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The value chain is used to identify opportunities for differentiation or cost advantage, helping the organization to select the most profitable differentiation or cost variables. The appropriate level for constructing a value chain is the business unit. As products pass through a chain of activities in order, they should gain value in each step. The chain of activities gives the products more added value than the sum of added values of all activities.
Understanding the value versus cost of activities in the chain helps identify process improvement, cost reduction options, and opportunities to increase value and differentiation.