The Value Chain Model explained

The Value Chain model is an excellent basic description of how an organization works.

(1) Primary Activities are directly related to production, sales, marketing, delivery and service.
(a) Inbound Logistics – Receiving, handling and storing inputs to the production system, warehousing, transport, stock control and so on.

(b) Operations – Converting resource inputs into a final product, resource inputs are not only materials. People are a resource, especially in service industries.

(c) Outbound Logistics – Storing the product and its distribution to customers: packing, testing, delivery and so on, for service industries, this activity may be more concerned with bringing customers to the place where the service is available, (example: front of house management in a theatre)

(d) Marketing and Sales – Inform customers about the product, persuading them to buy it and enabling them to so: advertising, promotion and so on.

(e) After Sales Service – Installing products, repairing them, upgrading them, providing spare parts and so forth.


(2) Support Activities provide purchased inputs, human resources, technology and infrastructural functions to support the primary activities:
(a) Procurement – All of the process involved in acquiring the resource inputs to the primary activities (eg purchases of materials, subcomponents equipment)

(b) Technology Development – Product design, improving processes and resource utilization.

(c) Human resource management – Recruiting, training, managing, developing and rewarding people, this activity takes place in all parts of the organization, not just in HRM department.

(d) Firm Infrastructure – Planning, finance, quality control, the structures and routines that make up the organization’s culture.



Linkages connect the activities of the value chain.

(a) Activities in the value chain affect one another. For example, more costly product design or better quality production might reduce the need for after-sales service.

(b) Linkages require coordination. For example, Just-in-time requires smooth functioning of operations, outbound logistics and service activities such as installation.



The Value Chain Concept is an important tool in analyzing the organization’s strategic capability. There are two important, connected aspects to this analysis:

(a) It enables managers to establish the activities that are particularly important in providing customers with the value they want: this may lead to consideration of where management attention and other resources are best applied, either to improve weakness or to further exploit strength. (for example decision about outsourcing)

(b) This analysis can be extended to include an assessment of the cost and benefits associated with various value activities.




The Value Chain, Core Competences and Outsourcing

The purpose of value chain analysis is to understand how the company creates value.

There is a clear link here with the idea of core competences : a core competence will enable the company to create value in a way that its competitors cannot imitate. These value activities are the basis of the company’s unique offering.

There is a strong case for examining the possibilities of outsourcing non-core activities so that management can concentrate on what company does best.


(source: BPP Learning Media)



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