CHAPTER 2

UNDERSTANDING
YOUR BUSINESS
Effective strategy starts in the details

Developing an understanding of how Cost advantage

your company operates and how it
generates value is crucial for crafting
your strategy. “Value chain analysis”
is one useful tool for organizing the
activities of a business.
By determining the costs for each
of the activities in your value chain
analysis, you can explore opportuni-
ties to reduce costs, time, or resourc-
es used to complete those activities.

What is “value chain analysis”? Differentiation advantage

Value chain analysis organizes the
primary activities involved in producing
and selling a product or service and the
supporting activities that enable those
primary activities. This includes pro-
cesses behind procuring raw materials,
developing technologies, and building
infrastructure such as servers and
networks, and human resources.
Two advantages:
cost and differentiation
Your value chain analysis helps you
identify opportunities across those pro-
cesses to create strategic advantages.
By understanding which of those
activities are valued most highly
by customers, you can consider
how to create unique value that
differentiates your product or
service from competitors.
An eye on the future
Value chain analysis also allows you to
look at those activities through a future-
facing lens. You might consider how
technological advancements, changing
consumer sentiments, or new govern-
ment policy could impact either the cost
or value associated with those activities.

“Engage with people. Ask probing

questions about the business and the
area of responsibility they have. You’ll
be amazed about what people share
with you and what you’re going to learn
in these conversations.”
— H OWA R D S C H U LT Z
STA R B U C K S FO U N D E R
A N D FO R M E R C EO
L I N K TO L E S S O N