How to fill in the Value Chain Analysis
Break the business into activities and find where value and cost actually sit. This guide walks every block in the recommended order — what belongs there, the questions that unlock it, and patterns from real canvases.
Value chain analysis breaks a business into the discrete activities it performs, so you can see where value is genuinely created and where cost is genuinely incurred. Porter split them into five primary activities that move a product from input to customer, and four support activities that make the primary ones possible.
It is the most operationally detailed framework here, and the one most likely to change something on Monday. Where a SWOT tells you that costs are too high, a value chain tells you which activity they sit in — and whether that activity is one where you should be competing at all, or one you should be buying from somebody better at it.
Introduced by Michael E. Porter in Competitive Advantage (1985) as the analytical companion to his Five Forces model — Five Forces analyses the industry, the value chain analyses the firm inside it.
Inbound Logistics
How do inputs arrive and get stored?
Receiving, warehousing, and distributing inputs to production — goods inward, inventory control, supplier scheduling, and returns to suppliers. Cost advantage here often comes from inventory discipline rather than purchase price, because holding stock ties up capital that never appears on the unit cost line.
Ask yourself
- What does holding inventory actually cost us?
- How reliable is inbound delivery, and what does a failure cost?
- Where does material sit idle in the process?
- Could a supplier hold this stock instead of us?
Patterns that work
- Inventory holding cost is frequently invisible in unit economics
- Reliability of inbound flow determines how much buffer you must carry
- Software equivalent: data ingestion, third-party APIs, content acquisition
Operations
How are inputs turned into the finished offer?
Everything that transforms inputs into the product or service — manufacturing, assembly, testing, packaging, or in a service business, the delivery of the work itself. This is usually the largest cost block and the one where scale, quality, and cycle time interact. Measure throughput and defect rate together; improving one at the expense of the other rarely nets out positive.
Ask yourself
- Where is the bottleneck in this process?
- What is our defect or rework rate, and what does it cost?
- How long is the cycle from start to finished output?
- Which step adds cost without adding value the customer sees?
Patterns that work
- Identify the bottleneck first — improvements elsewhere do not increase throughput
- Rework is usually the largest hidden cost in this activity
- Software equivalent: engineering, build, deployment, and hosting
Outbound Logistics
How does the finished offer reach the customer?
Storing finished goods, order processing, scheduling, and delivery. In digital businesses this is distribution, provisioning, and onboarding. Speed here is increasingly a differentiator rather than a cost line — customers now judge delivery time as part of the product, not as an afterthought.
Ask yourself
- How long from order to customer receipt?
- What proportion arrives late or wrong?
- What does a delivery failure cost us in support and reputation?
- Is delivery a cost centre or a reason people choose us?
Patterns that work
- Delivery speed has moved from cost line to product feature
- Failure rates cost twice — once in remediation, once in support load
- Software equivalent: provisioning, onboarding, activation
Marketing & Sales
How do customers learn about and buy from us?
Advertising, promotion, channel selection, pricing, and the sales process itself. Analyse this as an activity with a cost and a yield, not as an overhead: cost per acquired customer by channel is the number that makes this block actionable, and it is frequently the number nobody owns.
Ask yourself
- What does acquiring one customer cost, by channel?
- How long is the sales cycle, and where does it stall?
- Which channel produces the customers who stay longest?
- Is pricing set deliberately or by habit?
Patterns that work
- Cost per acquired customer, split by channel, is the key measure
- Channels differ in the quality of customer they produce, not just the cost
- Pricing belongs here and is the highest-leverage line on the page
Service
What happens after the sale?
Installation, training, support, repair, upgrades, and parts. Service is the most under-analysed primary activity and often the cheapest place to build differentiation, because competitors treat it purely as a cost to be minimised. It also generates the retention that makes every acquisition pound go further.
Ask yourself
- What does supporting one customer cost per year?
- Which recurring issue generates most contacts?
- Does service generate revenue, or only cost?
- How much retention does good service actually buy us?
Patterns that work
- The most common support issue is usually a defect in another activity
- Service is where differentiation is cheapest because rivals under-invest
- Retention gained here multiplies the value of every acquisition pound
Firm Infrastructure (Support)
What keeps the organisation running?
General management, finance, planning, legal, quality management, and governance. Rarely a source of differentiation, frequently a source of drag — slow decisions, slow approvals, and slow reporting all show up as delays in primary activities without ever appearing as a cost against them.
Ask yourself
- How long does a routine decision take to get approved?
- Where does administration slow down primary activities?
- What does our reporting cycle cost in people's time?
- Which control exists for a reason nobody remembers?
Patterns that work
- Measure this activity in delay imposed, not only in cost incurred
- Approval latency is a real cost carried by every primary activity
Human Resource Management (Support)
How do we recruit, develop, and keep people?
Recruiting, hiring, training, development, and compensation. In service and knowledge businesses this is not a support activity in any meaningful sense — it determines the quality of the primary activities directly, and turnover in a key role can cost more than any line in operations.
Ask yourself
- What does replacing a key person cost us, fully loaded?
- How long until a new hire is productive?
- Which skill gap is limiting a primary activity right now?
- Is compensation competitive for the roles that matter most?
Patterns that work
- Time-to-productivity for a new hire is a direct operational cost
- In knowledge businesses this activity drives the primary chain, not supports it
Technology Development (Support)
How do we improve the product and the process?
R&D, product and process design, automation, and the systems that run the business. Include process technology, not just product technology — automating an internal handoff often returns more than a new feature, and it is systematically under-funded because it has no customer asking for it.
Ask yourself
- Which manual step could be automated for the best return?
- How much do we spend improving process versus product?
- Which system limits what primary activities can do?
- What technical debt is slowing operations?
Patterns that work
- Process technology is under-funded because no customer requests it
- The constraint is usually a system, not a person
Procurement (Support)
How do we buy what the business needs?
The purchasing function itself, across every input — raw materials, services, equipment, and software. Porter distinguishes this from inbound logistics deliberately: procurement is the act of sourcing and negotiating, inbound logistics is the physical handling of what arrives. Small improvements in purchase terms flow straight to margin.
Ask yourself
- Where do we have negotiating leverage we are not using?
- How many suppliers are single-sourced?
- What are we buying that we should be making, or the reverse?
- When did we last competitively tender our largest inputs?
Patterns that work
- Purchase terms flow directly to margin with no operational change
- Single-sourced critical inputs are a risk this activity should own
Ready to fill yours in?
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