Value Chain

What Is the Value Chain?

The value chain is a representation of a company's internal activities, broken down into successive links that transform resources into a product sold at a margin. Each link incurs costs and generates value: the margin corresponds to the gap between the total value perceived by the customer and the cumulative cost of all the activities.

The concept was introduced by Michael Porter in Competitive Advantage: Creating and sustaining superior performance. Its value is twofold: it sheds light on an organization's cost structure and helps identify sources of differentiation from competitors. A company builds a competitive advantage when it carries out one or more activities at a lower cost, or with higher quality, than the market.