Michael Porter’s Value Chain

The term competitive advantage refers to anything possessed by an organization that gives it an edge over its competitors. One key source of competitive advantage is value. Customers seek and base their purchase decisions on value. And those entities that can deliver it will be rewarded. Porter’s value chain as illustrated below is depicted as an arrow-shaped diagram that identifies value-producing activities that are common to all organizations.

These value-producing activities are divided into two groups: primary activities (i.e., inbound logistics, operations, outbound logistics, marketing and sales, and service) and support activities (i.e., firm infrastructure, human resources management, technology development, and procurement).

Primary Activities
Primary activities consist of those pursuits that directly contribute to the production of specific goods and services. There are five primary activities that are common to all entities:

Inbound Logistics. Involve all pursuits associated with the management of raw materials necessary to produce goods and services.

Operations. Involve all pursuits associated with the development and assembly of the goods and services that are to be offered to target markets.

Outbound Logistics. Involve all pursuits associated with making goods and services available to customers.

Marketing & Sales. Involve all pursuits associated with encouraging customers to purchase and consumer product offerings.

Service. Involve those pursuits that support post purchase/post consumption needs.

Support Activities
Support activities consist of those pursuits that indirectly contribute to the production of specific goods and services. There are four support activities that are common to all organizations:

Firm Infrastructure. Involve general administration pursuits (e.g., management, accounting).

Human Resources Management. Involve all employee and employment-related pursuits of organizations, including staffing, training, employee and labor relations, and compensation.

Technology Development. Involve all pursuits associated with the discovery and implementation of technologies that benefit organizations.

Procurement. Involve all pursuits related to the acquisitions of goods and services from suppliers (e.g., purchase of raw materials, buildings, furniture, and fixtures, machinery, office equipment) and so on.