Value chain

The sequence of activities that turns raw inputs into a delivered product, and the map of who captures the value at each step.

Drawing it for an industry answers a question no single company's accounts can: where does the money actually sit? In personal computers it sat with the processor and the operating system rather than with the assembler. In Indian pharmaceuticals it has moved between the intermediate maker, the formulator and the distributor at different times.

The analysis has practical use in a specific situation: when a company announces it is moving up or down the chain, this tells you whether the step it is entering earns more than the step it is in.

Follow the margin, step by step.