Value Chain Analysis


Michael Porter introduced the value chain analysis concept in his 1985 book ‘ The Competitive Advantage’ . Porter suggested that activities within an organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into ‘primary activities’ and ‘support activities’

The diagram below divides activities into primary and support activities as suggested by Porter's Value Chain Analysis

Diagram showing Michael Porter's Value Chain Theory

Primary Activities

With the above activities, any or a combination of them are essential if the firm are to develop the "competitive advantage" which Porter talks about in his book.

Support Activities

Support activities assist the primary activities in helping the organisation achieve its competitive advantage. They include:


As you can see the value chain encompasses the whole organisation. It looks at how primary and support activities can work together to help the organisation create a superior competitive advantage. If an activity is performed well it is said to add value.


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