Porter's value chain (Michael Porter, 1985) breaks an organisation into five primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) and four support activities (infrastructure, HR, technology, procurement) to show where it creates value, where costs arise and where competitive advantage comes from.
Primary activities
| Activity | What it covers | Example |
|---|---|---|
| Inbound logistics | Receiving, storing and handling inputs | Warehousing raw materials |
| Operations | Turning inputs into the product or service | Manufacturing, running a site |
| Outbound logistics | Getting the product to customers | Distribution, delivery, ticketing |
| Marketing and sales | Making customers aware and able to buy | Advertising, pricing, sales teams, website |
| Service | Keeping value after the sale | Repairs, customer support, memberships |
Support activities
| Activity | What it covers |
|---|---|
| Firm infrastructure | Management, planning, finance, legal, quality |
| Human resource management | Recruiting, training, rewarding people |
| Technology development | Research, IT, process improvement |
| Procurement | Buying inputs, from materials to services |
How to use the value chain in the SBL exam
- Map the case organisation's main activities onto the chain.
- Identify which activities create the most value for customers and which drive cost.
- Link to generic strategy: where does the cost advantage or differentiation actually come from?
- Recommend improvements: invest in value-creating activities, cut or outsource low-value ones, use technology to link activities.
Worked example
For Historic Places (March 2025 pre-seen): operations (conservation and running sites) and service (memberships) create most value; marketing and sales is weak online; HRM depends heavily on volunteers; technology development lags. Recommendations: invest in online ticketing and e-commerce (marketing and sales), a structured volunteer programme (HRM) and cyber-secure systems (technology), and review procurement of maintenance contractors to control costs.
Value chain vs value system
The value chain covers one organisation. The value system connects suppliers' value chains, the organisation's and those of distributors and customers. Use the value system when the case is about supply chain management, outsourcing or partnerships.
Advantages and limitations
Advantages
- Shows exactly where advantage and cost come from
- Links internal analysis to competitive strategy
- Highlights outsourcing and technology opportunities
Limitations
- Designed for manufacturing; services and digital firms fit less neatly
- Can become a description rather than an analysis
- Hard to measure value added by each activity
- Ignores links between organisations unless you use the value system
Linkages: where real advantage often sits
Porter stressed that advantage comes not only from individual activities but from the linkages between them. Better procurement of quality materials can reduce defects in operations and after-sales service costs. Good HR training can improve both operations and customer service. In an exam, pointing out a linkage (for example how a new IT system links sales, operations and service) shows deeper analysis than describing activities one by one.
Applying the value chain to service and digital businesses
The model was designed for manufacturers, but it adapts:
- Services: inbound logistics may be booking and scheduling; operations is delivering the service; outbound logistics may be minimal; service covers follow-up and loyalty.
- Digital businesses: technology development becomes a core driver of value, data flows act like logistics, and much of operations and service is automated.
- Charities and the public sector: "margin" becomes value for beneficiaries or taxpayers, rather than profit.
Outsourcing decisions
The value chain is the natural tool for outsourcing questions. Keep in-house the activities that create competitive advantage or carry high risk; consider outsourcing those that are standard, where a specialist can do them cheaper or better. Always weigh the loss of control, quality risk and the impact on linkages.
FAQs
What is Porter's value chain?
A model from Michael Porter's Competitive Advantage (1985) that breaks an organisation into primary and support activities to show where value is created and where costs arise.
What are the five primary activities?
Inbound logistics, operations, outbound logistics, marketing and sales, and service.
What are the four support activities?
Firm infrastructure, human resource management, technology development and procurement.
What is the difference between a value chain and a value system?
The value chain is one organisation's activities. The value system (or value network) links the value chains of suppliers, the organisation, distributors and customers.
What is the difference between a value chain and a supply chain?
A supply chain is the flow of goods and materials from suppliers to customers. A value chain looks at every activity, including support activities, and where each adds value or cost.