Porter’s Value Chain

If you ever had the thoughts of “If only our sales can understand product management better?!”, or “How can the consultants tell us what to prioritize when they know nothing about our work?”, think further – how much about sales and consulting do you, as a Product Manager, understand? Needless to say that for every role in a profitable business, there are functionalities and meanings. Like in a manufacturing company, with materials in and goods out, the company creates value for customers and a margin for itself. How exactly does this happen? Who is involved in each step? Does Sales just need to sell more, procurement purchase better, and operation produce smarter? Porter’s Value Chain is a known and proven suitable tool to answer these questions.

In Porter’s Value Chain, the business structure is illustrated via a chain of activities, where each is next to their up- or downstream activity until the beginning and the end of value are depicted. These are called primary activities. The functionalities that enable and support these activities to happen are mapped in parallel, which are called secondary activities.

Nowadays, nearly 40 years since Porter first made the Value Chain public, in a software company, “materials” are less of physical items, and “goods” require no cardboard packaging. This may make the above classical value chain example seem outdated, especially the functionalities of development and logistics. However, the purpose of Porter’s Value Chain here is not for you to draw it like a Process Engineer in order to increase business profitability, but rather to help you effectively understand how and what customer values are created in your organization, by each of your stakeholders and your relations to them.

Porter’s Value Chain

Further Reading

What is a Value Chain Analysis?