A firm's value chain describes its internal activities when transforming inputs into outputs. Each action the firm performs along the horizontal chain adds incremental value as raw materials and other inputs are transformed into components that are assembled into finished products or services for the end consumer. Each activity the firm performs along the horizontal value chain also adds incremental costs. A careful analysis of the value chain allows strategic leaders to obtain a more detailed and fine-grained understanding of how the firm's economic value creation (V C) breaks down into distinct activities that help determine the perceived value (V) and the costs (C) to create it. A company's competitive advantage can result from its unique network of activities. However, a static fit with the current environment is insufficient; instead, a firm's unique network of activities must evolve to take advantage of new opportunities and mitigate emerging threats. Strategic leaders can identify critical activities by benchmarking the competition and using activity-based accounting, which identifies specific activities along the company's Value Chain and then assigns costs to each activity based on estimates of all resources consumed. This exercise is important because as a manager you need to understand your company's