value-chain-analysis
Value Chain Analysis
Overview
Porter (1985) separates firm activities into primary (inbound logistics, operations, outbound logistics, marketing/sales, service) and support (firm infrastructure, HR management, technology development, procurement). Competitive advantage — cost leadership or differentiation — emerges from performing one or more activities better than rivals. Margin is the residual after all activity costs are subtracted from customer willingness to pay.
Linkages between activities are often where the most powerful levers hide. Limit: linear value chain framework does not fit platform/multisided market businesses.
Composes with: porters-five-forces · bcg-matrix · economic-moat.
When to Use
- Margins below industry average without a clear explanation; designing competitive strategy; evaluating M&A synergies; new market entry planning
- Someone says: "value chain," "cost structure analysis," "strategic cost analysis," "make vs. buy," "which activities create value"
- Locating where margin actually pools in a multi-layer tech stack — e.g. "who captures the value in the AI stack," "is our AI capex a pass-through," "where does margin sit: chips, cloud, models, or apps," or facing AI-native competition that competes value away at the app layer
When NOT to use: platform/multisided market (use network effects); portfolio health check (use BCG); industry-level question (use Five Forces); pre-PMF firm.