Value Chain

Why the Value Chain Emerged

When Michael Porter published Competitive Advantage in 1985, companies were grappling with a fundamental question:

Until then, many organizations viewed themselves as largely unified entities. Porter introduced a new perspective:

Suddenly, companies could pinpoint:

• cost drivers

• sources of customer value

• points of differentiation

• quality determinants

• speed enablers

• competitive advantage mechanisms

For the industrial economy of the 1980s, this was revolutionary.

The Real Innovation of the Value Chain

The true innovation of the Value Chain was not the diagram of a chain.

The innovation was the analytical visibility of value creation.

Before Porter, companies focused primarily on:

• revenue

• profit

• market share

• returns

The Value Chain asked a different question:

This made strategic thinking more concrete. Instead of analyzing abstract business outcomes, companies could examine the underlying mechanisms of value creation.

The Classical Value Chain

Primary Activities

Primary activities include:

• inbound logistics

• operations

• outbound logistics

• marketing and sales

• service

These activities were expected to generate direct customer value.

Support Activities

Support activities include:

• procurement

• human resource management

• technology development

• firm infrastructure

They create the conditions that enable primary activities to function.

Why the Value Chain Became So Influential

It Made Activities Visible

Companies could finally understand how their products and services were actually created.

It Made Competitive Advantage Visible

Different activities produce different customer experiences and cost structures.

It Encouraged Process Thinking

Instead of pure departmental logic, organizations increasingly adopted a process‑oriented perspective.

It Became the Foundation for Many Later Methods

Many management approaches build directly or indirectly on the same logic:

• Lean Management

• Activity‑Based Costing

• Process Costing

• Six Sigma

• Business Process Reengineering

• Total Quality Management

The Fragmentation Limit of the Value Chain

The Value Chain helped companies make activities visible. Over time, however, organizations increasingly decomposed themselves:

• into departments

• into processes

• into cost centers

• into profit centers

• into KPIs

• into responsibilities

• into target systems

Transparency increased. Complexity increased even faster.

The original analytical clarity often turned into organizational fragmentation.

From Company to Collection of Local Interests

Many organizations began optimizing each area separately:

• sales optimized revenue

• procurement optimized cost

• operations optimized utilization

• HR optimized turnover

• IT optimized system availability

• finance optimized liquidity

Each area pursued understandable goals. But one question remained unanswered:

Local optimization does not automatically lead to global optimization.

The KPI Limit of the Value Chain

The Value Chain made activities visible. KPIs made these activities measurable.

This led to:

• performance systems

• bonus systems

• target agreements

• management‑by‑objectives

• Balanced Scorecards

And a recurring pattern emerged:

Organizations increasingly optimized numbers — not necessarily collaboration, customer value, or future viability.

The Customer Limit of the Value Chain

The classical Value Chain focuses on internal activities.

Customers do not experience activities. Customers experience outcomes:

• quality

• reliability

• delivery capability

• service

• trust

• user experience

Customers never ask:

• Which department delivered this?

• Which KPI was met?

• Which cost center was responsible?

Customers experience the company as a unified whole.

The 10‑Million‑Dollar Phone Call

Imagine a CEO wins a $10 million contract through a single phone call.

The classical view says:

The systemic view asks:

For example:

• skilled employees

• functioning IT systems

• reliable financial data

• high product quality

• stable processes

• existing customer trust

• legal certainty

• clean and safe work environments

The visible success is rarely the cause. It is the result of a functioning system.

The Infrastructure Limit of the Value Chain

Porter distinguished between value‑creating and supporting activities.

Today, this distinction is increasingly difficult.

Example: IT

Forty years ago, IT could be considered a support function. Today, an IT outage often stops:

• ERP systems

• communication

• logistics

• production

• reporting

• AI systems

IT does not support value creation. IT enables value creation.

Example: Compliance

Compliance may not generate direct revenue. But it prevents:

• legal risks

• reputational damage

• liability cases

• trust erosion

Example: Facility Management

Buildings, energy, safety, and infrastructure may not generate revenue. But they enable every other activity.

The Cleanliness Limit of the Value Chain

A cleaner may not generate direct revenue. Yet they influence:

• hygiene

• health

• concentration

• work quality

• safety

• customer impression

A restaurant with poor hygiene loses guests. A manufacturing plant lacking order increases error risks. An office with poor working conditions increases strain and absenteeism.

Methods like:

• 5S

• Lean

• Kaizen

made cleanliness and order foundational to sustainable performance.

The Holocratic Limit of the Value Chain

The classical Value Chain thinks in activities and functions. Modern organizations increasingly think in roles.

The central question shifts:

Not:

But:

This shifts the perspective:

• from hierarchy to responsibility

• from power to purpose

• from structure to capability

The Competence Limit of the Value Chain

The Value Chain asks:

Later models like Core Competencies ask:

The focus shifts:

• from activities to capabilities

• from processes to competencies

• from units to organizational skill

The Culture Limit of the Value Chain

The greatest performance of an organization rarely arises from individual departments.

It arises from collaboration.

Excessive fragmentation often leads to:

• silo thinking

• internal politics

• blame shifting

• bonus conflicts

• power struggles

• lack of collaboration

The organization begins working against its own interests.

The Supernova Limit of the Value Chain

Every specialization initially creates advantages. Beyond a certain point, internal complexity grows faster than the organization’s ability to manage it.

Symptoms include:

• rising bureaucracy

• increasing coordination effort

• slower decisions

• growing target conflicts

• declining innovation speed

• increasing friction losses

Fragmentation reaches a critical point — an organizational supernova.

Not a collapse. A moment when the limits of the existing logic become visible.

The Fusion Perspective

The next evolutionary step is not further decomposition.

It is fusion.

Fusion does not mean:

• less specialization

• less expertise

• less responsibility

Fusion means:

Roles remain. Capabilities remain. Differences remain.

What returns is organizational unity.

Implementing the NextLevel Customer‑Holder Perspective

The classical Value Chain views value creation through activities.

A complementary perspective asks:

This shifts the logic:

Activity ↓ Process ↓ Performance ↓ Customer Value ↓ Customer‑Holder Value

The customer becomes the North Star.

Connecting Value Chain and Time‑Value Costing (TVC)

TVC expands the Value Chain.

While classical models distinguish between value‑creating and supporting activities, TVC views all roles as necessary components of value creation.

The question becomes:

This reveals:

Value arises from the interaction of many roles — not from isolated heroes.

What Remains Relevant About the Value Chain?

The Value Chain remains valuable for:

• process analysis

• value‑creation analysis

• cost analysis

• lean initiatives

• competitive strategy

• process optimization

Which Ideas Should Be Further Developed?

• Value rarely arises in isolation.

• Local optimization does not improve the whole system.

• Customers experience organizations as unified entities.

• Infrastructure enables value creation.

• Culture shapes performance.

• Collaboration becomes a strategic success factor.

Which Assumptions Deserve Critical Examination?

• Not every support activity is merely support.

• Not every primary activity automatically creates customer value.

• Not every KPI improves the company.

• Not every specialization increases performance.

• And not every fragmentation creates clarity.

The 7 Practical Steps for Leaders & AI Prompts

Step 1: Make the Fragments Visible

Step 2: Adopt the Customer-Holder Perspective

Step 3: Identify Hidden Roles

Step 4: Observe Supernova Signals

Step 5: Make the Customer‑Holder the North Star

Step 6: Prepare Fusion

Step 7: Measure Value‑Creation Capability

The 4 NextLevel Reflection Questions

Reflection Question 1: The Role Question

Which role in our organization is regularly underestimated, even though its absence would significantly impact customer value and performance?

Reflection Question 2: The Fragmentation Question

Where are we currently optimizing sub‑areas more successfully than the overall system?

Reflection Question 3: The Customer Question

Which internal discussions do not interest our customers but still significantly influence their experience?

Reflection Question 4: The Fusion Question

If we founded our company today, would we rebuild the same target systems, departments, and KPIs?

NextLevel Reflection Thought

The Value Chain helped companies make value creation visible.

The more important question for the future is:

As organizations grow more complex, the key is not further specialization — but the ability to reunite specialization into a coherent whole.

Global Model Index & Cross-Language Reference System