Chapter 3 – Analyzing the Internal Environment of the Firm
Value-Chain analysis views the organization as a sequential process of value-creating activities. It is based
on the simple notion that a firm engages in a series of activities that combine the various necessary inputs
to create the product offering that the firm brings to the marketplace. The value-chain analysis provides the
foundation for understanding the building blocks of competitive advantage. In competitive terms, value is
the amount that buyers are willing to pay for what a firm provides them. In reality, value can be measured
by total revenue, a reflection of the price a firm’s product commands and the quantity it can sell.
Porter described two different categories of activities. First, five primary activities (inbound logistics,
operations, outbound logistics, marketing and sales, and service) contribute to the physical creating of the
product or service, its sale and transfer to the buyer, and its service after the sale. Second, support activiites
(procurement, technology development, human resource management, and firm infrastructure) either add
value by themselves or add value through important relationships with both primary activities and other
Five generic categories of primary activities are involved in competing in any industry.
Inbound logistics are primarily associated with receiving, storing, and distributing inputs to the product.
They include material handling, warehousing, inventory control, vehicle scheduling, and returns to
Operations concern all activities associated with transforming inputs into the final product form, including
machining, packaging, assembly, testing, printing and facility operations.
The activities of outbound logistics are associated with collecting, storing, and distributing the product or
service to buyers. They include finished goods, warehousing, material handling, delivery vehicle operation,
order processing, and scheduling.
Marketing and Sales