Many organizations fail to achieve expected profits by using incorrect methods or models to determine the true costs of products and services. This inability to properly assess the costs associated with the business not only affects the profit margin but also the competitive advantage of the organization. In order to assess whether the organization is failing to achieve optimal resource allocation, the organization should examine the methodology first popularized by Michael Porter, called Value Chain Analysis (VCA). “VCA seeks to define the entire chain through which goods are supplied to a customer” (Booth, 1997: 2). VCA can be a powerful tool for increasing an organization's competitive advantage; By properly pricing products and assessing true material and labor costs, organizations can align improvements in efficiency, quality and profits with their strategic goals. Before explaining the benefits that a value chain can offer, it is important to first identify the value chain itself. According to Stabell and Fjeldstad (1998), Porter's work on VCA began by dividing an organization's activities into two categories, primary activities and supporting activities (see Figure 1): Primary activities are directly involved in the creation and delivery of value to the customer, while support activities enable and improve the performance of primary activities… The support label emphasizes that support activities only affect the value delivered to customers to the extent that they affect the performance of primary activities (p 417). Within the value chain, it is important for an organization to correctly identify the link between each category of main activities and its organization. The first c...... middle of paper ...... can be key to improving sales to customers. If a customer does not see the value in an organization's product, they may begin purchasing a competitor's product based on price alone. Price is not the only competitive advantage an organization can have, but if it is not able to express value other than price, it can significantly reduce the organization's competitive advantage.ReferencesBooth, R. (January 1997). Appreciate the value before counting the cost. Management Accounting: Magazine for Chartered Management Accountants. 57(1). Retrieved 10/11/2006 from the EBSCOhost database. Stabell, CB and OD Fjeldstad. (1998). Journal of Strategic Management. 19, 413-437. Retrieved November 11, 2006 from EBSCOhost database. The Value Chain (2006). NetMBA: Business Knowledge Center. Retrieved November 11, 2006 from: http://www.netmba.com/strategy/value-chain/