Create an account and get free access to 50+ articles.
Sign up for free >>
BootCamp Articles

Articles read: 0/52

A value chain is used to systematically visualize processes and value adding activities within a business

The value chain is a classic framework to structure the activities of a business. Each step adds value to a product by transforming resources. This value add justifies a profit margin at the end, meaning the price of the end product is higher than the sum of total costs incurred along the value chain.

Michael Porter’s value chain is the most common version

The primary activities in Porter’s value chain are the major contributors to value creation. Supporting activities are necessary to run the business, but not necessarily create value by themselves. These activities are often referred to as overhead.

Porter's Value Chain for consulting case interview preparation

The above example is mainly applicable for a classic manufacturing process but can also hold well for more abstract service companies, where information is processed. In general, a value chain could also depict an entire industry covering the activities done by several companies in order to produce a complete product. Depending on the industry, primary and supporting activities will vary and will have to be adapted according to industry.

You can use the value chain analysis both in market analysis and company analysis cases

On a company level, the value chain analysis is a powerful tool when you need to determine a root cause of a general problem in a structured way. It can be considered as search pattern within a company’s or an entire industry’s processes. Possible business situations where a value chain analysis may be useful are:

  • When there are general quality problems or increasing costs. Here you would lay down the primary and supporting activities. Examine each step to find the exact root cause of the problem.
  • If you need to assess a business model, conduct a value chain analysis to figure out the key processes of a company, resulting in most value and margin. Here, you would define the activities that are the core competencies and secondary activities of the client and evaluate strengths and weaknesses (see SWOT analysis) to make more detailed recommendations.
  • When facing logistic issues, use it to analyze all parts within a supply chain.
  • In case of a business model redesign, conduct a value chain analysis to figure out what steps can be outsourced.

On a market level, the value chain allows you to get a quick overview over relevant players and the power of each participant. If you want to understand a product with respect to its manufacturing and its unique characteristics, follow its production along the value chain. In addition, if you are asked to conduct a profit pool analysis of an industry, you would need to structure it according to value chain steps. Doing so provides transparency about the attractiveness of single steps within a value chain.

Key takeaways

  • The value chain is a powerful tool to structure your analysis (since it is MECE per definition).
  • It usually differentiates between value adding primary activities and supporting activities (a.k.a overhead).
  • It is a systematic search pattern to analyze both companies and industries.

Do you have questions on this lesson? Pose it to our community!

Ask a question
Related case(s)

Bain case: Asian lubricants producer

Solved 94.9k times
4.7 5 27145
| Rating: (4.7 / 5.0)

LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). ... Open whole case

Your client, large automotive OEM WyCar, has developed its first fully electric vehicle (EV) and introduced it as a pilot on the Austrian market last year. However, sales have been far below the expected numbers. The management has engaged you to support them in understanding the reasons and advise ... Open whole case

Deloitte Consulting case: Footloose

Solved 54.0k times
4.5 5 12605
| Rating: (4.5 / 5.0)

Duraflex is a German footwear company with annual men’s footwear sales of approximately €1 b. They have always relied on the boot market for the majority of their volume. In this market they compete with three other major competitors. In the fall of 2013, Badger – one of Duraflex’s competitiors – ... Open whole case

Roland Berger case: Light on!

Solved 49.3k times
4.6 5 13545
| Rating: (4.6 / 5.0)

LumCO, a company producing injection-molded components for lighting applications, has operated successfully in its native European market. The company wants to open up one production facility each in China and the United States and establish their own distribution network in both countries to serve ... Open whole case

Bain Case: Old Winery

Solved 33.7k times
4.4 5 897
| Rating: (4.4 / 5.0)

You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. ... Open whole case