Porter’s Value Chain Guide

Updated September 2026

Break the business into its nine value activities, put a cost on each, and work out which ones buyers actually pay a premium for. Then decide what to keep, outsource or stop.

What is it

A company is nine value activities, and the margin between what they cost and what buyers will pay.

Michael Porter’s value chain breaks a company into the separate activities it uses to design, produce, market, deliver and support its product. Advantage comes from doing those activities more cheaply than rivals, or in a way buyers will pay more for. The point is not the diagram. It is finding the two or three activities where you are better or cheaper than anyone, and protecting them.

The chain

Support activities

Firm infrastructure General management, planning, finance, legal and compliance. Supports the whole chain rather than any one activity.

Human resources Recruiting, training, development and pay across every activity, including what turnover costs you.

Technology Know-how, procedures and process technology built into every activity, not just the product itself.

Procurement The buying function itself, as opposed to the things being bought. Spread across the chain, and usually costed nowhere.

Primary activities

1 Inbound logistics Receiving, storing and distributing inputs: goods handling, warehousing, inventory control, returns to suppliers.

2 Operations Turning inputs into the finished product: processing, assembly, testing, packaging, running the facility.

3 Outbound logistics Collecting, storing and distributing to buyers: order processing, scheduling, warehousing, last-mile delivery.

4 Marketing and sales How buyers can buy, and what persuades them to: channel choice, pricing, promotion, sales team.

5 Service Keeping or adding value after the sale: installation, repair, training, parts, renewals.

After Porter, Competitive Advantage (1985). Margin = what buyers will pay in total − what the activities cost to run

How to use it

How to run it on your own business.

Inventory

Put every activity the company performs under one of the nine headings. Write each one as a specific task rather than a department: “motorbike delivery in Lagos”, not “logistics”.

Cost

Put a running cost against each activity, in money and in people-hours, and include the costs hiding behind it: tooling, rework, turnover. A chain without costs tells you nothing.

Differentitation

Find the activities the buyer would notice if they got worse. Those are where your differentiation lives, and the reason anyone pays a premium.

Comparison

For each activity, compare your cost and performance against the next best option the buyer has. Expect two or three real advantages, not nine.

Decision

For each activity, pick one: keep it in-house and invest, outsource it to someone cheaper, or stop doing it.

The worksheet

Activity

Heading

Monthly cost

Buyer notices?

Your position

Decision

Primary / Support

Yes / No

Better / Cheaper / Same

Keep / Outsource / Stop

e.g. Motorbike delivery in Kigali

Primary

4,200

Yes

Better

Keep

Common mistakes

Three ways it goes wrong.

Mapping the org chart instead of the activity chain.

“Sales team” is an organisational unit. “Calling co-operative buyers every Monday” is an activity.

Leaving the cost column empty.

Without a cost against each activity, you cannot trace where the margin goes, and the chain is just a diagram.

Claiming advantage across the whole chain.

If you are ahead in all nine, you never compared yourself against a real alternative.

All of the library

Lean Startup Action Plan →

Alexandria Vault →

One Pager Template →