which activities create value for your customers

If you want to create an action plan based on differentiation, you should focus on a value chain analysis with a slightly different approach. When it comes to value, you should look at it from your customer's perspective. 

Think along the lines of:

• Product features
• Marketing & Branding
• Product design
• Services around your product that contribute to positive customer experience
• Customization
• Complementary products

There are many ways to differentiate a product, including improving its quality, offering faster delivery, or adding more features. Additionally, it can mean updating your packaging, changing how items are sold, and trying out new marketing strategies.

Does most of your product or service value come out of customer support or brand identity? If so, you might want to consider investing more resources and budget into those activities.

4. Analyze the relationship between different activities

Look at the links between each activity in the business value chain. A change in one activity might affect another's profitability. 

For example:

• Procuring higher-grade materials may lead to better product quality and fewer product returns. 
• Outsourcing specific tasks like accounting and customer service may allow you to reallocate internal resources elsewhere.
• Renting out warehouse space during quieter periods could help reduce your inbound and outbound logistics costs.

5. Identify your best opportunities for competitive advantage

If you chose a differentiation approach, ask yourself which parts of your value chain offer the best opportunity to achieve differentiation. The analysis may suggest that you need greater or more expensive resources to increase product value, create loyalty, or differentiate yourself from your competitors. Investments in additional resources must be justified by the value created. 

If your main goal is to create value through cost-cutting, take a look at each piece of your value chain through the lens of reducing expenses. Which steps could be more efficient? Some of the resulting opportunities may be as simple as negotiating with suppliers on raw material costs. Or identifying activities that are better served by outsourcing. In some cases, you can design a product, but outsource the manufacturing or building of the product.

Get as clear as possible about what strategy you intend to pursue and how. Identify who will have to execute chosen initiatives and where will these actions have the most impact on value. This is essential for the next step.

6. Execute your strategy

The Value Chain is a worthless exercise if it is not followed by an action plan and execution . After completing your value chain analysis, select a few quick wins and put them into motion right away. Don’t fall into a cycle of planning and revising. Start executing as soon as you have an idea of which strategy you want to pursue. 

However, you need to have in place a strong management structure that will help you monitor progress, hold teams accountable , and empower leaders to lead the change. 

As an example, Cascade helps you build your action plan and assign an owner to each initiative and objective. This will give you a high-level overview of the performance of your teams and identify any setbacks before they become a serious problem. This is important if your value chain strategy includes changes across multiple areas at the same time. You’ll be able to keep your cross-functional teams aligned and accountable for progress. 

A strategy execution platform like Cascade can streamline the process of communicating your action plans, measuring, and executing strategic initiatives.

Value Chain Analysis Example: Ikea

IKEA is one of the largest furniture manufacturers and retailers in the world. Here’s how a value chain analysis would look for this global brand.

Inbound Logistics 

• IKEA inbound logistics is a major source of value creation for the business . They have 1220 suppliers worldwide. The company has strategically placed distribution centers worldwide and trading offices near suppliers to minimize transportation costs. 
• A trading service office located near a supplier location allows the company to monitor production, negotiate prices, and check the quality of raw materials and products they purchase.
• With IKEA's flat pack-assembly principle, packaging costs are reduced and inbound logistics are simplified.

Operations  

• The company operates a franchise business with over 458 locations worldwide. This helped them to expand internationally faster and at lower costs. They selectively outsource manufacturing and sell unassembled items to reduce unnecessary overheads.
• IKEA has 40 furniture production units, most located in Europe, and two factories that produce furniture components (screws, plugs, etc.). With a large number of manufacturing units located in Eastern Europe and China, the company saves a significant amount of money on human resources.

Outbound Logistics 

• IKEA minimized its expenses by creating its own distribution system and distribution centers. Customers are responsible for costs associated with the transportation of goods purchased from IKEA stores. 

Marketing and Sales

• The company markets the IKEA brand through media advertising, promotions, product placements, social media, and digital marketing . In order to cut marketing costs, one of their strategies was to cancel physical catalogs. 

After-Sales Services

• IKEA’s after-sale services include a 365-day exchange/return policy, measuring, assembly, and installation assistance. They also offer assistance with sourcing spare parts and operate furniture removal and recycling services. However, they are not famous for superb customer service which might be a result of their cost-cutting initiatives.

Support activities 

Firm Infrastructure

• Corporate management is centralized in the Inter IKEA Group, which oversees the strategic direction of the business. They also have an operations management team to manage supply chains , while franchisees manage individual stores.

Human Resource Management 

• IKEA leaves in-store hiring and HR management to franchisees. However, they offer employees skills development, training resources, and general well-being support.

Technological Development 

• IKEA utilizes integrated cloud computing, improving inventory management and data storage to enhance various aspects of their value chain .

Procurement

• The company buys a combination of raw materials and finished products in volume to reduce purchase prices on key category choices and only utilizes large suppliers capable of delivering their required quantities.

📚 Recommended reading: Strategy study: How IKEA became a household name 

Benefits of Value Chain Analysis 

The main benefits of value chain analysis are: 

• It helps you to identify value gaps and carve out your competitive advantage so you can formulate your differentiation strategy 
• Gives a clear understanding of the interconnectedness of business activities and how they influence business success.
• Can help maintain alignment when planning and executing cost advantage and product differentiation strategies.
• Allows leaders to systematically examine business units for strengths and weaknesses that can be addressed.

Cons of Value Chain Analysis 

The main cons of value chain analysis are: 

• The goal of value chain analysis is to break things down. Finer details are important, but if you rely on them too heavily, you may lose sight of the big picture.
• It can be difficult to apply value-chain analysis to complex business structures.
• Getting accurate, up-to-date data and metrics to perform a value chain analysis can take time and effort.

Value Chain Analysis + Strategy Execution = 🚀 

Value chain analysis helps businesses understand their operations better and identify sustainable competitive advantage. However, the key is to turn insights into action or you won't see any results.

How to do it? Using a centralized platform to manage your strategic initiatives in one place. This will help you keep your teams aligned and quickly adapt when disruptions occur. 

Thousands of teams around the world rely on Cascade's strategy execution platform to see faster results from their strategies. 

Curious to see it in action? Take it for a spin for free or book a call with a Cascade expert.

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Comprehensive Guide to Value Chain Analysis with Examples by Industry

By Kate Eby | April 11, 2017 (updated January 21, 2023)

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The competitive environment for organizations of all shapes and sizes - and in all industry verticals - is more challenging than ever before. Technological advancements have enabled businesses to design and build more quickly, sell across multiple channels, react instantly to changing demands, and cut costs simply by outsourcing an activity. To achieve competitive advantage, an organization ultimately delivers more value at an equal or lower cost. Value chain analysis is the method for determining the critical path to enhance customer value while reducing costs. 

Since the mid-1980s, Michael Porter’s value chain analysis (i.e., his original five forces value chain model) has been a useful tool for numerous companies to develop and sustain breakthrough competitive advantages. Today, there is some concern that as new technology changes how a society does business and how a consumer relates to goods and services, Porter’s 30-year-old conception of value chain analysis will not remain relevant and useful.

A value chain refers to the activities that take place within a company in order to deliver a valuable product to market. The value chain system was first described in Tableau Economique , written in the 18th century by the French economist Francois Quesnay. Many experts since have expanded on this source, as well as Porter’s massively influential model, including Robert M. Grant (contemporary strategy analysis) and Wassily Leontief (the input-output model).  However, the value chain analysis pioneered and illustrated by Michael Porter in his groundbreaking book, Competitive Advantage , remains an indispensable methodology. Having evolved and adapted over the years, companies and industry specialists continue to successfully implement Porter’s value chain analysis. The practice is now also a vital part of societal global initiatives. According to Angel Gurria, OECD Secretary-General, “International trade and investment have undergone accelerated changes with the emergence of global value chains.” A global value chain involves the coordination of activities, people, and processes across geographies. For more information, see The Emergence of Global Value Chains: What Do They Mean for Business ?

In the following discussion, you’ll discover everything you need to know about value chain analysis, including generous examples by industry.

What Is Value Chain Analysis? Porter’s Concept of Value Chain Analysis

Value chain analysis focuses on analyzing the internal activities of a business in an effort to understand costs, locate the activities that add the most value, and differentiate from the competition. To develop an analysis, Porter's model outlines primary business functions as the basic areas and activities of inbound logistics, operations, outbound logistics, marketing and sales, and service. The model also identifies the discrete tasks found in the important support activities of firm infrastructure, human resources management, technology, and procurement. 

The overall goal of value chain analysis it to identify areas and activities that will benefit from change in order to improve profitability and efficiency. For more on Porter’s value chain model and a detailed description of the goals, functions, and tasks of a value chain, read The Art of Value Chain Analysis . Here you will learn about Porter’s primary and supporting value chain activities and how to apply value chain analysis to your business.

What are the Cost Drivers of Value Chain Analysis?

Cost advantage results from a reduction in costs associated with activities in a value chain. After the value chain has been defined, it’s important to associate costs to the activities and then make adjustments for efficiency. Porter’s 10 cost drivers are factors that can impact the cost of an activity. An organization can aim to control these cost drivers in order to improve efficiency, add value, and differentiate.

• Economies of scale
• Learning and spillovers
• Pattern of capacity utilization
• Interrelationships
• Integration
• Organization policies
• Institutional factors

Value chain analysis is more than a straightforward cost-to-profit model. It expands on the principles of economies of scale and capacity. There are limits to lowering costs and increasing capacity that can inhibit business growth. Value chain analysis stresses that competitive differentiation can also focus on the perceived value to the customer that justifies a product's price tag. Finding these perceived values could mean the difference between getting a consumer to spend three dollars on a cup of Starbuck's coffee rather than one dollar on a competitor's discount brand. 

Who Uses Value Chain Analysis?

The management and analysis of value chains are becoming both industry specific and increasingly global, taking into account fast-changing markets, adjustments necessitated by new technologies, delivery methods, trade and government involvement, and fast-paced and fickle consumer demands. Add to that the global value chain's emphasis on sustainability, as well as its goal to expand the economic prospects of the world's poorest nations by fostering partnerships (especially in the agri-business sector). An example of this is discussed in the December 2009 briefing paper, Upgrading Along Value Chains: Strategies for Poverty Reduction in Latin America by Jonathan Mitchell, Christopher Coles, and Jodie Keane. In both micro and macro-change management strategies, business leaders continue to successfully implement Porter’s deceptively simple value chain framework.

The reason for this continued success is that Porter's framework is, first and foremost, a general model. It is not meant to be a standalone, rigid framework that creates barriers between functions or gives equal weight to every task that brings a product or service to market. Various departments, including human resources, marketing, sales, and operations utilize value chain analysis. Similarly, a wide variety of industries such as enterprise, manufacturing, retail, service, and technology, in addition to governments and their agencies, successfully adapt the basic value chain concept, and understand that not all functions or activities need to receive the same level of scrutiny. 

For example, the Department of Defense (DOD) has a design-chain operations reference (DCOR) that cites little need to spend time or resources analyzing marketing and sales activities in their overall value chain. Although this is probably an accurate and reasonable evaluation for the DOD’s purposes, it’s one that few other enterprises are likely to echo. 

Therefore, the first order of any value chain strategy is to identify the important tasks and functions necessary to deliver your product or service. Once you identify value activities, you can then focus analysis on where you can add value and discover areas for optimization, differentiation, or cost efficiency. When you complete these aspects of analysis, you’re ready to put together a plan for changes. 

Examples of Value Chain Analysis by Industry

For now and into the near future, value chains are a useful management strategy for many different industries. However, as industries become more global, more cooperative, and more socially aware, they’ve come to perceive value chains differently based on their specific needs. Companies like FedEx see the future as a circular chain that values renewability. The World Bank, the United Nations Conference on Trade Development, and the International Crops Institute for the Semi-Arid Tropics all use global value chains to foster international cooperation to assist the world's poorest countries. 

Companies that depend on global resources are developing initiatives to support global value chains by working with governments, United Nations partners, and economic aid organizations. In fact, in December of 2015, twenty value chain experts from various organizations, including OECD, FAP, ILO, UNIDO, WFP, WTO, ACID/VOCA, and GIZ, gathered for the “Inclusive and Sustainable Value Chain Development” meeting in Vienna, Austria, to discuss inclusive and sustainable agriculture value chains. 

As one of the biggest purchasers of cocoa in the world, Nestlé has developed the "Every Woman, Every Child Initiative." To improve company value, they have committed to providing expertise, sustainable solutions, and social improvements, especially in the area of child labor. A number of companies create partnerships to provide opportunities for overseas development assistance through the development of agri-food value chains, such as those in the macadamia industry in Kenya, the sweet sorghum by-products in India, and the seed nut harvests in Uganda. These initiatives advocate a greatly expanded view of the value chain called collaborative value networks. 

Additional examples include:

• Food and Beverage: Selecting and sourcing high-quality coffee beans, developing loyalty through excellent customer service, and aggressively marketing their brand were key elements in Starbucks’ creation of a unique identity and a robust competitive edge. Rather than focusing on premium pricing, Pizza Hut outpaced the competition by offering fast delivery of a less expensive product. 
• Delivery Service: To increase market share and brand loyalty, FedEx's value chain emphasizes and invests in employee development through excellent human resources initiatives and infrastructure improvements. 
• Retail: Walmart is constantly performing value chain analysis in order to keep costs low for their customers. From regularly evaluating suppliers and integrating in-store and online shopping experiences to remaining innovative in order to differentiate, Walmart is driven by their commitment to helping people save money.

Implementing and Using Value Chain Analysis

Porter’s generic strategies — so named because they can be administered to products or services in all industries — act as a starting point, not an absolute, step-by-step guide. However, Porter’s generic model identifies three general steps in value chain analysis: the initial evaluation of tasks, the location of areas of cross-functionality, and the discovery of dynamic areas of opportunity. For extensive strategies and actionable guidance to support or begin a process of value chain management, consult Michael Porter's book, Competitive Advantage . 

Additionally, to help manage and fulfill the strategies of Porter’s model, there are numerous templates, articles, online courses, and other roadmaps available to develop goals, strategies, and methods of value chain analysis. Many present industry-specific insight, models, and assistance.   For example, approaches that focus on discovering cost advantages and disadvantages include:

• Identifying primary and supporting activities
• Rating the importance of each activity in providing value to the product or service
• Identifying the cost drivers that cause a change in the activity cost
• Identifying linkages and dependencies
• Identifying cost reduction and value improvement opportunities

Approaches with a focus on finding differentiation include:

• Identifying activities that create value for your customers
• Identifying differentiation activities that improve customer value
• Identifying the best opportunity for differentiation

Value chain analysis as a tool also concentrates on finding activity links or, as Porter called them, bridges between both the primary and secondary functions of a department, business unit, or enterprise. Although the model is clear in defining general, discrete functions, there are numerous areas of interactions and cross-functionality that can identify cost opportunities, areas of greater efficiencies, and methods to distinguish a brand. 

Factors that can influence the value you provide include finding and utilizing the right people, motivating the team, remaining relevant, incorporating technology, and listening to customer feedback.

When analyzing the value chain, it is important to include many stakeholders, and to study the entire market to find areas for competitive opportunities. It is also vital to provide clarity and information, and to define goals. There are thousands of activities varying in importance in the primary and supporting areas of the chain, and opportunities are discovered through cooperative research and analysis, brainstorming, surveying, and observation.

Advantages of Value Chain Analysis

The advantages of value chain analysis can be seen by breaking product and service activities into smaller pieces in an effort to fully understand the associated costs and areas of differentiation. With value chain analysis, you can easily identify those activities where you can quickly reduce cost, optimize effort, eliminate waste, and increase profitability.

Analyzing activities also gives insights into elements that bring greater value to the end user. Some of the resulting activities may be as simple as negotiating with suppliers on raw material cost, focusing on end-user experiences that are enhanced by new communication or customer service experiences, and identifying activities that are better served by outsourcing — those that are not a core competency, result in process improvements, or are less expensive when performed by external suppliers. It is common practice for organizations of all sizes and in all industry verticals to outsource to strategic partners.

A company may choose to design a product or service, but use an outsourced provider to build or manufacture the product. When deciding to outsource, it’s important to consider whether the end customer will have a concern with the company outsourcing the specific activity, whether outsourcing impacts delivery time, and of course, the associated costs. In addition to negotiations, creating a better experience, and finding opportunities to outsource, analysis may also advocate the need for greater or more expensive resources that increase product value, develop loyalty, or create differentiation from your competition. 

Disadvantages of Value Chain Analysis

Value chain analysis is no simple feat. Some of the difficulties involve gathering data (which can be labor and time-intensive), identifying the tasks or functions that can add perceived or real value, and developing and deploying the plan. Additionally, it is not always easy to find appropriate information in order to break your value chain down into primary and supporting activities. 

Value Chain Analysis Tips

When implementing value chain analysis, questions of how to identify the relevant tasks, pinpoint areas for cost versus benefit, and locate the best strategies can be arduous for an in-house committee or a project manager. Here are some tips to overcoming these challenges:

• Involve your team in identifying and analyzing activities. Your results will be more thorough than if you attempt to identify them on your own.
• Obtain customer feedback on your results from a trustworthy, well-known customer.
• Decide whether you are trying to reduce costs or differentiate.

Dawn Roberts , a business consultant focused on streamlining processes and making value-based improvements, provides the following advice on how to improve the efficiency of value chains: “Businesses tend to dig into efficiency matters only when market pressures force them. When organizations are experiencing high profits, inefficiencies typically soar. I work with businesses to make their value chains more efficient – freeing up employee time, reducing stressful firefighting, and increasing profitability.” 

Ms. Roberts shares the following pointers on how to make value chains more efficient:

• “Minimize any and all waiting time. Don’t look at your timeline linearly, i.e., one task at a time. Instead, identify tasks you can start simultaneously based on dependencies. This can really help optimize your schedule.
• Standardize whenever possible. Is there a repeatable task that your company duplicates in numerous projects or jobs? If so, find the most optimal approach for that task and standardize it. This will increase efficiency substantially.
• Allow for wiggle room. If you plan for too tight of a timeline, you’ll run into problems. Build in time that allows you to react to uncontrollable interruptions; that is, make a contingency plan. If you don’t need it, great. If you do, it’s better to have planned for unforeseen delays.
• Communicate your timeline to stakeholders. I recommend clearly organized Gantt charts . Communicating these with clients and managers demonstrates organization and dependability. Update your timeline with the progress you’ve made as you move forward. This will help you build trust."

Today’s Impact on Value Chain Analysis

Many companies manage both physical and virtual value chains. The differences in approaches are best illustrated by comparing the consumer experiences of utilizing the services of a brick and mortar bank and those of online banking. Customer service experiences, infrastructure and technology needs, and personnel and training are a few of the many factors to consider when analyzing and adapting these value chains.

In reimagining the basic value chain, you should also study rapid technological advances. The Consumer Goods Forum Board findings recognize that the consumer is now more involved in product development. And, as society onboards new and unknown technologies, value chains need to be continuously reengineered. Societal questions about increased urbanization, the rapid rise of online shopping, and the changing expectations of the consumer are all considerations as valuable as the cost of raw materials, warehousing, and the delivery of any product or service. As companies adapt the basic value chain to the 21st century, many look at this methodology as a journey of transformation rather than a destination. As such, value chain analysis will continue to be a relevant and useful tool to develop and maintain a sustainable, competitive advantage.

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• Strategy Explained
• Business Strategy
• Creating a Successful Strategy
• Corporate Strategy
• The Role of Leaders
• Related Topics
• The Five Forces
• Strategic Positioning

The Value Chain

• Operational Effectiveness vs. Strategy

Developed by Michael Porter and used throughout the world for nearly 30 years, the value chain is a powerful tool for disaggregating a company into its strategically relevant activities in order to focus on the sources of competitive advantage, that is, the specific activities that result in higher prices or lower costs.

A company’s value chain is typically part of a larger value system that includes companies either upstream (suppliers) or downstream (distribution channels), or both. This perspective about how value is created forces managers to consider and see each activity not just as a cost, but as a step that has to add some increment of value to the finished product or service.

Key Concepts

Competitive advantage, set of choices.

Best practices & the value chain

Integrating best practices into the value chain is essential. But doing things effectively is not the same as doing things differently.

Published: 17 November 2023 Contributor: Alexandra Jonker

Value chain analysis is the process of observing and evaluating each business activity involved in the creation of a finished product or service. The purpose of value chain analysis is to find areas of improvement within the value chain that will increase a company’s competitive advantage.

Harvard Business School Professor Michael Porter introduced the concept of a value chain in his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance .

He explains that value chains represent the activities a company performs to design, produce, market, deliver and support its products. These activities are narrower than traditional functions, such as marketing. He writes that a company’s value chain and the way it performs the activities within it are a “reflection of its history, its strategy, its approach to implementing its strategy and the underlying economics of the activities themselves.”

Core to his concept is the idea that value chain activities—from assembling products to training employees—create customer value and are the “basic units of competitive advantage.” 1 Therefore, maximizing the value for each activity is key to market success.

While often used interchangeably, supply chains and value chains are distinct, but interconnected, terms.

A supply chain is the network of suppliers instrumental to product creation—from the providers of raw materials to the organizations that deliver the final product to consumers. This is why supply chains are vital to the activities within a company’s value chain.

Optimized , high-performing supply chains allow value chains to function effectively, improving customer satisfaction and creating greater product value. For example, effective  supply chain management  will minimize cost, waste and time in the production cycle. On the other hand, efficient value chains that maximize value and improve a company’s competitive advantage enable supply chains that produce optimal products that meet customer needs and wants.

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According to Porter, the goal of value chain analysis should be improving the value chain to gain a competitive advantage—delivering the most value, which, in turn, increases profit margins. In his value chain framework, there are two main types of competitive advantage a company can pursue: cost leadership and differentiation.

Cost leadership advantage

Also called a cost advantage, this type of competitive advantage focuses on how to reduce costs by making activities in the value chain more efficient. The goal is to produce a product for a lower price than competitors, sell it at a lower price and still enjoy a higher profit margin. By doing so, companies can work to become the low-cost producers in their industry.

This goal can be accomplished through economies of scale, proprietary technology or preferred access to suppliers. It’s key to remember that products still need to be high quality and comparable to those offered by competitors. Walmart and McDonalds are examples of companies with a cost leadership competitive advantage.

Differentiation advantage

The second type of competitive advantage seeks product differentiation that is unique and so valued by customers that companies can charge a premium price. Success here hinges on the higher price exceeding the extra costs incurred while making a product stand out among competitors.

Differentiation varies and can be based on product features; the way products are sold or even how they are marketed. Starbucks and Apple are examples of companies that have gained a competitive advantage through differentiated, premium products.

Porter’s value chain model divides its activities into two broad categories: primary and support.

Primary activities are involved in the production process of a product, its sale to the customer and post-sale customer service. Primary activities are split into five generic categories:

• Inbound logistics activities are related to receiving raw materials and parts for products, such as warehousing, inventory management and supplier returns.
• Operations activities are associated with transforming raw materials and parts (inputs) into final products (outputs), such as machining, assembly, testing and facility operations.
• Outbound logistics activities center around collecting, storing and delivering products to customers, such as packaging, shipping logistics and order processing.
• Marketing and sales activities encourage and provide a way for customers to buy a product, such as advertising, promotions and pricing.
• Service activities are those that enhance or maintain product value after the sale, such as quality assurance, trainings and warranties.

Support activities, also called secondary activities, back the primary activities by making them more efficient. Support activities are split into four generic categories:

• Procurement activities are those involved in the purchasing of raw materials and parts used in the value chain, from product-specific inputs to office supplies.
• Technology development activities are those that upgrade and improve products and processes, such as research, product design and servicing procedures.
• Human resource management activities are those related to recruiting, hiring, training, developing and compensating employees.
• Firm infrastructure includes activities that are often considered overhead, such as general management, quality control and legal operations.

The importance of each category to a company’s competitive advantage varies by business type and industry. For example, inbound and outbound logistics may be more vital to a distributor than to a retailer, for whom outbound logistics may not be a significant consideration.

While there are many different templates and routes to completing a value chain analysis, these four steps tend to stay consistent:

Classify and understand your value chain activities

To make improvements to your value chain for a competitive edge, you need to gain a strong understanding of every relevant activity that goes into the creation of your product or service. This includes both primary and support activities. If your company has multiple products or services, then repeat this step until you have a clear picture of the activities for each one.

Define the value and cost drivers of each activity

Next, identify the value and cost drivers of each activity. For example, establish how each activity works to increase customer satisfaction with the product or service. Then, identify the costs involved. To identify the value of your products or services, try to understand your customers’ perception of value—such as by giving surveys.

Benchmark your value chain against your competitors’

In the game of competitive strategy, knowing how your peers are performing is critical. While competitors’ value chains are unlikely to be publicly available, you can get an idea of them through benchmarking. One way to do this is by comparing relevant processes, business models and performance metrics from the competition with your own.

Identify your opportunities to gain a competitive advantage

After you’ve identified your value chain activities, their values and their costs, you can move forward into analysis to determine where best to achieve a competitive advantage. To streamline value chain analysis, set a primary goal—such as lower costs. Then, analyze each activity with the goal of cost reduction.

While gaining a competitive advantage to increase customer value and profit margins is the overarching benefit of value chain analysis, there are plenty of other benefits that fall under that umbrella. For example, a strong understanding of each activity within your value chain makes it easier to identify opportunities for supporting environmental, social and governance (ESG) goals; increasing efficiencies; reducing waste and introducing automation.

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1   “ Competitive Advantage: Creating and Sustaining Superior Performance ”  (link resides outside ibm.com), Michael E. Porter, NY: Free Press, 1985

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How to leverage value chain analysis to boost competitive advantage and business longevity.

Sudarshan Somanathan

Head of Content

February 8, 2024

A business may survive okay in varying market conditions, but for it to thrive, you need to optimize its value chain activities to ensure superior performance. Established businesses are often those that constantly enhance the value they deliver to customers and shareholders, as well as other stakeholders involved.

It’s not just about improving products and services, though—you must also micro-analyze your inbound and outbound logistics, human resources management, and other operational processes to widen profit margins.

That’s precisely why forward-thinking managers rely on value chain analysis (VCA) to gain a true competitive edge in their niche. The practice requires constantly improving primary and support activities in a business with a vision to build customer loyalty and enjoy cost savings, all leading to competitive advantage through stable value creation. 🌱

In this article, we’ll explore:

• The value chain concept
• Its role in optimizing business models
• The process of conducting a value chain analysis—from both cost and product differentiation perspectives

What Is Value Chain Analysis?

How can a value chain analysis benefit businesses, what to include in your value chain analysis, approach 1: cost advantage analysis, approach 2: product or service differentiation advantage analysis.

Prominent economist and Harvard Business School professor Michael Porter first explored the concepts of value chain and value chain analysis in his book The Competitive Advantage: Creating and Sustaining Superior Performance .

Value chain refers to all the processes throughout the entire product or service lifecycle, starting from the R&D stage all the way down to the distribution and sales phases. Each process in the chain can be analyzed for the incremental value it adds to the final product or service, which is exactly what value chain analysis is all about.

It’s the process of analyzing the primary and support activities involved in delivering the product and maintaining business . The purpose is to determine which processes contribute reasonably to the value delivered by the final product or service.

A careful value chain analysis helps businesses unlock new insights that enable them to deliver maximum value to their customers and stakeholders. By the end of a successful analysis, managers should be able to:

• Reduce costs across value chains
• Pinpoint processes instrumental to the delivery
• Identify opportunities for operational and technological improvements
• Optimize marketing and sales initiatives for better customer experience

Tip: Looking for a Porter-style analysis of competitive forces in your market and their impact on your value chains? Try out the ClickUp Porter’s 5 Forces Template for quick visualizations. 🌹 

Some of the key benefits derived from Porter’s value chain analysis include:

• Product differentiation: One of the more obvious benefits of value chain analysis is sustaining superior performance to enjoy lasting customer loyalty. This includes revisiting existing processes and strategies to develop new products, features, and services that align with evolving customer needs in a competitive scenario
• Cost reduction: Value chain analysis gives a bird’s-eye view of which process adds or subtracts value in your current business model, helping recognize efficiencies and inefficiencies. These insights can help you decide which processes automate, eliminate, and optimize to increase profit margins
• Growth-oriented innovation: Careful analysis of the value chain framework can also reveal repetitive business processes and complex dependencies that may stunt growth and productivity, giving you the window to tweak the processes involved

All in all, you get to achieve operational differentiation, which generates distinct advantages that your competitors find difficult to replicate. And in the long run, this translates to stronger brand perception and improved year-on-year profitability. 📆

Value chain analysis encompasses exploring processes across two main categories: primary and secondary activities.

Primary functions or activities consist of core processes for developing and distributing any product or service. They add value to the offering directly. A typical analysis of primary functions requires you to explore:

• Inbound logistics: They cover the supply chain; examples include receiving raw materials and warehousing
• Operations: Procedures such as manufacturing that turn raw materials into finished goods
• Outbound logistics: They include activities like packaging, sorting, and shipping that enable the delivery of the final product or service
• Sales and marketing activities: These are promotional and sales funnel activities
• After-sales service: Processes related to customer service, repair, and maintenance

On the other hand, secondary activities don’t play a direct role in sales or production but support the primary functions instead. You can expect these activities to improve the efficiency and effectiveness of their primary counterparts. The four main secondary activity heads include:

• Procurement: It’s closely related to the inbound logistics part of primary activities; covers areas like order processing and managing resources like inventory
• Human resource management : Examples include hiring, training, retention, and compensation of employees
• Infrastructure maintenance: Covers research and advancements made to improve business processes, overhead management, and financial planning 
• Technological development: Helps lower costs related to technology and enhance process automation

By considering all these components while conducting a value chain analysis, you can derive a well-rounded operational strategy and better quality control.

How to Conduct a Value Chain Analysis

Value chain analysis requires disaggregating primary and secondary processes into strategically similar pockets, allowing for simplified value chain management.

There are two main approaches that you can adopt for a value chain analysis:

• In the first approach, you aim to derive a cost advantage in the industry to enjoy a profitability boost
• The second approach focuses on achieving a unique product differentiation that’s valued by customers and allows you to charge premium prices over your competitors

Let’s explore both approaches one by one. We’ll also see how ClickUp , a complete work and project management solution , can help you conduct a value chain analysis quickly and effectively. 💡

From a cost advantage perspective, value chain analysis aims to help you lower the cost of producing or delivering the product or service that you sell. The result? You get to sell your offering at a lower price than your competitors without compromising on margins . Cost advantage VCA is typically a five-step process: 

Step 1: Identify primary and secondary activities

The first step to doing a cost advantage value chain analysis is to identify the primary and secondary activities in your business operations. The idea is to estimate the range of cost reductions that can be achieved realistically.

The general rule is to be careful while reducing the costs of primary activities because they’re directly linked to your product. There’s no point in introducing modifications that compromise user experience. 

A good way to organize the information you need during this step is by using the ClickUp Product Management Suite . It’s perfect for centralizing your value chain analysis for any industry or niche—write process documents, build roadmaps, and visualize the entire product lifecycle .

Need a quick start? Get comfortable with the ClickUp Value Chain Whiteboard Template . Its pre-designed visual framework allows you to organize all your primary and secondary activities and establish their relationship with the profit margin. Get your analysis team to link tasks, documents, or even individual products directly into the template and collaborate seamlessly. 😎

If you are managing more than one business, create multiple templates to map out individual value chains in dedicated project Workspaces within ClickUp.

Step 2: Record the contribution of each process to the cost pool

The next step is to figure out the share of each activity in the overall production and delivery cost and see how it compares to the value added by it. In this process, you’ll see that some options, like factory overheads, cost a lot but also offer tremendous value to your core offering. 

On the other hand, certain processes are just unnecessary cost centers as they don’t add much value to the chain. Use the information from this exercise to determine the scope for meaningful cost reductions. 💸

Need assistance here? The ClickUp Project Cost Analysis Template can come in handy. Get into the depth of your operational expenses with five different views to analyze your operational costs, including overhead costs, variable costs, material costs, and fixed costs. It also lets you analyze them on parameters like total price, cost, quantity, unit cost, and cost type.

Step 3: Identify major cost drivers

Once you know which activities contribute the most to your overall costs, it’s time to identify individual cost drivers. Cost drivers are unit components of expenses that are shared between various departments. They may fractionally influence the final price of a product.

For instance, the cost of manufacturing a product covers several components, like the cost of raw materials and labor. Cost drivers of labor expenses can include total machine hours, the number of deliveries, and idle time.

The cost drivers will be specific to your industry , but you measure them by:

• Tracking key performance indicators (KPIs) 
• Using cost comparison tools

The goal here is to find specific cost optimization opportunities within a broad function.

Step 4: Analyze links and relationships between activities

Value chain activities are often closely linked to each other—tweaking one aspect can positively or negatively influence the cost, efficiency, and profitability of another. For instance, if you’re a logistics company, then a change in warehousing location can go both ways: say, it increases your transportation cost or makes your delivery cycle faster and more cost-effective . 

To sum it up, any cost advantage should not be at the expense of service quality or overall profitability. That’s why it’s crucial that you identify and analyze relationships between interconnected activities in your value chain. ⛓️

A good way to understand these relationships is to visualize them. You can use ClickUp Dependencies to do that easily. Link interconnected tasks in your workflows and use the Relationships option to specify the type of dependency. You can pick:

• Waiting on: Allows you to link tasks that must be completed before the task in question
• Blocking: Lets you add tasks that must wait until the task in question is marked as done

You can also visualize task dependencies using ClickUp’s Gantt View . When in your task list, simply switch to the Gantt view, and you can see how different tasks are dependent on each other. The big picture allows you to make informed decisions about your value chain analysis.

If you want to visualize dependencies or your entire value chain activities, jump on ClickUp Whiteboards . You get an infinite canvas to demonstrate your workflow or product chain using texts, connectors, shapes, sticky notes, and other media components. It supports multiple live collaborators, making it a perfect brainstorming tool for remote teams.

Step 5: Automate and innovate your processes for cost reduction

Finally, once you have an idea of your primary activities, secondary activities, and their cost positioning, start devising strategies for cost reduction. 👩‍🏭

Depending on the type of activities that you’re modifying for cost differentiation, you may need help from the product development or marketing teams. For instance, if the cost advantage is supposed to come from enhancing product management activities , then the product team becomes a close stakeholder throughout the change process .

Many teams end up upgrading their company infrastructure by adding automation tools to their arsenal. Automations helps get rid of many repetitive and redundant processes, helping achieve cost differentiation effortlessly.

Luckily, as a one-stop product management tool , ClickUp offers 100+ built-in Automations to automate repetitive processes that your team may be doing manually. It’s fully no-code—just define a trigger event, an action that’s to be taken when the workflow is triggered, and publish your automation. It’s not only about minimizing labor costs but also about taking care of cumbersome processes that steal a chunk of your time.

Once you’ve finalized a cost optimization plan, use ClickUp Goals to track and manage your costs against the targets that you’ve set. You can connect your goals to actual tasks to help your team find the reasoning behind the changes proposed. Visualize your targets with reports like progress bars and line charts on ClickUp Dashboards .

This type of analysis aims to differentiate your product or service from the competition by adding a unique feature or advantage that provides significant value to the customers. The advantage should improve your offering and be difficult to replicate for your competitors. Let’s see how you can conduct the value chain analysis for arriving at product or service differentiation:

Step 1: Identify your core value contributors

Not all business activities are equally impactful on customer experience and value. Identifying low-value processes is the key to carving out major product differentiation advantages. You can do this by collecting and analyzing customer or user feedback because only they can tell what their pain points are and what would bring them more value.

The ClickUp CRM has a rich set of functionalities to help you out here. From categorizing your customer accounts to streamlining client communication and lead pipeline, it supports you through everything.

For instance, if you want to collect customer feedback in an organized manner, you’ll love ClickUp Forms . Tailor your survey form with questions specific to your value chain and distribute them across channels with a single click. The responses collected are automatically stored in your Workspace. You can go to the Table view to analyze them in one place. 

Step 2: Find sustainable key differentiator(s)

Once you’ve analyzed customer feedback and identified the main contributors or loopholes in your value chain, think of ways to improve. Innovation is the key, and your product development teams may want to devise some new features based on the desired product or service differentiation. 🦄

But not all improvements are sustainable from a financial or operational perspective. Some business process improvements significantly increase your costs, while others are so complicated that they can’t be scaled to your business.

Need help deciding what differentiation to implement? You can use the ClickUp Prioritization Matrix Template to identify the sustainability of each proposed value improvement. Just plot each idea on the X and Y axes of this template in the order of impact and effort. You and your stakeholders will get a visual insight into which value improvements are sustainable and worth implementing. 

Step 3: Protect your differentiation

This last step is often overlooked, but it’s super important. Once you’ve devised your business process improvement techniques to achieve product or service differentiation, also devise some processes that allow you to protect your advantage . It helps you stay relevant and have your differentiation advantage in the market for a long time.🔒

So, file a patent or put up layers of protection around your best practices and trade secrets. Create information silos. Do whatever it takes to protect your differentiation, leaving little room for competitors to replicate your offering and dilute your competitive edge. 

If you still feel stuck, you can use ClickUp’s expert-designed value stream templates with color-coded sections to visualize the relationship between your business activities. The ClickUp Value Stream Mapping Template is excellent for brainstorming product differentiation techniques.

Run a Successful Value Chain Analysis and Find Your Differentiation with ClickUp

If you want to gain a 360° understanding of your business processes, value chain analysis is the way to go. 

ClickUp’s templates, Whiteboards, integrations, and CRM suite can help monitor and optimize your value chain framework consistently. Its workflow automation and process optimization features can help your team members maximize their efficiency further, thus giving you a cost advantage.

So, get ClickUp for free , and start leveraging it to march ahead of your competition steadily and surely. 🫅

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What Is Value Chain Analysis?

Table of Contents

Value chain analysis is a tool that business owners use to break down each process their business uses. This analysis can be used to improve the business’s individual processes, enhancing the company’s efficiency and establishing a competitive advantage.

Value chain analysis is used by businesses of all sizes, ranging from sole proprietors to enterprise-level companies. Every business uses various processes to accomplish its work, and they all can use value chain analysis to study and improve these processes.

What is value chain analysis?

A value chain is the full range of activities – including design, production, marketing and distribution – that businesses conduct to bring a product or service from conception to delivery. For companies that produce goods, the value chain starts with the raw materials to make the products and consists of everything added before the product is sold to consumers. Value chain analysis finds any deficiencies in these processes and improves them, saving money, improving quality and expediting time to market.

Value chain analysis can create change within a business, improve the products and services it offers, and expand connections with other companies and their customers or clients. The United States Postal Service (USPS) explains the purpose of value chain analysis is “to create value that exceeds the cost of providing the product or service and generates a profit margin.”

Value chain vs. supply chain

A supply chain and value chain are similar, but the value chain takes a few more things into consideration.

“The supply chain generally looks at the parts or materials that go into a product, where a product is manufactured, and the transportation logistics of getting it from the factory to the store,” said Jon Gold, vice president of supply chain and customs policy at the National Retail Federation. 

The value chain “takes into consideration contributions such as product design, research and development, advertising, and other marketing,” he said. “Even the work of lawyers, bankers, accountants and IT experts who help make a product possible is taken into consideration.”

What is Porter’s value chain framework?

Harvard Business School’s Michael E. Porter was the first to introduce the concept of a value chain. Porter, who also developed the Five Forces model to show businesses where they rank amongst their competition in the marketplace, discussed the value chain concept in his book Competitive Advantage: Creating and Sustaining Superior Performance (Free Press, 1998).

“Competitive advantage cannot be understood by looking at a firm as a whole,” Porter wrote. “It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering and supporting its product. Each of these activities can contribute to a firm’s relative cost position and create a basis for differentiation.” [Learn how to do a competitor analysis .]

In his book, Porter splits a business’s activities into two categories: primary and support. 

Primary activities

These are a company’s primary functions; in other words, all the things needed to create and sell their product:

• Inbound logistics involves the receiving, storing and distributing of raw materials used in the production process.
• Operations is the stage at which the raw materials are turned into the final product.
• Outbound logistics is the distribution of the final product to consumers.
• Marketing and sales involve advertising, promotions, sales-force organization, distribution channels, pricing and managing the final product to ensure it targets the appropriate consumer groups.
• Service comprises the actions needed to maintain the product’s performance after it is produced, including installation, training, maintenance, repair, warranty and after-sale services.

Support activities

Support activities help the primary functions:

• Procurement is how the raw materials for the product are obtained.
• Technology development can be used in the research and development stage, in how new products are developed and designed, and in process automation.
• Human resource management includes the activities involved in hiring and retaining the proper employees to help design, build and market the product. These could be tracked with a human resource information system . 
• Firm infrastructure refers to an organization’s structure as well as its management, planning, accounting, finance and quality-control mechanisms. This can include cloud computing and accounting software .

Automating processes can save thousands of hours. One study showed how a finance department could use robots to save time.

How do you conduct a value chain analysis?

To conduct a value chain analysis, a business should identify each part of its production process, noting steps that can be eliminated and other possible improvements. This helps companies determine where the best value lies with customers and expand or improve said value, resulting in cost savings or enhanced production. At the end of the process, customers enjoy high-quality products at lower costs, which will lead them to choose you over your competition.

There are two approaches to value chain analysis: cost advantage and differentiation advantage. These are lenses through which you should analyze your business.

Cost advantage

After identifying their primary and support activities, businesses should determine the cost drivers for each activity. A cost driver is something that affects the cost of an activity or process, such as the following:

• Machine use and setup
• Materials used to make products

Your business should identify the links between activities, understanding that if costs are reduced in one area, they can be reduced in another. You can then identify opportunities to reduce overall costs. [Learn how to save money and boost productivity by upgrading your business technology .]

Differentiation advantage

Identifying the activities that create the most value to customers is the priority here. What activities set your business apart and provide the most value? These activities can include the below:

• Using relative marketing strategies
• Knowing about products and systems
• Answering phones faster
• Meeting customer expectations

The next step is evaluating these strategies to improve the value they provide. For example, you might focus on customer service, increase options to customize products or services, offer incentives or add product features. Consider which of these unique activities can be maintained over the long term and which provide the most value.

Free templates are available online to help you determine and analyze your business’s value chains.

What are the goals and outcomes of value chain analysis?

Value chain analysis will help you identify areas in your business that can be optimized for efficiency and profitability. You want to not only ensure your mechanical processes are the best they can be, but you also want to keep customers feeling confident and secure so they remain loyal to your business. By analyzing and evaluating product quality and the effectiveness of your services, along with reducing company costs, your business can find strategies to improve its value proposition and stand out in the marketplace.

The primary goal of the value chain analysis is to create or strengthen your business’s competitive advantage.

What are the benefits of a value chain analysis?

There are multiple benefits to value chain analysis:

• Gain a ground-level understanding of the various processes your business uses and the purpose for each.
• Identify current or potential bottlenecks in workflow and other inefficiencies.
• Find tasks that can be automated, outsourced or redesigned.
• Reduce waste and eliminate or de-prioritize unproductive tasks.

Businesses can use the insights they gain from value chain analysis to identify priority processes, streamline workflow and increase efficiencies. These, in turn, reduce costs and overhead, increasing profit margins for the business.

What are value chain management and mapping?

Value chain management is how you organize all of your businesses’ activities. Managing activities in your value chain may involve reworking various systems, structures and processes. The key is to find areas of potential innovation (some even argue innovation is the key to successful businesses ). 

Creating a strategy to develop and refine processes is key to maintaining company value. It helps businesses see precisely which areas they need to strengthen and how they can reduce costs. It also allows businesses to decide what’s most important when considering the value they want to create. 

Mapping out a value chain can be a great way to visualize all your business processes and see how they impact the company and your customers. Then you can make decisions on what to improve and how. In both value chain management and mapping, communication is paramount. Stakeholders across the company’s processes need to remain in contact and open to collaboration. 

Value chain management is the process of organizing all of a company’s activities in order to analyze them. The goal is to establish communication between the leaders of each stage to ensure the product is placed in the customers’ hands as seamlessly as possible.

What is an example of a successful value chain?

A prime example of a business creating value for its customers and following the value chain framework is Starbucks. Through its operations, the company creates connections worldwide, guarantees high-quality flavors and works to build a sustainable future. This is possible because of its value chain and ongoing analysis.

Starbucks’ value chain, like many others, is complex, but ensures value that will impress customers and keep them invested in the company. Starbucks begins by tasting a variety of coffees that use beans from locations like Latin America, Africa, Arabia, Asia and the Pacific (inbound logistics). The company spends time visiting coffee growers and building lifelong relationships. Starbucks creates partnerships all over the globe to ensure the best coffee for its customers. Its coffee is then sold in stores worldwide (operations, outbound logistics) and allows customers to enjoy high-quality flavors at home or in a local Starbucks.

Another part of Starbucks’ value chain is interacting with customers and ensuring the company provides excellent service. Its social media accounts are a prime spot for interaction, which the company leverages to reinforce its marketing, sales and customer service.

Starbucks presents its coffee as “the end of a long journey – from the land, to the farmer, to the roaster, to your eagerly waiting hands. Each step is important in defining what that coffee will taste like.”

The value chain analysis identifies each step and seeks ways to refine the process so Starbucks continues to remain cost-efficient and the top competitor in the marketplace.

Why does value chain analysis matter?

Value chain analysis is an in-depth examination of all of the steps a business takes, from acquiring materials to producing, distributing and selling its products or services. Conducting this analysis gives business owners and managers deep insights into the major cost and profit centers of their company. With that knowledge, they can reduce waste, identify strategic advantages, and invest in the most successful areas of their business.

Kayla Harrison and Katherine Arline contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Value Chain Analysis

Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its final product and then analyzes these activities to reduce costs or increase differentiation.

Value chain represents the internal activities a firm engages in when transforming inputs into outputs.

What is Value Chain Analysis

Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize which activities are the most valuable (i.e., are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage .

In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do.

If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits.

M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly.

Although primary activities add value directly to the production process, they are not necessarily more important than support activities. Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage.

On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed.

A firm’s VC is a part of a larger industry’s VC. The more activities a company undertakes compared to the industry’s VC, the more vertically integrated it is. Below, you can find an industry’s value chain and its relation to a firm-level VC.

Using the tool

There are two different approaches on how to perform the analysis, which depend on what type of competitive advantage a company wants to create (cost or differentiation advantage). The table below lists all the steps needed to achieve cost or differentiation advantage using VCA.

Competitive advantage types

Cost advantage.

To gain a cost advantage, a firm has to go through 5 analysis steps:

Step 1. Identify the firm’s primary and support activities. All the activities (from receiving and storing materials to marketing, selling and after-sales support) that are undertaken to produce goods or services have to be clearly identified and separated from each other. This requires an adequate knowledge of the company’s operations because value chain activities are not organized in the same way as the company itself. The managers who identify value chain activities have to look into how work is done to deliver customer value.

Step 2. Establish the relative importance of each activity in the total cost of the product. The total costs of producing a product or service must be broken down and assigned to each activity. Activity-based costing is used to calculate costs for each process. Activities that are the major sources of cost or done inefficiently (when benchmarked against competitors) must be addressed first.

Step 3. Identify cost drivers for each activity. Only by understanding what factors drive the costs can managers focus on improving them. Costs for labor-intensive activities will be driven by work hours, work speed, wage rate, etc. Different activities will have different cost drivers.

Step 4. Identify links between activities. Reduction of costs in one activity may lead to further cost reductions in subsequent activities. For example, fewer components in the product design may lead to fewer faulty parts and lower service costs. Therefore identifying the links between activities will lead to a better understanding of how cost improvements would affect the whole value chain. Sometimes, cost reductions in one activity lead to higher costs for other activities.

Step 5. Identify opportunities for reducing costs. When the company knows its inefficient activities and cost drivers, it can plan on how to improve them. Too high wage rates can be dealt with by increasing production speed, outsourcing jobs to low-wage countries or installing more automated processes.

Differentiation advantage

VCA is done differently when a firm competes on differentiation rather than costs. This is because the source of differentiation advantage comes from creating superior products, adding more features and satisfying varying customer needs, which results in higher cost structure.

Step 1. Identify the customers’ value-creating activities. After identifying all value chain activities, managers have to focus on those activities that contribute the most to creating customer value. For example, Apple products’ success mainly comes not from great product features (other companies have high-quality offerings, too) but from successful marketing activities.

Step 2. Evaluate the differentiation strategies for improving customer value. Managers can use the following strategies to increase product differentiation and customer value:

• Add more product features;
• Focus on customer service and responsiveness;
• Increase customization;
• Offer complementary products.

Step 3. Identify the best sustainable differentiation. Usually, superior differentiation and customer value will be the result of many interrelated activities and strategies used. The best combination of them should be used to pursue sustainable differentiation advantage.

Value Chain Analysis Example

This example is partially adopted from R. M. Grant’s book ‘Contemporary Strategy Analysis’ p.241. It illustrates the basic VCA for an automobile manufacturing company that competes on cost advantage. This analysis doesn’t include support activities that are essential to any firm’s value chain; thus the analysis itself is not complete.

• Grant, R.M. (2010). Contemporary Strategy Analysis. 7th ed. John Wiley & Sons, p. 239-241
• Wikipedia (2013). Value Chain. Available at: https://en.wikipedia.org/wiki/Value_chain
• NetMBA (2010). Value Chain.
• Value Stream Mapping (VSM)
• SWOT Analysis of Walt Disney 2023
• SWOT Analysis of Blackberry 2023
• SWOT analysis of BMW 2023
• SWOT Analysis of eBay 2023

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Value Chain Analysis: A Comprehensive Guide for Business Success

Unravel the concept of Value Chain Analysis, a strategic tool for business optimization and success. This guide illuminates its benefits, provides a step-by-step guide on its implementation, and showcases real-life examples.

Article Summary:

• Value Chain Analysis is a strategic business tool for understanding operations, optimizing processes, and creating competitive advantage.
• It consists of two main types of activities: Primary and Support activities.
• Through Value Chain Analysis, businesses can identify cost reduction opportunities and differentiation points.
• The step-by-step guide and advanced tips provided can aid businesses in conducting their own Value Chain Analysis.
• Several real-world case studies highlight the effective application of Value Chain Analysis.

Table of Contents

Introduction, understanding the concept of value chain analysis, the benefits of applying value chain analysis, how to conduct a value chain analysis: step-by-step guide, real-life case studies of value chain analysis, advanced tips for enhancing your value chain analysis.

In the hyper-competitive global marketplace, businesses strive to stay ahead of the curve, focusing on strategies that optimize their operations while delivering maximum value to their customers. One such crucial strategy is Value Chain Analysis. Conceived by Michael Porter in his revolutionary 1985 book “Competitive Advantage” , Value Chain Analysis is a tool that allows businesses to visualize their activities and identify opportunities for efficiency and improvement.

Value Chain Analysis provides a panoramic view of the business landscape, illuminating both micro and macro factors that contribute to the company’s competitive position. It paves the way for robust strategic planning, delivering tangible benefits in productivity, cost savings, differentiation, and customer satisfaction.

Value Chain Analysis is the process of dissecting a business’s operations to understand how each activity contributes to the creation and enhancement of its products or services. It’s about comprehending the entire lifecycle of your product—from raw materials to the end consumer—and identifying opportunities to add value at each stage.

Born in the fertile mind of Harvard Business School professor Michael E. Porter, Value Chain Analysis transformed the way businesses strategized their operations. Porter identified two main types of activities within any business’s value chain: Primary and Support activities.

Primary activities are those directly involved in the creation and delivery of a product or service, encompassing five key stages: inbound logistics, operations, outbound logistics, marketing & sales, and service. Support activities, on the other hand, underpin these primary activities, providing the necessary foundation for them to occur. These include procurement, technology development, human resource management, and infrastructure.

Applying Value Chain Analysis to your business operations offers an array of advantages, equipping you to fortify your competitive position and enhance profitability.

One primary benefit is the revelation of cost advantages. By breaking down each activity, you identify where you’re spending more and where you’re spending less. For instance, if your business spends a significant portion on inbound logistics, you might find opportunities to streamline these costs without sacrificing quality.

Not only does Value Chain Analysis identify cost reduction opportunities, but it also helps you uncover differentiation points. By pinpointing the stages where you can add unique value, you can distinguish your offerings from those of your competitors.

Many businesses have realized the transformative potential of Value Chain Analysis. IKEA, for instance, uses Value Chain Analysis to maintain its cost leadership in the furniture market. Through optimizing their production process, enhancing supply chain efficiency, and crafting a unique in-store experience, IKEA has managed to stay ahead in a fiercely competitive market.

The process of conducting a Value Chain Analysis is systematic and thorough. The first step is to identify and categorize your primary and support activities. Next, assess the value that each activity delivers and how it contributes to your end product or service.

Determine the costs associated with each activity. This will highlight any inefficiencies and opportunities for cost reduction. Then, analyze your differentiation potential—identify opportunities to enhance value at each stage of your value chain.

However, this process is not without challenges. One common issue is obtaining accurate and comprehensive data, particularly in large organizations with complex operations. Overcoming this involves establishing robust data collection and management systems.

Value Chain Analysis has been instrumental in the success of many businesses. Starbucks, the global coffee giant, is one sterling example. Through its detailed Value Chain Analysis, Starbucks has been able to source high-quality coffee beans, maintain efficient store operations, and deliver a unique customer experience.

Another success story is Zara, the Spanish fast-fashion retailer. Zara’s implementation of Value Chain Analysis has revolutionized its supply chain management, enabling it to churn out new designs in a fraction of the time taken by its competitors. This swift response to changing fashion trends has been a significant factor in Zara’s international success.

While understanding and implementing Value Chain Analysis can lead to substantial benefits, there are ways to further optimize this process.

One critical suggestion is to conduct a Value Chain Analysis not only for your business but also for your competitors. This will provide insights into their strategies and highlight potential opportunities for differentiation.

Moreover, as the digital revolution reshapes the business landscape, technology has become a significant part of Value Chain Analysis. Technologies like blockchain, AI, and IoT are transforming traditional value chains, creating new avenues for adding value and reducing costs.

Value Chain Analysis, if harnessed correctly, is a potent tool for improving business performance. By offering a clear understanding of your operations, identifying cost-saving opportunities, and spotlighting areas for value addition, Value Chain Analysis helps you carve out a sustainable competitive advantage.

Now that you’re equipped with the knowledge and understanding of this powerful tool, it’s your turn to implement Value Chain Analysis in your business and experience its transformative potential first-hand.

To learn how Teamgate CRM can assist with helping you implement business and sales best practices, contact our team today. 

• The main purpose of Value Chain Analysis is to identify the activities that create the most value for customers and to find areas where one can reduce costs without affecting value delivery.
• Value Chain Analysis enhances business performance by improving operational efficiency, reducing costs, identifying differentiation opportunities, and improving customer satisfaction.
• Yes, small businesses can also benefit from Value Chain Analysis. It helps them identify their strengths, improve efficiency, and find ways to differentiate themselves from competitors.
• One of the major challenges in conducting a Value Chain Analysis is the availability and accuracy of data. It’s essential to have reliable data for each activity in the value chain.
• The primary activities in Value Chain Analysis are inbound logistics, operations, outbound logistics, marketing & sales, and service.
• Support activities, like procurement, technology development, human resource management, and infrastructure, provide the foundation for primary activities. They help enhance the efficiency and effectiveness of primary activities.
• Various software tools can aid in Value Chain Analysis, including business process mapping tools, data analysis tools, and project management software.
• Value Chain Analysis helps businesses identify their strengths and weaknesses, providing a clear picture of where they can create more value and gain competitive advantage. This aids in strategic planning.
• Yes, Value Chain Analysis helps businesses identify areas where they can reduce costs without affecting value delivery to customers.
• How does Value Chain Analysis impact customer satisfaction?
• By ensuring that each activity in the value chain is geared towards creating maximum value for customers, Value Chain Analysis improves product quality and service delivery, thereby enhancing customer satisfaction.

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Article • 8 min read

Porter's Value Chain

Understanding how value is created within organizations.

By the Mind Tools Content Team

How does your organization create value?

How do you change business inputs into business outputs in such a way that they have a greater value than the original cost of creating those outputs?

This isn't just a dry question: it's a matter of fundamental importance to companies, because it addresses the economic logic of why the organization exists in the first place.

Manufacturing companies create value by acquiring raw materials and using them to produce something useful. Retailers bring together a range of products and present them in a way that's convenient to customers, sometimes supported by services such as fitting rooms or personal shopper advice. And insurance companies offer policies to customers that are underwritten by larger re-insurance policies. Here, they're packaging these larger policies in a customer-friendly way, and distributing them to a mass audience.

The value that's created and captured by a company is the profit margin:

Value Created and Captured – Cost of Creating that Value = Margin

The more value an organization creates, the more profitable it is likely to be. And when you provide more value to your customers, you build competitive advantage.

Understanding how your company creates value, and looking for ways to add more value, are critical elements in developing a competitive strategy. Michael Porter discussed this in his influential 1985 book " Competitive Advantage ," in which he first introduced the concept of the value chain.

A value chain is a set of activities that an organization carries out to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help you understand the sources of value for your organization.

Elements in Porter's Value Chain

Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers. Using this viewpoint, Porter described a chain of activities common to all businesses, and he divided them into primary and support activities, as shown below.

Primary Activities

Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following:

• Inbound logistics. These are all the processes related to receiving, storing, and distributing inputs internally. Your supplier relationships are a key factor in creating value here.
• Operations. These are the transformation activities that change inputs into outputs that are sold to customers. Here, your operational systems create value.
• Outbound logistics. These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization.
• Marketing and sales. These are the processes you use to persuade clients to purchase from you instead of your competitors. The benefits you offer, and how well you communicate them, are sources of value here.
• Service. These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased.

Support Activities

These activities support the primary functions above. In our diagram, the dotted lines show that each support, or secondary, activity can play a role in each primary activity. For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities.

• Procurement (purchasing). This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating the best prices.
• Human resource management. This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, so businesses can create a clear advantage with good HR practices.
• Technological development. These activities relate to managing and processing information, as well as protecting a company's knowledge base. Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation.
• Infrastructure. These are a company's support systems, and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage.

Companies use these primary and support activities as "building blocks" to create a valuable product or service.

Using Porter's Value Chain

To identify and understand your company's value chain, follow these steps.

Step 1 – Identify subactivities for each primary activity

For each primary activity, determine which specific subactivities create value. There are three different types of subactivities:

• Direct activities create value by themselves. For example, in a book publisher's marketing and sales activity, direct subactivities include making sales calls to bookstores, advertising, and selling online.
• Indirect activities allow direct activities to run smoothly. For the book publisher's sales and marketing activity, indirect subactivities include managing the sales force and keeping customer records.
• Quality assurance activities ensure that direct and indirect activities meet the necessary standards. For the book publisher's sales and marketing activity, this might include proofreading and editing advertisements.

Step 2 – Identify subactivities for each support activity.

For each of the Human Resource Management, Technology Development and Procurement support activities, determine the subactivities that create value within each primary activity. For example, consider how human resource management adds value to inbound logistics, operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and quality assurance subactivities.

Then identify the various value-creating subactivities in your company's infrastructure. These will generally be cross-functional in nature, rather than specific to each primary activity. Again, look for direct, indirect, and quality assurance activities.

Step 3 – Identify links

Find the connections between all of the value activities you've identified. This will take time, but the links are key to increasing competitive advantage from the value chain framework. For example, there's a link between developing the sales force (an HR investment) and sales volumes. There's another link between order turnaround times, and service phone calls from frustrated customers waiting for deliveries.

Step 4 – Look for opportunities to increase value

Review each of the subactivities and links that you've identified, and think about how you can change or enhance it to maximize the value you offer to customers (customers of support activities can be internal as well as external).

Your organization's value chain should reflect its overall generic business strategies . So, when deciding how to improve your value chain, be clear about whether you're trying to set yourself apart from your competitors or simply have a lower cost base.

You'll inevitably end up with a huge list of changes. See our article on prioritization if you're struggling to choose the most important changes to make.

This looks at the idea of a value chain from a broad, organizational viewpoint. Our separate article on value chain analysis takes a different look at this topic, and uses an approach that is also useful at a team or individual level. Click here to explore this.

Porter's Value Chain is a useful strategic management tool.

It works by breaking an organization's activities down into strategically relevant pieces, so that you can see a fuller picture of the cost drivers and sources of differentiation, and then make changes appropriately.

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Michael Porter Value Chain Analysis Model: Examples & Applying Steps

Looking to apply Porter's Value Chain Model to your business strategy? Our comprehensive download package includes a user-friendly template that will guide you through the process of analyzing and optimizing your organization's value chain.

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Table of Contents

In strategic management, few frameworks have garnered as much attention and acclaim as Michael Porter’s Value Chain Analysis Model and Porter’s Generic Strategies . Porter’s Value Chain model , introduced by Porter in his seminal work in 1985, has become a cornerstone for businesses aiming to achieve and sustain competitive advantage. 

At Digital Leadership, we recognize the significance of strategic management and value creation in propelling business triumph. Our Strategic Management Consulting services are pivotal for enterprises aiming to adeptly deploy Porter’s Value Chain Analysis Model. These services guarantee the harmonization of strategic goals with value chain operations, efficient allocation of resources, the streamlining of internal processes, and the cultivation of innovation. Additionally, we provide the Innovation Blueprint service , aiding organizations in enhancing their innovation methodologies, thereby securing continual expansion and prosperity amidst the ever-evolving business environment.

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In this comprehensive guide, we will delve into the intricacies of Porter’s Value Chain Analysis Mode l, explore its components, provide examples, and outline practical steps for its application.

What is Porter’s Value Chain?

Porter introduced a versatile value chain model that businesses can employ to analyze their entire range of activities and comprehend their interconnections. The manner in which these activities are executed within the value chain directly impacts costs and influences profitability. It is a strategic management framework designed to scrutinize a company’s operations and uncover its competitive edge. It encompasses both primary activities, which are directly linked to production and delivery, and support activities that facilitate the execution of primary functions.

Understanding and optimizing the value chain are paramount for businesses aiming to gain a competitive edge. Michael Porter’s influential 1985 book introduced the concept of the value chain, comprising five primary activities that businesses undertake to create value for their customers. These activities consist of sourcing inputs, transforming them through various processes, and delivering the final product or service to customers. However, to support the primary activities effectively, businesses must also engage in secondary activities such as technological development and administrative functions.

For example, leveraging technological advancements is crucial for developing manufacturing techniques and automating processes, thereby enhancing efficiency and productivity across the value chain. Moreover, administrative tasks, including maintaining products and managing refunds, are essential for ensuring smooth operations and customer satisfaction. Additionally, businesses need to focus on enhancing visibility and targeting appropriate customers—such as through advertising campaigns and white papers—to expand their customer base and stimulate demand. Furthermore, retaining employees who possess the necessary skills and expertise to fulfil primary activities is vital for sustaining operational excellence and driving innovation. Ultimately, by integrating these diverse elements into their operations, businesses can create a robust value chain that drives growth and profitability in today’s dynamic business environment.

At its core, the value chain concept emphasizes the notion that a company’s activities can be grouped into primary and support activities, each contributing to the overall value-creation process.

Moreover, for a more comprehensive exploration of Porter’s Value Chain Model’s importance in business and how it can drive innovation and competitive advantage, we invite you to delve into our book titled “ How to Create Innovation. “ This resource offers in-depth insights, practical strategies, and real-world examples that showcase how Porter’s Value Chain Model can be a catalyst for transformative innovation, ultimately propelling businesses toward sustained success.

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Components of Porter’s Value Chain

Porter’s Value Chain consists of primary activities and secondary / support activities, all of which play crucial roles in creating value. The primary activities are directly involved in the production and delivery of a product or service, while support activities facilitate and enhance the efficiency of primary activities.

Primary Activities of the Value Chain

Primary activities of the value chain represent the core processes involved in the creation, production, and delivery of a product or service to the end customer. These activities are essential for adding value to the final product or service. The primary activities of the value chain include:

• Inbound Logistics : Involves the processes related to sourcing, receiving, and storing raw materials or inputs for production.
• Operations : Encompasses the activities involved in converting raw materials into finished products or services.
• Outbound Logistics : Focuses on the distribution and delivery of the final product to customers.
• Marketing and Sales : Includes activities aimed at promoting and selling the product or service to target customers.
• Customer Service : Involves providing support and assistance to customers post-purchase to ensure satisfaction and loyalty.

Understanding the primary activities of the value chain is paramount for businesses aiming to optimize their operations and bolster their competitive advantage. One such critical primary activity is research and development (R&D), which plays a pivotal role in innovation and product differentiation. By investing resources into R&D initiatives, companies can stay ahead of market trends, develop cutting-edge products or services, and capture new market segments. Additionally, effective accounting practices are essential for monitoring and managing costs throughout the value chain, ensuring optimal resource allocation and maximizing profit margins. Through diligent accounting procedures, businesses can identify areas of inefficiency, streamline processes, and ultimately enhance their bottom line. By integrating primary activities like R&D and accounting seamlessly into the value chain, organizations can create a robust framework for sustained growth and success.

Secondary/Support Activities of the Value Chain

Secondary or support activities of the value chain are critical functions that provide the necessary infrastructure and support for the primary activities to operate efficiently. These activities may not directly contribute to the production or delivery of the product or service but play a vital role in enabling the primary activities to function effectively. The secondary/support activities of the value chain include:

• Infrastructure : Refers to the systems, processes, and resources that support the entire value chain.
• Human Resource Management : Involves activities related to recruiting, hiring, training, and retaining employees.
• Technological Development : Encompasses efforts to improve products, processes, and systems through innovation and technology.
• Procurement : Involves the acquisition of inputs or resources needed for the value creation process.

Secondary activities within the value chain are essential for supporting and optimizing the primary activities, ultimately contributing to the overall value and competitive advantage of a business. These secondary activities consist of various functions that facilitate the smooth operation of primary processes. For instance, effective business management is crucial for overseeing all activities within the value chain, ensuring coordination and alignment with organizational objectives. Leveraging relationships with suppliers is vital for securing high-quality inputs at favorable terms, thereby enhancing the efficiency and cost-effectiveness of primary activities. Additionally, strategies to enhance visibility, such as advertising and targeted marketing campaigns, play a key role in attracting and retaining customers, thereby bolstering the competitiveness of the business.

Applying Porter’s Value Chain Model Steps

Porter’s Value Chain Analysis can be applied through a series of systematic steps to assess a company’s internal operations and identify areas for improvement. Here’s a step-by-step guide to applying the model effectively:

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You can now access the complete Porter’s Value Chain Model Package, including a full presentation, related models and instructions for use.

Porter’s Value Chain Model

Step 1: understand the value chain:.

Before diving into analysis, it’s crucial to have a comprehensive understanding of the entire value chain. This involves mapping out all the activities involved in the creation, production, and delivery of your product or service.

Step 2: Identify Primary and Support Activities:

Once the value chain is understood, the next step is to identify both the primary and support activities within your organization. Primary activities directly contribute to the creation of value, while support activities enable the primary activities to function efficiently.

Step 3: Analyze Each Activity:

With the primary and support activities identified, analyze each activity to determine its contribution to value creation and competitive advantage. Assess how each activity impacts product quality, customer satisfaction, and overall profitability.

Step 4: Identify Areas of Competitive Advantage and Opportunities for Improvement:

During the analysis, identify areas where your company holds a competitive advantage compared to rivals. Simultaneously, pinpoint areas where improvements can be made to enhance efficiency, reduce costs, or differentiate your offering.

Step 5: Identify Cost Drivers:

Understanding the cost structure associated with each activity is crucial. Identify the key cost drivers for each activity and evaluate their impact on overall profitability. This analysis helps prioritize areas for cost reduction or optimization.

Step 6: Develop Strategies:

Based on the analysis conducted, develop strategies to capitalize on areas of competitive advantage and address areas for improvement. These strategies may involve process optimization, technology adoption, or strategic partnerships.

Step 7: Implement and Monitor:

Once strategies are developed, implement them across the organization and closely monitor their effectiveness. Regularly assess performance metrics to ensure that the implemented strategies are achieving the desired results. Adjust strategies as needed based on monitoring and feedback.

Porter’s Value Chain Example: Amazon

A real-life example of a company effectively implementing Porter’s Value Chain Analysis Model is Amazon.com Inc. Let’s explore how Amazon utilizes the primary and support activities of the value chain to gain a competitive advantage:

Primary Activities

• Inbound Logistics: Amazon optimizes inventory management and transportation to ensure the timely availability of products.
• Operations: Utilizing advanced technologies like robotics, Amazon streamlines its e-commerce platform and fulfilment centres for efficiency.
• Outbound Logistics: With an extensive distribution network, Amazon offers various delivery options for swift and accurate order fulfilment.
• Marketing and Sales: Amazon employs targeted marketing and its Prime membership program to drive customer engagement and loyalty.
• Service: Amazon prioritizes customer service, offering round-the-clock support and hassle-free returns for an enhanced customer experience.

Now, let’s examine how Amazon leverages the support activities of the value chain:

By effectively managing both the primary and support activities of the value chain, Amazon has established itself as a global leader in e-commerce, cloud computing, and digital services. The company’s relentless focus on innovation, operational excellence, and customer-centricity has enabled it to create significant value for customers, shareholders, and other stakeholders, solidifying its competitive position in the market.

• Procurement: Amazon negotiates favourable terms with suppliers and fosters strong supplier relationships for a reliable supply chain.
• Technology Development: Continuous innovation in AI and logistics optimization enables Amazon to enhance operational efficiency and customer experience.
• Human Resource Management: Amazon invests in talent acquisition and development, offering competitive compensation and a diverse work environment.
• Firm Infrastructure: Amazon’s leadership ensures strategic direction, financial management, and regulatory compliance for sustained growth and success.

Porter’s Value Chain Example: Starbucks

Starbucks Corporation provides an exemplary illustration of Porter’s Value Chain Analysis Model in action. Let’s explore how Starbucks leverages its primary and support activities to deliver value to customers and maintain its competitive edge:

Primary Activities:

• Operations : Starbucks has established state-of-the-art roasting facilities where coffee beans are expertly roasted to perfection. The company’s baristas are trained extensively to uphold the highest standards in brewing and beverage preparation, ensuring that every cup of coffee meets customers’ expectations
• Outbound Logistics : Starbucks operates a vast network of stores worldwide, strategically located to reach a broad customer base. The company’s efficient distribution system ensures that freshly roasted coffee beans and other supplies are delivered promptly to each store, maintaining product availability and freshness.
• Marketing and Sales : Starbucks is renowned for its innovative marketing strategies and iconic brand image. Through captivating advertising campaigns, social media engagement, and experiential marketing initiatives, Starbucks effectively communicates its brand values and fosters emotional connections with customers. The company’s loyalty program, mobile app, and seasonal promotions further drive customer engagement and sales.
• Service : Starbucks prioritizes customer satisfaction by delivering exceptional service at every touchpoint. Whether in-store or through digital channels, Starbucks ensures a personalized and seamless experience for customers. The company’s friendly and knowledgeable staff, coupled with its commitment to product quality and consistency, reinforces customer loyalty and advocacy.

Support Activities:

• Procurement : Starbucks meticulously selects suppliers and partners who share its commitment to ethical sourcing and sustainability. The company’s Coffee and Farmer Equity (C.A.F.E.) Practices promote fair labor practices, environmental stewardship, and community support across its supply chain.
• Technology Development : Starbucks embraces technological innovation to enhance operational efficiency and customer convenience. The company’s mobile ordering and payment systems, along with its digital loyalty program, leverage cutting-edge technology to streamline transactions and drive customer engagement.
• Human Resource Management : Starbucks invests in its employees through comprehensive training programs, competitive compensation packages, and opportunities for career advancement. The company’s inclusive and diverse workplace culture fosters employee satisfaction and retention, contributing to operational excellence and customer satisfaction.
• Firm Infrastructure : Starbucks maintains robust systems and processes to support its global operations. From supply chain management and inventory control to financial management and regulatory compliance, Starbucks’ infrastructure ensures operational resilience and organizational effectiveness.

By effectively managing both its primary and support activities, Starbucks has built a formidable competitive advantage in the coffee industry. The company’s relentless focus on quality, innovation, and customer experience continues to drive its success and position Starbucks as a leader in the global coffee market.

Porter’s Value Chain Example: Tesla

A prime example of a company effectively implementing Porter’s Value Chain Analysis Model is Tesla Inc., a renowned leader in the electric vehicle (EV) industry. Let’s explore how Tesla leverages the primary and support activities of the value chain to gain a competitive advantage:

• Inbound Logistics: Tesla optimizes its inbound logistics by strategically sourcing raw materials and components for its electric vehicles. By maintaining strong relationships with suppliers and leveraging advanced procurement strategies, Tesla ensures a steady supply of high-quality inputs for its manufacturing process.
• Operations : Tesla’s manufacturing operations are characterized by innovative production processes and cutting-edge technology. The company’s vertically integrated manufacturing facilities enable it to control the entire production process, from battery production to vehicle assembly, resulting in greater efficiency and quality control.
• Outbound Logistics : Tesla’s outbound logistics focus on delivering vehicles to customers in a timely and cost-effective manner. The company utilizes a combination of direct sales, online ordering, and efficient distribution channels to streamline the delivery process and minimize lead times.
• Marketing and Sales: Tesla employs a unique marketing and sales strategy that emphasizes brand awareness, product differentiation, and customer engagement. Through innovative marketing campaigns, word-of-mouth referrals, and a strong online presence, Tesla has successfully built a loyal customer base and achieved widespread recognition for its electric vehicles.
• Service : Tesla prioritizes customer service and support to enhance the ownership experience for its customers. The company offers comprehensive warranty coverage, proactive software updates, and responsive customer support to address any issues or concerns promptly.
• Procurement : Tesla’s procurement strategy focuses on securing the best possible terms and pricing from suppliers while maintaining high standards of quality and sustainability. By negotiating long-term contracts and fostering collaborative relationships with suppliers, Tesla minimizes procurement costs and ensures a reliable supply chain.
• Technology Development: Tesla is at the forefront of technological innovation in the automotive industry, continually investing in research and development to enhance its product offerings. The company’s focus on developing advanced battery technology, autonomous driving systems, and energy storage solutions sets it apart from competitors and drives long-term value creation.
• Human Resource Management: Tesla places a strong emphasis on talent acquisition, development, and retention to support its ambitious growth objectives. The company attracts top engineering and design talent from around the world and offers competitive compensation packages and career advancement opportunities to its employees.
• Firm Infrastructure: Tesla’s firm infrastructure encompasses its organizational structure, corporate governance, and strategic decision-making processes. The company’s dynamic leadership team, led by CEO Elon Musk, sets the strategic direction and drives innovation across all aspects of the business.

By effectively managing both the primary and support activities of the value chain, Tesla has established itself as a leader in the electric vehicle industry and a pioneer in sustainable transportation. The company’s relentless focus on innovation, operational excellence, and customer-centricity has enabled it to create significant value for customers, shareholders, and other stakeholders, solidifying its competitive position in the market.

Importance of Implementing Porter’s Value Chain Model

Implementing Porter’s Value Chain Analysis Model offers several key benefits for businesses:

• Competitive Advantage : By systematically analyzing internal operations, companies can identify sources of competitive advantage and differentiate themselves in the market.
• Cost Efficiency : Value chain analysis helps companies identify inefficiencies and streamline processes, leading to cost savings and improved profitability.
• Strategic Alignment : The model helps align internal activities with overall business strategy, ensuring that resources are allocated effectively to support organizational goals.
• Continuous Improvement : Value chain analysis is an iterative process that encourages ongoing evaluation and optimization of internal operations to adapt to changing market conditions.

Porter’s Value Chain Analysis in Strategic Management

In strategic management, Porter’s Value Chain Analysis is a valuable tool for formulating and implementing business strategies. By understanding how each activity within the value chain contributes to overall value creation, companies can make informed decisions about resource allocation, product development, and market positioning.

Strategies for Value Chain Optimization

To optimize the value chain and gain a competitive advantage, businesses can employ several strategies:

• Cost Leadership : Focus on reducing costs at each stage of the value chain to offer products or services at lower prices than competitors.
• Differentiation : Emphasize unique features or qualities in products or services to distinguish them from competitors and create perceived value.
• Vertical Integration : Control multiple stages of the value chain, from raw material acquisition to distribution, to streamline operations and capture more value.
• Outsourcing : Partner with external vendors or suppliers for non-core activities to reduce costs and focus on core competencies.
• Technology Adoption : Invest in technology and innovation to improve efficiency, enhance product quality, and create new value propositions.

Integration of Porter’s Value Chain Model with Other Strategic Tools

Porter’s Value Chain Analysis can be enhanced and complemented by integrating it with other strategic tools and frameworks. Below are several ways to integrate Porter’s Value Chain Model with other strategic tools:

1. Synergies with SWOT Analysis

You can now access the complete SWOT Framework Package, including a full presentation, related models and instructions for use.

The SWOT / TOWS Analysis Framework

Porter’s Value Chain Model provides insights into internal operations and value creation processes, while SWOT Analysis focuses on identifying internal strengths and weaknesses, as well as external opportunities and threats. By integrating the two frameworks, businesses can gain a comprehensive understanding of both internal capabilities and external market dynamics. For example, identifying a strength in a primary activity of the value chain can be leveraged to exploit an external opportunity identified in the SWOT analysis.

2. Incorporating PESTLE Analysis

You can now access the complete PESTLE ANALYSIS FRAMEWORK package, including a full presentation, related models and instructions for use.

The PESTLE Analysis framework

PESTLE Analysis examines external factors such as political, economic, social, technological, legal, and environmental influences on a business. Integrating PESTLE Analysis with Porter’s Value Chain Model allows companies to consider external factors that may impact their value chain activities. For instance, changes in regulations or advancements in technology may necessitate adjustments to certain value chain activities to remain competitive.

3. Complementarity with Balanced Scorecard

You can now access the complete The Balanced Scorecard Package, including a full presentation, related models and instructions for use.

The Balanced Scorecard

The Balanced Scorecard framework provides a holistic view of a company’s performance across financial, customer, and internal processes, and learning and growth perspectives. Integrating the Balanced Scorecard with Porter’s Value Chain Model enables organizations to align value chain activities with strategic objectives and performance metrics. For example, if a strategic objective is to enhance customer satisfaction, value chain activities related to customer service and marketing can be prioritized and measured accordingly.

4. Integration with Porter’s Five Forces Analysis

Porter’s Five Forces Analysis assesses industry dynamics and competitive forces that influence a company’s profitability. By integrating Porter’s Value Chain Model with Five Forces Analysis, businesses can identify linkages between value chain activities and competitive forces. For instance, analyzing how supplier power impacts procurement activities within the value chain can inform strategic decisions regarding supplier relationships and cost management.

By integrating Porter’s Value Chain Model with other strategic tools, businesses can develop a comprehensive understanding of their internal capabilities, external environment, and competitive dynamics. This integrated approach enables companies to formulate informed strategies, optimize value chain operations, and gain a sustainable competitive advantage in the market.

In conclusion, Michael Porter’s Value Chain Analysis Model offers a powerful framework for analyzing internal operations, identifying sources of competitive advantage, and optimizing value creation. By applying this model systematically and integrating it with other strategic tools, businesses can enhance their strategic decision-making processes and achieve sustainable success in today’s competitive landscape. At Digital Leadership, we specialize in helping organizations navigate the complexities of strategic management and value creation. Our comprehensive innovation consulting services and innovative solutions empower businesses to unlock their full potential and achieve sustainable success. Contact us today to learn more about how we can support your organization’s growth journey.

Frequently Asked Questions

1- what is the difference between value chain and supply chain.

Essentially, although both the supply chain and value chain are vital aspects of business operations, they serve unique functions. The supply chain concentrates on the logistics and procedures related to delivering a product or service from its origin to the final consumer, covering aspects such as sourcing, production, and distribution. Conversely, the value chain focuses on the actions a business performs to generate value for its customers, which include research and development, marketing, and customer service. Grasping the distinction between these concepts is essential for businesses to efficiently oversee their operations and bolster their competitive edge in the market.

2. How can businesses apply Porter’s Value Chain Analysis Model?

Businesses can apply Porter’s Value Chain Analysis Model by following a series of systematic steps, including understanding the value chain, identifying primary and support activities, analyzing each activity, identifying areas of competitive advantage and opportunities for improvement, identifying cost drivers, developing strategies, and implementing and monitoring changes.

3. How does Porter’s Value Chain Analysis Model help businesses?

Porter’s Value Chain Analysis Model helps businesses identify areas where they can improve efficiency, reduce costs, and enhance value creation. By understanding how each activity within the value chain contributes to overall value creation, businesses can make informed decisions about resource allocation, product development, and market positioning, ultimately leading to competitive advantage and increased profitability.

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Value Chain Analysis: An Internal Assessment of Competitive Advantage

A company is in essence a collection of activities that are performed to design, produce, market, deliver and support its product (or service). Its goal is to produce the products in such a way that they have a greater value (to customers) than the original cost of creating these products. The added value can be considered the profits and is often indicated as ‘margin’. A systematic way of examining all of these internal activities and how they interact is necessary when analyzing the sources of competitive advantage. A company gains competitive advantage by performing strategically important activities more cheaply or better than its competitors. Michael Porter’s value chain helps disaggregating a company into its strategically relevant activities, thereby creating a clear overview of the internal organization. Based on this overview managers are better able to assess where true value is created and where improvements can be made.

Figure 1: Porter’s Value Chain

One company’s value chain is embedded in a larger stream of activities that can be considered the supply chain or as Porter mentions it: the Value System . Suppliers have a value chain (upstream value) that create and deliver the purchased inputs. In addition, many products pass through the value chain of channels (channel value) on their way to the buyer. A company’s product eventually becomes part of its buyer’s value chain. This article will not go into the entire supply chain (from suppliers all the way to the end-consumer), but rather focuses on one organization’s value chain. The value chain activities can be divided into two broader types: primary activities and support activities .

Value Chain Analysis Video Tutorial

Primary activities

The first are primary activities which include the five main activities. All five activities are directly involved in the production and selling of the actual product. They cover the physical creation of the product, its sales, transfer to the buyer as well as after sale assistance. The five primary activities are inbound logistics , operations , outbound logistics , marketing & sales and service . Even though the importance of each category may vary from industry to industry, all of these activities will be present to some degree in each organization and play at least some role in competitive advantage.

Inbound Logistics

Inbound logistics is where purchased inputs such as raw materials are often taken care of. Because of this function, it is also in contact with external companies such as suppliers. The activities associated with inbound logistics are receiving, storing and disseminating inputs to the product. Examples: material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers.

Once the required materials have been collected internally, operations can convert the inputs in the desired product. This phase is typically where the factory conveyor belts are being used. The activities associated with operations are therefore transforming inputs into the final product form. Examples: machining, packaging, assembly, equipment maintenance, testing, printing and facility operations.

Outbound Logistics

After the final product is finished it still needs to find its way to the customer. Depending on how lean the company is, the product can be shipped right away or has to be stored for a while. The activities associated with outbound logistics are collecting, storing and physically distributing the product to buyers. Examples: finished goods warehousing, material handling, delivery vehicle operations, order processing and scheduling.

Marketing & Sales

The fact that products are produced doesn’t automatically mean that there are people willing to purchase them. This is where marketing and sales come into place. It is the job of marketeers and sales agents to make sure that potential customers are aware of the product and are seriously considering purchasing them. Activities associated with marketing and sales are therefore to provide a means by which buyers can purchase the product and induce them to do so. Examples: advertising, promotion, sales force, quoting, channel selection, channel relations and pricing. A good tool to structure the entire marketing process is the Marketing Funnel .

In today’s economy, after-sales service is just as important as promotional activities. Complaints from unsatisfied customers are easily spread and shared due to the internet and the consequences on your company’s reputation might be vast. It is therefore important to have the right customer service practices in place. The activities associated with this part of the value chain are providing service to enhance or maintain the value of the product after it has been sold and delivered. Examples: installation, repair, training, parts supply and product adjustment.

Support Activities

The second category is support activities. They go across the primary activities and aim to coordinate and support their functions as best as possible with each other by providing purchased inputs, technology, human resources and various firm wide managing functions. The support activities can therefore be divided into procurement , technology development (R&D), human resource management and firm infrastructure . The dotted lines reflect the fact that procurement, technology development and human resource management can be associated with specific primary activities as well as support the entire value chain.

Procurement

Procurement refers to the function of purchasing inputs used in the firm’s value chain, not the purchased inputs themselves. Purchased inputs are needed for every value activity, including support activities. Purchased inputs include raw materials, supplies and other consumable items as well as assets such as machinery, laboratory equipment, office equipment and buildings. Procurement is therefore needed to assist multiple value chain activities, not just inbound logistics.

Technology Development (R&D)

Every value activity embodies technology, be it know how, procedures or technology embodied in process equipment. The array of technology used in most companies is very broad. Technology development activities can be grouped into efforts to improve the product and the process. Examples are telecommunication technology, accounting automation software, product design research and customer servicing procedures. Typically, Research & Development departments can also be classified here.

Human Resource Management

HRM consists of activities involved in the recruiting, hiring (and firing), training, development and compensation of all types of personnel. HRM affects the competitive advantage in any firm through its role in determining the skills and motivation of employees and the cost of hiring and training them. Some companies (especially in the technological and advisory service industry) rely so much on talented employees, that they have devoted an entire Talent Management department within HRM to recruit and train the best of the best university graduates.

Firm Infrastructure

Firm infrastructure consists of a number of activities including general (strategic) management, planning, finance, accounting, legal, government affairs and quality management. Infrastructure usually supports the entire value chain, and not individual activities. In accounting, many firm infrastructure activities are often collectively indicated as ‘overhead’ costs. However, these activities shouldn’t be underestimated since they could be one of the most powerful sources of competitive advantage. After all, strategic management is often the starting point from which all smaller decisions in the firm are being based on. The wrong strategy will make it extra hard for people on the workfloor to perform well.

Linkages within the Value Chain

Although value activities are the building blocks of competitive advantage, the value chain is not a collection of independent activities. Rather, it is a system of inter dependent activities that are related by linkages within the value chain. Decisions made in one value activity (e.g. procurement) may affect another value activity (e.g. operations). Since procurement has the responsibility over the quality of the purchased inputs, it will probably affect the production costs (operations), inspections costs (operations) and eventually even the product quality. In addition, a good working automated phone menu for customers (technology development) will allow customers to reach the right support assistant faster (service). Clear communication between and coordination across value chain activities are therefore just as important as the activities itself. Consequently, a company also needs to optimize these linkages in order to achieve competitive advantage. Unfortunately these linkages are often very subtle and go unrecognized by the management thereby missing out on great improvement opportunities.

Figure 2: Value Chain Linkages

Value Chain Analysis In Sum

In the end, Porter’s Value Chain is a great framework to examine the internal organization. It allows a more structured approach of assessing where in the organization true value is created and where costs can be reduced in order to boost the margins. It also allows to improve communication between departments. Combining the Value Chain with the VRIO Framework is a good starting point for an internal analysis. In case you are interested in the entire supply chain, you could repeat the process by adding the value chains of your company’s suppliers and buyers and place them in front and behind your own company’s value chain.

Further Reading:

• Porter, M.E. (1985). Competitive advantage: Creating and sustaining superior performance.
• Porter’s Value Chain. University of Cambridge.  https://www.ifm.eng.cam.ac.uk/research/dstools/value-chain-/

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4 thoughts on “ Value Chain Analysis: An Internal Assessment of Competitive Advantage ”

I am highly impressed and will have to recommend this page to my friends and staffers.

I stand to be corrected, this article is well written and highly commendable. Thanks for the share of knowledge.

High level articulation of presentation, this is a “must read”

This is good, but seems to apply to product based businesses

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The Art of Business Planning

Business plans for entrepreneurs and managers, value chain & business model.

Value chains describe how a group of companies in an industry do business together, building up on each other and adding value to a product or service before it is sold to end-users. For simplification purposes a value chain is often depicted graphically as a linear series of activities. However, a trunk and branch structure, or even a web structure can be more appropriate when the business relationships are more complex and varied than the simple “buy from the previous link in the chain, sell to the next link”.

Why do we care about value chains? The only constant in life is change. Analysing an industry and deconstructing its value chain is an effective way to identify the main players and the roles that they fulfil. This in turn will help define the business areas where you want to compete, as well as alternative business opportunities and business models. It sharpens your positioning and triggers tough but important questions: why do my business activities start here, and why do they stop there? It also helps you anticipate and prepare for major industry transformation.

Although the terms  business model  and  value chain  are often used interchangeably, business model is a related but different concept. More often than not, business plans are fuzzy in terms of what their role and their operation mode in the value chain is. This is where business models come in. A business model focuses on one link or one company in the value chain and describes its operational model: how it does business, what it buys from other players, what its own contribution is, and who it sells to.

Business models also address additional aspects, such as:

• What are the main activities undertaken by a company?
• Who is the company selling to? Who is selling to the end-user? Who owns the end-user? Which channels are used? Which brand appears on the service or product? Who is billing and collecting money from the end-user? How are revenues shared between players?
• Who invests in what (assets)? How are other costs shared between players (e.g. marketing, customer care)?
• How is the money flowing between the players? Who is paying whom? Who is paying you?

How you generate revenues and who you sell to are questions that are not always easy to answer. For instance, although many Internet portals provide services to end-users, they do not generate revenues from them directly but are financed by third party advertisers, who themselves try to sell their products to end-users.

There are also examples from brick and mortar businesses, for instance a coffee shop providing Internet access over WLAN. Is the coffee shop paying the Internet Service Provider (ISP) for the value provided by installing WLAN in the shop, which encourages customers to stay longer and consume more? Or vice-versa is the ISP, who has financed and installed the WLAN access points, paying the coffee shop a fee for the space and right to use the shop premises? Who is paying whom? Both are possible. The key question are: who collects money from end-users, and how are costs and revenues split between the partners?

What’s the Difference Between Value Chain and Supply Chain?

Value chain and supply chain experts aside, most business professionals remain bewildered about the similarities and differences between these two key disciplines. Why? Because virtually all the available explanations fail to state what’s obvious to the experts: All of the supply chain is inside the value chain. The crucial difference, it turns out, is point of view. The company is the protagonist of its supply chain story, which is all about obtaining what’s needed to produce goods and services and deliver them to the customer. But the customer is the protagonist in the value chain story, because value only happens when the goods or services are in customers’ hands.

The two disciplines are distinct from each other in their workflows, but they both ultimately serve the common goal of creating a strong company with good profitability.

The main difference between a value chain and a supply chain is that the supply chain deals with building the product and getting it to the consumer, while the value chain looks for ways to enhance the product’s value as it moves along that supply chain. The performance of any company depends a great deal on the success of its supply chain: Is it cost-effective, fast enough and reliable enough to manufacture quality products and keep them flowing out to customers, generating revenue and throwing off profit? But business performance depends just as much on the value that customers perceive from those products and services.

Consider the difference in perceived value between the 2022 editions of the BMW X3 and Ford Escape Titanium. They have equivalent horsepower (248 and 250, respectively), passenger volume and cargo volume, and the Ford’s EPA mileage is slightly better (26 vs. 24 MPG, combined city and highway). Yet the BMW gets a 20% price premium — for starters. Since the companies’ options offerings are so different (the Escape price bundles in virtually all available options while the X3 does not), the X3’s top price is 72% higher than the Escape’s, according to Consumer Reports. X3 buyers clearly place a higher value on their purchase than Escape buyers. Much of the difference can be attributed to value-chain thinking, from the two companies’ choices to spend (or not) on the quality of interior surfaces to extra efforts aimed at eliminating cabin noise to market positioning.

The value chain, first articulated by Harvard business professor Michael Porter in his 1985 book “Competitive Advantage: Creating and Sustaining Superior Performance,” is the lens through which companies figure out how to produce products that offer customers greater value than the intrinsic job they do. While a digital supply chain integrates all of a company’s activities surrounding the production and delivery of its products — from sourcing raw materials to transporting them to factories to manufacturing and distributing the products — a value chain analyzes these supply chain activities in the context of customer requirements and looks for opportunities to add value to the products and, in turn, the business as a whole. Innovation, visibility , research and development, design, marketing, sales and customer service are the key aspects of a value chain.

Here’s where the two disciplines intersect: Once the value chain team identifies how to add customer value to a product, it’s usually, though not always, the supply chain that makes it happen. “Usually,” because product marketing and brand building can also create customer value, and those are not considered part of the supply chain.

Key Takeaways

• Value chains can increase profitability for a company by identifying ways to add characteristics that customers would appreciate, such as improved product quality or new product features.
• The supply chain focuses on logistics and production and ends with the customer, whereas the value chain starts with the customer in mind and seeks to increase value as products move through the supply chain.
• A robust customer service implementation can enhance product value and create a competitive advantage for the business.

Key Differences

“Supply chain” and “value chain” are terms that often may be used interchangeably, but there are quite a few differences that stand out between the two.

Definition:

A supply chain is mostly physical. It’s a set of linked companies and individuals that produce a product or a service. In the case of manufactured products, supply chains involve obtaining raw materials and taking the steps necessary to transform them into finished goods and deliver them to the customer. Value chains focus first on what a customer wants; using that as a starting point, a value chain analysis finds ways to add value to the product throughout the supply chain in the form of qualities or functions that customers would prize.

Supply chains are considered to be operational management processes and are mostly logistical. Supply chain thinking is all about how to accomplish manufacturing and distribution tasks efficiently and at low cost. Value chains are seen as business management processes and are mostly analytical. Value chain processes are about gathering information to discover what customers value and figuring out how to imbue the product with those qualities.

Activities:

This is where the differences between supply chains and value chains become clear, because value chain activities encompass a broader set of business functions. This is especially noticeable when it comes to interaction with customers. Supply chains are all about getting physical things transported and manufactured cheaply, quickly and correctly, but value chain activities can also include advertising to drive demand for products and market research activities to solicit feedback from customers (e.g., surveys) to make sure the business is actually delivering the value it believes it is. Value chains also include innovation, design and product development activities. Beyond those primary activities, Porter’s value chain model defines most other business operations as “supporting activities,” including human resources, procurement , and technology.

Supply chains are about production, so supply chain thinking is often linear — they’re called assembly “lines” for a reason. But value chain thinking might affect any supply chain step, in any order, based on customer feedback. For example, if customers don’t like plastic straws anymore, a beverage maker may need to start sourcing paper straws to stick on the side of its juice boxes. Once that decision is made, there may be knock-on effects, such as economies of scale or order-volume discounts available by sourcing the boxes themselves from the same suppliers as the straws.

The main objective of a supply chain is to continually improve the efficiency and reliability of a production process. The main objective of a value chain is to enhance the customer experience — which creates competitive advantage. Consider product packaging. Supply chain thinking leads to using the least expensive packaging that can be made flawlessly while protecting the product. A value chain mentality should lead to that plus a great unboxing experience. There’s a big difference between a customer cutting themselves on plastic clamshell packaging and being so delighted by their packaging experience that they post an unboxing video of their purchase to YouTube.

Value chains have more steps than supply chains. With supply chains, you’re figuring out how to best achieve known physical results. With value chain thinking, you’re questioning whether different physical results may be desirable as well. Consider vanilla ice cream. Supply chain thinking starts with “What’s the cheapest and most reliable way to get vanilla that meets our criteria?” Value chain thinking starts before that. It might, for example, ask questions such as “How much do our customers value Tahitian vanilla? And would the extra expense be counterbalanced by how much happier they’d be and how much more they’d be willing to pay for ice cream made with it?” If the answers are “a lot” and “yes,” respectively, that changes the relevant supply chain problem from “Get vanilla” to “Get Tahitian vanilla.”

Using Value Chain Tenets in the Supply Chain

How can businesses use value chain thinking in their supply chains to create value for customers that goes beyond the costs of the goods or services they provide? Here are the three crucial areas where value chains intersect supply chains, and the kinds of value-creating opportunities that may arise in each.

Inbound Logistics:

This first area involves receiving, storing, and managing the incoming resources needed for the product. The obvious value is ensuring that the right amount of materials are on hand and in proper condition to produce the items, thus minimizing the time it takes to manufacture them. Using value chain thinking, a business might induce its suppliers to add value by managing inventory in a way that enables just-in-time delivery, reducing the company’s own inventory management burden.

Manufacturing and Production:

Adding value in this area can include finding ways to reduce costs without impinging on the quality of the final product. That may mean developing software or machinery to speed up the process, improving quality control to reduce unsellable merchandise or finding a supplier that charges a lower price. Value chain thinking might also lead to a production process that allows for bespoke or customized versions of the product.

Outbound Logistics:

Now it’s time to get these products to customers, be it directly from existing orders or from the shelves of retail stores . Such activities involve storage, collection, and distribution of goods. A company could add value by delivering directly to a customer’s business instead of a store, or by removing an older item when a new one is delivered. Mattress companies, for example, cart away the old mattress when making a delivery, as do most appliance sellers.

Enhance Value at All Stages of Your Supply Chain With NetSuite

From demand planning and inventory management to quality management and advanced manufacturing, the many modules in NetSuite Supply Chain Management give companies a detailed, end-to-end view of their supply chains — making it easier to implement the value-adding opportunities that value-chain thinking reveals. The modules help companies monitor and analyze how materials come in from suppliers, get produced and then are ultimately shipped out and distributed to customers. Making sure the workflow runs smoothly and efficiently benefits the company across the board, bringing value of its own to your supply chain.

Beyond empowering value chain thinking within the supply chain, NetSuite’s supply chain management software can help resolve many of the day-to-day challenges businesses face. Its forecasting tools can minimize stockouts and factor in lead times to shorten or eliminate production delays. It also offers real-time recording and monitoring of production data, financial reporting, inventory and outstanding orders to make sure all phases of the supply chain operate with the same set of data. With NetSuite’s assortment of supply chain modules, businesses can connect all parts of their production workflow from start to finish.

Supply chains focus on logistical and manufacturing efficiency, while value chains prioritize the creation of customer value. Combining both disciplines, so that value chain activities and their resulting outputs enable the supply chain to inject greater customer value into products and services, can increase a company’s profitability in multiple ways, build brand credibility and, ultimately, provide competitive advantage.

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Value Chain vs. Supply Chain FAQs

How do i leverage vcm and scm to grow my business.

The relationship between a company’s value chain and supply chain can help the business grow. The role of value chain management (VCM) is to identify ways to add more customer value to the company’s products and services, whether that value comes in the form of new product features, higher quality than that offered by competitors or better after-sales support. The point where VCM and supply chain management (SCM) activities intersect — namely, in inbound logistics, operations and outbound logistics — creates the opportunity to leverage the value chain thinking and outputs that imbue the company’s products with greater customer value. And greater customer value can lead to faster business growth.

What are value chain products?

Value chain products are, simply, products. The value chain is a business management concept focused on creating more customer value, and it can be applied to the production of any product or service.

What is value chain example?

Every business has a value chain, whether its managers deliberately use value chain thinking. To illustrate the value chain discipline in action, consider a luxury carmaker whose research indicates that its customers highly prize a quiet interior cabin, adjustable lumbar support in both driver and passenger seats, sufficient power for quick passing on the highway, good handling, and a smooth ride. Producing a vehicle with those characteristics presents design challenges, materials challenges, manufacturing challenges and, beyond all those, pure cost challenges — for example, the cost of adding a lumbar adjustment to the passenger seat, a rare feature in any car, may be hard to justify. But if the carmaker’s research is correct, the resulting vehicle would create so much more perceived value than found in competitors’ autos that it would command a pricing premium that makes up for the added cost and effort, and then some.

Is the supply chain part of the value chain?

Yes. The entirety of a company’s supply chain is considered part of the value chain. In addition, the value chain includes activities beyond those of the inbound logistics, operations, and outbound logistics of the supply chain. Those additional activities include both primary ones, such as marketing and sales and customer service, and supporting activities, such as HR, procurement, technology, and company infrastructure.

What is supply chain and value chain?

A supply chain consists of the group of people, vendors, materials, and activities involved in the creation, production, and distribution of a product . A value chain looks at all the steps involved in bringing a product from the ideation phase to sellable item, and it seeks ways to bolster the value to the customer. Typically, that can be done by decreasing production costs or boosting quality and credibility of the product to create more of a feeling of need for the goods or services.

Supply Chain Sustainability: Why It Is Important & Best Practices

In recent years, customers, employees, investors and governments have put increasing pressure on companies to demonstrate greater environmental stewardship and social responsibility. This comes at a time when the…

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Value chain in business plan

Related Papers

International Journal of Value Chain Management

Togar Simatupang , Pairach (Champ) Piboonrungroj , Sharon Williams

The concept value chain has been promoted by Porter for more than three decades. A value chain represents a chain of activities that an organization performs to deliver a valuable product for the market. Porter’s value chain assumes that an organization is a system composed of inputs, transformation processes, and outputs. Each activity in the system involves the acquisition and consumption of resources. How the organization carries out value chain activities determines costs and profits. One enhances the competitiveness of a company by improving its value chain structure. However, little attention has been given to developing value chain thinking. This paper examines the emergence of value chain thinking and proposes new value chain thinking that involves a chain of activities linked to one another in order to sustain value. A conceptual model is presented which consists of four steps: value discovery, value design, value delivery, and value capture. A methodology is also proposed in which to operationalize the value chain thinking.

IOSR Journals

Internet Plotio

Harun GUMUS

To compete successfully in today's highly competitive global environment, companies have made customer satisfaction an overriding priority. They have also adopted new management approaches, changed their manufacturing systems and invested in new technologies. Strategic management accounting examines the decision-making linked with the business operations and strategic work of financial administration as support for the same. Strategic management accounting is a theory and practice of accounting that looks at an organization's cost position, cost advantages and product differentiation in order to make market decisions. The value chain is a systematic approach to examining the development of competitive advantage. The chain consists of a series of activities that create and build value. Value chain analysis refers to a structured method of analyzing the effects of all core activities on cost and/or differentiation of the value chain.With the growing division of labour and the global dispersion of the production ofcomponents, systemic competitiveness and so value chain analysis have become increasingly important. Value chain accounting is the combination of value chain analysis and accounting theory.Value chain accounting is an important part of value chain management and a further development of strategic management accounting. Value chain accounting is a new approach on accounting subject which is combined by the theories of value chain management, supply chain management, accounting management and information technology. From the analysis about value chain theory and strategic management accounting theory,this paper proposes an accounting management framework based on value chain analysis called value chain accounting.

Journal of Business …

Amit Marwah

Dr. Alexanda O . U . Kalu

HASSAN JUMANNE

Antonie Rensburg

Yaasha Freedix

The article presents the analysis of the relationship between e-business benefits and competitive advantage. Different approaches of authors towards e-business and competitive advantages have been analyzed and summed up, the analysis of the e-business impact on usual business processes has been outlined, resource-based as well as M. Porter's approaches to competitive advantage were compared. The model relating positive impact of e-business on nine different business processes and competitive advantage was developed. The model may be integrated into broader research framework constructed for the analysis of e-business development and its role in gaining competitive advantage in any industry. Although many studies confirmed that e-business solutions have a positive impact on various business processes e-business benefits do not necessarily lead to the increased profits and/or sales, thus the association of e-business value with the competitive advantage should be made with caution. The type of the article: Theoretical article.

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Unilever Global Change location

Our Climate Transition Action Plan

Our Climate Transition Action Plan (CTAP), updated in 2024, sets out our actions to lower our emissions by 2030.

Download our Climate Transition Action Plan (PDF 7.98 MB)

Since we originally published our CTAP in 2021, we have reduced greenhouse gas (GHG) emissions in our operations and lowered the emissions intensity of our products across our value chain.

Ultimately, our ambition is to reach net zero across our value chain by 2039. To progress towards this, it is vital we reduce emissions over the next few years and put the building blocks in place to ensure long-term delivery.

Our GHG emissions reduction targets

• 100 % absolute reduction in Scope 1 and 2 GHG emissions (vs 2015)
• 42 % absolute reduction in Scope 3 energy and industrial emissions (vs 2021)
• 30.3 % absolute reduction in Scope 3 forest, land and agriculture GHG emissions (vs 2021)

Our operations (Scope 1 and 2)

• Reduce in absolute terms our operational emissions (Scope 1 & 2) by 100% by 2030, against a 2015 baseline (approved by the SBTi).
• Reduce in absolute terms our operational emissions (Scope 1 & 2) by 70% by 2025, against a 2015 baseline (achieved in 2023).

Our value chain (Scope 3)

• Reduce absolute energy and industrial Scope 3 GHG emissions from purchased goods and services (associated with ingredients, packaging), upstream transport and distribution, energy and fuel-related activities, direct emissions from use of sold products (associated with HFC propellants), end-of-life treatment of sold products, and downstream leased assets (associated with ice cream retail cabinets) by 42% by 2030, from a 2021 base year (approved by the SBTi). [a]
• Reduce absolute Scope 3 forest, land and agriculture (FLAG) GHG emissions from purchased goods and services (associated with ingredients) by 30.3% by 2030, from a 2021 base year (approved by the SBTi). [a]

Our two near-term Scope 3 GHG reduction targets are separate, but together they represent a 39% absolute reduction in total targeted Scope 3 emissions. [b]

For information about our progress against our targets, please visit our Sustainability performance data and our Annual Report and Accounts .

Our action areas

To drive our GHG emissions reduction to 2030, we are focusing our efforts where we believe we can have the greatest impact, and where we have access to better data to track our performance.

Supplier Climate Programme

This programme is designed to accelerate the transition of key suppliers to a position of climate leadership.

Our Supplier Climate Programme is designed to accelerate the transition of key suppliers to a position of climate leadership. We define this as suppliers having set their own science-based GHG reduction targets, publicly reporting progress against their targets, and having the capacity and capability to provide us with a Product Carbon Footprint (PCF) for the materials we buy.

Key actions:

• Scale up the Unilever Supplier Climate Programme.
• Create innovation partnerships with select suppliers for GHG reduction.
• Actively engage with industry-wide initiatives to drive standardisation and scale up approaches to climate action and transparency.

Dependencies:

• Industry alignment around common requirements and methodologies for PCF data.

Reformulating products

We are changing the way our products are made without compromising on performance or consumer experience.

Reformulating our products is one of our biggest opportunities to reduce emissions. Importantly, we are taking action without compromising on product performance or consumer experience.

• Reformulate our Home Care products to use innovative lower-GHG ingredients.
• Use plant-based and lower-GHG food ingredients in Nutrition.
• Increase plant-based ice cream options and alternatives.
• Reduce palm oil usage in soap bars.
• Increased consumer acceptance of plant-based products and technological developments.
• Changes to national Standards of Identity (SOI). We are required to align our product content and production methods with SOI in different markets – for example, the minimum quantity of vegetable oil in our mayonnaise or levels of dairy in our ice creams.

Forest-risk commodities

By the end of 2023 we had put in place the infrastructure, monitoring and verification systems to manage a deforestation-free supply chain.

The GHG emissions from the production of our key forest-risk commodities (palm oil, paper and board, soy, cocoa, and tea) arise from land use change (e.g. deforestation), agricultural practices and downstream processing.

• Invest in our value chain to meet current and future demand for deforestation-free commodities.
• Enrol suppliers and smallholder farmers in our programmes to help them improve practises and ensure they do not contribute to land use change.
• Drive improvements in the processing of forest-risk commodities.
• Availability of deforestation-free and lower-emission commodities.
• Adoption of consistent standards for forest-risk commodities and level playing fields globally.

Find out more about our work to manage a deforestation-free supply chain .

Regenerative agriculture

We are working with partners to scale up more sustainable farming practices in our value chain.

Regenerative agricultural practices focus on delivering positive outcomes in terms of nourishing the soil, increasing farm biodiversity, improving water quality and climate resilience, capturing carbon, and restoring and regenerating the land. Our Nutrition and Ice Cream Business Groups are working with our suppliers to introduce regenerative agriculture practices to some of our key ingredients, including rice, soybeans, wheat, rapeseed, corn, tea, and dairy products.

• Scale up adoption of regenerative agriculture.
• Expand our Lower Carbon Dairy Programme.
• Work together across shared supply chains.
• Farmer capacity and capability to implement regenerative agricultural practices.
• Shared understanding of regenerative agriculture principles and practices.
• Supportive regulatory environment to mitigate risks for farmers.

Chemical ingredients

We are working to reduce emissions from two key chemical ingredients.

Two key chemical ingredients contribute a significant proportion of our Scope 3 GHG emissions: linear alkylbenzene sulphonate (LAS) and soda ash. LAS is an organic chemical used as a surfactant (or cleaning agent) in Home Care products such as laundry detergents and is historically derived from petrochemical feedstocks. Soda ash is an inorganic chemical used as a key ingredient in laundry powders and when produced synthetically, is energy-intensive and often produced in markets that burn coal.

• Reduce the GHG intensity of LAS production. To reduce emissions from production, we encourage our suppliers to use renewable energy.
• Reduce the GHG intensity of soda ash production.
• Industry cooperation and advocacy.
• Supplier climate action. We depend on ongoing innovation partnerships with suppliers to develop and procure low-carbon soda ash.
• A level playing field for the production of renewable LAS.

Our operations

We are continuing to transition to renewable thermal energy.

Our operational emissions are within our direct control. We have achieved a 74% emissions reduction vs 2015 (achieving our short-term Scope 1 & 2 GHG reduction target two years early), primarily through increasing our use of renewable electricity and energy efficiency programmes, and increasing our use of renewable electricity.

Over the next three years, we plan to invest €150m in our manufacturing decarbonisation programme, focused on three areas:

• Decarbonisation of our thermal and electrical energy.
• Increasing our use of renewable power.
• Reducing emissions from refrigeration.
• Availability of cost-effective thermal energy solutions.
• Local availability of sustainably sourced biofuels.
• Continued validity of market-based mechanisms for renewable energy.

We are using post-consumer recycled plastic (PCR) which helps us to reduce our dependence on virgin fossil-fuel-derived plastics.

Emissions from packaging are a significant contribution to our total Scope 3 GHG emissions and predominantly arise during two lifecycle stages: at feedstock creation, for example, where plastics traditionally use fossil fuels, and at end-of-life, particularly if disposed of through incineration or landfill. Our progress within this action area is demonstrated through our continued use of post-consumer recycled plastic (PCR) which helps us to reduce our dependence on virgin fossil-fuel-derived plastics.

• Reduce our overall packaging material use.
• Transition towards increased use of recycled and renewable feedstocks.
• Design our packaging for recycling.
• Advocate for better collection, recycling, and reuse infrastructure.
• Implementation of regulated Extended Producer Responsibility (EPR) schemes. We will continue advocating for well-designed EPR schemes, where companies such as Unilever pay for and manage the collection and processing of packaging.
• Agreement of a global plastics treaty.
• Public policy that creates the right enabling environment for new packaging models to succeed.

We are improving our transport network efficiency.

We use logistics and distribution networks across the world to transport our raw materials and products, resulting in GHG emissions from fossil fuel use.

• Improve transport network efficiency.
• Scale up electric and alternative fuel vehicles.
• Accelerated decarbonisation of the transport sector.
• Improved availability of alternative fuels, electric vehicles (especially heavy-duty vehicles), and recharging infrastructure.

Ice cream cabinets

We are working to reduce GHG emissions from our fleet of ice cream cabinets through cabinet efficiency and ‘warming up’ the cold chain.

We have a global cabinet fleet of close to 3 million point-of-sale ice cream freezers, all of which use electricity. This results in GHG emissions where this electricity comes from non-renewable sources.

• Increase cabinet energy efficiency.
• ‘Warm up’ the cold chain. This involves raising the temperature settings of the cabinets from the standard setting of -18°C to a higher setting of -12°C, requiring less energy.
• Transition to renewable energy.
• Ongoing transition to renewable electricity.
• Market access to power purchase agreements and ongoing acceptability of energy attribute certificates.
• Change in freezer temperature regulations.

Aerosol propellants in the US and Canada

We are developing alternative propellants for the US market.

Propellants are ingredients used within products such as hair sprays, antiperspirant sprays, deodorants, and body sprays. Outside of North America, Unilever uses natural hydrocarbon gases for these spray formats which have close to zero GHG emissions. However, in part due to restrictions in the US and Canada regarding Volatile Organic Compound regulations, our spray formulas in these markets use hydrofluorocarbon propellants. HFC propellants typically have a Global Warming Potential of around 164, meaning they are 164 times more potent than carbon dioxide in contributing to global warming.

• Develop alternative propellants for the US market.
• Consumer acceptance of aerosol propellant innovations in the US and Canada markets.
• Removal of potential regulatory roadblocks in Canada.

In addition to the actions outlined above, we recognise that more innovations will be needed if we are to meet our near-term targets and deliver our Net Zero by 2039 ambition. We believe that by being open and transparent about our challenges and dependencies in our CTAP, we can help accelerate the changes needed to get our business and the world on track for net zero.

"Climate action is a priority for Unilever, to support business growth and the communities we serve. We’re focusing our efforts where we can have most impact and driving innovation – but we cannot do it alone. We’re partnering with others to scale solutions and using our voice to spur collective action from governments, regulators and industry, up and down our value chain. We want to focus our business and the world to get on track for net zero." Rebecca Marmot, Chief Sustainability Officer

Our wider influence on society

To deliver the actions outlined in our updated CTAP, and to help unlock further emissions reduction to meet our near-term GHG reduction targets and progress towards net zero, we recognise the need for more targeted engagement to help drive systemic change.

Our CTAP includes cross-cutting advocacy asks which underpin and support our work on climate. It also sets out how we seek to address specific barriers to each action area, by working with governments, regulators, and industry to shift the systems we are part of. Our cross-cutting advocacy asks include:

More details of how we approach and govern climate policy engagement, including a review of our industry associations, can be found in our Climate Policy Engagement Review (PDF 1.39 MB) .

Our climate governance

The Board has overall accountability for the management of all risks and opportunities, including those arising from climate change and our CTAP. Our CEO and Executive Board member is ultimately responsible for overseeing our climate agenda and implementation of our CTAP. Further information about climate governance is included in our CTAP.

Latest climate news

Regenerative agriculture: what it is and why it matters

It takes around 4 million hectares of land to grow the raw materials used in Unilever products. To ensure they are grown sustainably, we need to support the farmers who supply us as they make the shift to regenerative agriculture. But what does this mean and how will it work?

World-first partnership to pilot near-zero emissions laundry ingredient

Working with partners, our India business is piloting the production of synthetic soda ash – a key ingredient in laundry powder – with a near-zero greenhouse gas footprint. If proved at scale, this innovation could help unlock faster emissions reductions in our supply chain.

We’re protecting and regenerating nature to help combat climate change

Deforestation is a driver of climate change. Lana Kristanto, sustainable sourcing specialist, explains how we’re working towards a deforestation-free supply chain and why protecting and regenerating nature is a key part of our climate strategy.

COP28: Why we’re calling for urgent climate action

The world isn’t reducing emissions quickly enough to meet global targets and avoid climate breakdown. Unilever is calling on governments attending COP28 to urgently increase ambition and accelerate action, so we can go further, faster in the race to net zero.

Related information (6 items)

Download our ctap (pdf 7.98 mb).

Our Climate Transition Action Plan sets out our actions to lower our emissions by 2030.

Using our voice for a zero carbon future

We’re calling on everyone – businesses, governments and international alliances – to come together to tackle climate change.

Deforestation-free supply chain

We’re working within our business and with external partners to ensure a deforestation-free supply chain, that we support human rights and tackle climate change.

Regenerating nature

We’re pioneering an ambitious approach to restore the health of our planet, both in our supply chain and beyond.

Sustainability performance data

We have consolidated our sustainability performance and people data to help with further analysis.

Annual Report and Accounts 2023 Highlights

Find out about our strategy and our performance.

Our near-term Scope 3 targets have been submitted to SBTi for validation.

We also have a target to ‘Halve the full value chain emissions (Scope 1 to 3) of our products on a per consumer use basis by 2030 against a 2010 baseline (medium-term intensity target)’. This target is consistent with a 2°C temperature increase because it was set in 2010 and validated by the SBTi before the 1.5°C validation was introduced. We intend to retire this target in 2024 once our new, more ambitious 1.5°C-aligned Scope 3 targets have been validated by the SBTi.

The Pulse from UnitedHealthcare: Health Plan CEO discusses the future of value-based care

Value-based care has the power to deliver better health outcomes and experiences, along with reduced costs.

By Scott Flannery, Health Plan CEO of Texas and Oklahoma for UnitedHealthcare Employer & Individual

As the Health Plan CEO of Texas and Oklahoma for UnitedHealthcare Employer & Individual, I come to work each day thinking about the quadruple aim: simplifying the member experience, improving the provider experience, driving better health outcomes and reducing overall costs for employees and employers.

Value-based care , an arrangement which pays providers based on the quality and affordability they deliver to their patients, has the power to deliver on each of these goals. Frankly, I see it as the only way forward given the current cost trends we’re seeing in health care — but there’s a ways to go before we see widespread adoption.

It’s understandable: You can’t do things one way for decades and then flip a switch. I think our job is to help accelerate adoption along that continuum. Over time, we need to change the way providers, employees, employers and insurers  think  about care, and that’s a tall order. How do we get them from the former fee-for-service model to the pay-for-value model — and maybe even a risk model down the road? It’s going to come with patience and time.

At UnitedHealthcare, we believe in the value-based care model, which is why we’re working to accelerate its adoption by entering into value-based contracts with providers while also ensuring those providers are accountable for providing quality care.

One health plan that is gaining traction in Texas and Oklahoma is Surest TM , which helps provide members with clear, upfront health care cost and coverage information before making an appointment. If you need an MRI, for instance, and one facility will charge a $400 copay while another will charge a $700 copay, you have a choice — based on your budget, etc. — about where you’ll get that MRI. That gives you power over your health care and makes the experience more like what we’ve all come to expect of retail.

But we also have to replicate that experience for members who may not be comfortable with a digital shopping experience. That’s why we also offer support over the phone, where members can call and ask questions and be walked through their options.

Ultimately, to see the kind of quality care — which may yield better health outcomes, improved experiences and lower costs — requires a concerted effort on the part of insurers, but also of employers and employees.

More than two-thirds of our business is self-funded employers, and these have been some of our earliest adopters of value-based care — though our fully insured business is starting to catch up. Showing employers that value-based care may really move the needle on health outcomes and costs has been integral to getting them on board with what may initially feel like a narrow network.

Having the ability to show that value-based care models may yield lower costs may also help drive a better experience for members, because it aims to motivate those employees to think differently about how they’re using the health care system to encourage them to take a more active role and make more informed and cost-effective choices.

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Honda to build $11 billion electric vehicle hub in Canada

By michael wayland,cnbc • published april 25, 2024 • updated on april 25, 2024 at 9:17 am.

• Honda Motor and yet-to-be-named joint venture partners plan to invest $11 billion in Ontario, Canada to create a "comprehensive EV value chain," the Japanese automaker announced Thursday.
• The company said the plans include new assembly and battery plants as well as other facilities to support production of the all-electric and fuel cell-powered vehicles.
• Many automakers have announced pullbacks in their all-electric vehicle plans amid slower-than-expected adoption of EVs.

DEROIT — Honda Motor and yet-to-be-named joint venture partners plan to invest $11 billion in Ontario, Canada, to create a "comprehensive EV value chain," the Japanese automaker announced Thursday.

The company said the new North American electric vehicle epicenter will include new assembly and battery plants as well as other facilities to support production of all-electric and fuel cell-powered vehicles.

Honda said vehicle production will begin in 2028, with annual vehicle capacity of 240,000 units once it is fully operational. The investment in Alliston, Ontario, is expected to greatly assist in Honda's goal of exclusively offering all-electric and fuel cell-powered vehicles by 2040.

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The timing of the investment may seem odd to industry onlookers and investors, as many automakers have announced pullbacks in their all-electric vehicle plans amid slower-than-expected adoption of EVs.

Honda said the investment is "for a future increase in EV demand in North America," with the battery plant capable of producing 36 gigawatt hours, or GWh, per year.

The project is expected to create as least 1,000 new jobs, adding to the 4,200 employees the company currently has at its two existing manufacturing facilities in Ontario.

India ‘confident' new EV policy measures will allow more foreign players to enter market

Microsoft says cloud AI demand is exceeding supply even after 79% surge in capital spending

Prime Minister of Canada Justin Trudeau said during a livestreamed press conference on Thursday that Honda's investment, 15 billion Canadian dollars, is the largest ever for the country's automotive industry. The company is expected to receive upward of CA$2.5 billion in assistance in tax credits and other incentives from the Canadian government, officials said.

The investment is a major win for Canada and comes after Honda last year confirmed a $4.4 billion investment for a new U.S. battery plant in Ohio.

"In North America, following the initiative to establish our EV production system capability in the U.S., we will now begin formal discussions toward the establishment of a comprehensive EV value chain here in Canada, with the support of the governments of Canada and Ontario," Honda CEO Toshihiro Mibe said in a release. "We will strengthen our EV supply system and capability with an eye toward a future increase in EV demand in North America."

Honda said it has "begun the process of evaluating the scope of its investment and completing negotiations with its joint venture partners." Its partner in the U.S. facility is LG Energy Solution.

The company said it expects to finalize the plans over the next six months.

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