Value Chain Analysis: find where value is created
The value chain analysis shows where money is spent in the company and where the customer actually experiences value. Here is the model in English with an example from a manufacturing SME and six steps from mapping to strategic goals.
Published · 7 min read
In short
- Five primary activities and four support activities make up the chain.
- Assess each activity based on both cost and the customer's perceived value.
- A maximum of three gaps per round — otherwise nothing will be implemented.
- The aftermarket is often the most overlooked source of revenue in SMEs.
What is a Value Chain Analysis?
A value chain analysis maps the activities a company performs from raw material or idea to delivered service to the customer, and assesses where value for the customer is truly created — and where costs lie. The model comes from Michael Porter and distinguishes between primary activities and support activities.
For a Danish SME, the point is practical: You cannot be the best at everything. The value chain shows which few activities carry your competitive advantage, and which ones simply need to function at a reasonable cost. This answers where strategic projects and investments should be placed.
The analysis complements a SWOT analysis from within: where SWOT gathers assessments, the value chain forces you to look at actual workflows, margins, and bottlenecks. The result typically consists of three to five strategic goals, each with a KPI.
The Primary Activities
Activities that directly create, sell, and deliver your service.
Inbound Logistics
Purchasing, receiving, warehousing, and supplier management. This is where both working capital is tied up and the risk of delivery failure lies.
Examples: Number of critical single suppliers, inventory turnover rate.
Operations and Delivery
The actual manufacturing or execution of the task. Often the largest cost item — and the most important source of quality experience.
Examples: Effective hourly rate, rework percentage, delivery precision.
Outbound Logistics
Packing, distribution, assembly, and commissioning at the customer's site.
Examples: Freight cost per order, days from ready to delivered.
Sales and Marketing
How customers find you, how offers are made, and what determines a 'yes' or 'no'.
Examples: Offer hit rate, sales cost per new customer.
Service and Aftermarket
Support, spare parts, service agreements, and repeat purchases. In many SMEs, the most overlooked source of revenue.
Examples: Percentage of customers with service agreements, service margin.
The Support Activities
Activities that enable the primary ones. They are rarely seen by the customer, but they set the ceiling for how well the rest can run.
Procurement and Supplier Development
Terms, agreements, and collaboration with suppliers across the entire chain.
Examples: Share of purchases under framework agreements.
Technology and Development
Product development, digitalization of workflows, and system landscape.
Examples: Share of manual registrations, systems that don't communicate.
Human Resources and Competencies
Recruitment, training, key person dependency, and retention.
Examples: Number of tasks only one person can perform.
Management, Finance, and Control
Planning, financial management, quality, and strategy follow-up.
Examples: Days to month-end close, quality of decision-making basis.
Example: Manufacturing company with 45 employees
Same chain, three columns: what it costs, and what it means for the customer.
| Activity | Cost Share | Customer's Perceived Value |
|---|---|---|
| Purchasing and Inventory | 38% of costs | Low — the customer only sees the consequence when something is missing. |
| Production | 31% | High — quality and tolerances are the entire selling point. |
| Sales and Offers | 9% | Medium — fast, accurate offers win orders. |
| On-site Assembly | 12% | High — fewer errors during commissioning lead to repeat purchases. |
| Service and Spare Parts | 10% | High — and the highest profit margin in the business. |
How to conduct the Value Chain Analysis in practice
Expect two two-hour workshops with management plus data extraction in between.
1. Map the chain as it actually is
List the 6-10 activities a typical order goes through. Use your own words, not textbook definitions. Take one representative customer type at a time.
2. Add numbers to each activity
Allocate costs and time spent to the activities. Rough estimates are sufficient: 5% precision won't change the conclusion.
3. Assess the customer's perceived value
For each activity, ask: would the customer pay more if we significantly improved here? Use customer dialogue, not just gut feeling.
4. Find the three gaps
High cost and low value = candidate for simplification. High value and weak execution = candidate for investment. High value and strong execution = what you need to protect.
5. Translate into strategic goals
Each gap becomes one goal with a baseline, target level, owner, and deadline. More than five goals make the portfolio unmanageable.
6. Follow up quarterly
Set a KPI for each goal and review its status at the quarterly strategy review, so the analysis continues as a management tool.
Common Mistakes
- The chain is drawn as an organizational chart instead of the customer's journey through the company.
- All activities are declared strategically important — which means none of them are.
- The analysis stops at a nice PowerPoint without goals, owner, and deadline.
- Only costs are assessed, never the customer's perceived value.
- The aftermarket is omitted, even though it often has the best profit margin.
- One chain is drawn for the entire business, even though project sales and standard sales operate completely differently.
Frequently asked questions
What is a value chain analysis?
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A value chain analysis is a mapping of a company's activities from procurement to aftermarket, where each activity is assessed based on cost and how much value it creates for the customer. The purpose is to find the few activities that carry the competitive advantage.
What is the difference between primary activities and support activities?
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Primary activities create, sell, and deliver the service: inbound logistics, operations, outbound logistics, sales and marketing, and service. Support activities enable the primary ones: procurement, technology and development, human resources, and management, finance, and control.
How does an SME concretely use value chain analysis?
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Map the chain for one customer type, roughly allocate costs, assess the customer's perceived value per activity, and identify a maximum of three gaps. Each gap becomes a strategic goal with a KPI, owner, and deadline, which is followed up quarterly.
How long does a value chain analysis take?
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For a typical SME: two two-hour workshops with management and a few hours of data extraction in between. The analysis doesn't get better by taking three months — it gets better by being followed up on.
When should one choose value chain analysis over SWOT?
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Use the value chain when the question is where in operations you should invest or simplify. Use SWOT when you need to gather a broader picture of internal and external factors. The two work well together: the value chain provides the factual strengths and weaknesses for the SWOT.
Related guides
These guides are closely connected to value chain analysis and are natural next steps in your strategy work.
- SWOT analysis: guide and templateStrengths, weaknesses, opportunities and threats — with TOWS to turn insight into action.
- Porter's Five Forces explainedThe five forces that determine profitability in your industry.
- Business Model Canvas explainedThe nine building blocks of your business model, written for SMEs.
- What is a KPI? Guide with examplesGood KPIs, baselines, target levels and data sources.
More strategy guides
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Goals, KPIs and performance
Strategy process and planning
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