What is the Value Chain Model?
The Value Chain Model was developed by Michael Porter and introduced in his 1985 book "Competitive Advantage." It provides a framework for analysing the activities within a business that create value for customers, and for identifying where competitive advantage can be built, strengthened, or eroded.
Porter argued that every business can be understood as a collection of discrete activities — from raw materials through to the delivery of the final product or service to the customer. By mapping and analysing these activities, leaders can identify where the business is creating differentiation, where costs can be reduced, and where opportunities for improvement exist.
Primary and support activities
The Value Chain distinguishes between primary activities and support activities. Primary activities are those directly involved in creating and delivering the product or service to the customer: Inbound Logistics (receiving and storing inputs), Operations (transforming inputs into the product), Outbound Logistics (delivering the product), Marketing and Sales, and Service (after-sale activities).
Support activities underpin all primary activities: Firm Infrastructure (management, finance, legal), Human Resource Management, Technology Development, and Procurement. These support activities contribute to value creation across the entire chain.
Using the Value Chain for competitive analysis
By mapping the value chain and comparing it to competitors, a business can identify where its activities are genuinely superior (a source of differentiation or cost advantage) and where they are weaker. This informs decisions about where to invest in improvement and where to consider outsourcing or partnering.
The Value Chain is also useful for identifying linkages — interdependencies between activities that, when managed well, create additional value or reduce costs. For example, strong inbound logistics that reduce defects can reduce the cost of service activities downstream.
Value Chain analysis in practice
Value Chain analysis involves breaking down the business's activities, assigning costs to each, and evaluating the value created by each relative to its cost. This reveals the activities that are genuinely distinctive and value-creating, and those that are simply necessary but not differentiating.
The output of this analysis informs strategic decisions about focus, outsourcing, investment, and improvement priorities.
How Empiraa relates to Value Chain thinking
Understanding the value chain helps businesses focus their strategic initiatives on the activities that genuinely matter most to customers and competitive position. Empiraa supports this by helping organisations set goals and initiatives that target the specific activities most critical to their strategy.
For advisors using Empiraa GPS, Value Chain analysis is a powerful tool for helping clients understand where they create distinctive value and where improvements will have the greatest strategic impact.