## **Learning Outcomes**

After reading this article, you will be able to explain the concept of the value chain and recognise how organisations generate value through primary and support activities. You will understand the links between business functions, how value networks operate, and how competitive advantage is achieved. You should be equipped to apply the value chain framework to practical business scenarios and analyse how different activities contribute to overall performance.

## **ACCA Business and Technology (BT) Syllabus**

For ACCA Business and Technology (BT), you are required to understand how value creation and value chain analysis relate to business competitiveness. In this article, focus on:

- The concept of value creation and its importance in business performance
- Porter’s value chain: identification of primary and support activities
- How different functions and departments contribute to overall value and performance
- The significance of value networks and linkages within and between organisations
- Evaluating competitive advantage through analysis of business activities

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What are the main categories of activities within Porter’s value chain?
2. How do support activities contribute to the success of primary activities in creating value?
3. Define a value network and its impact on business performance.
4. Briefly explain how an organisation can achieve competitive advantage using the value chain approach.

## **Introduction**

Understanding how organisations create value is critical for assessing business performance and competitiveness. The value chain provides a structured approach for analysing all the activities an organisation performs and determining how each adds value to products or services. By mapping these activities, businesses can identify opportunities to improve efficiency, reduce costs, or deliver higher quality, thereby gaining a competitive edge.

> **Key Term: value chain**
> A model describing all activities undertaken by an organisation to deliver a product or service, with each step adding value for the customer.

## The Value Chain Model

Porter’s value chain separates organisational activities into two main groups—primary and support activities. Each group contains specific functions that work together to transform inputs into valuable outputs.

### Primary Activities

Primary activities are directly involved in producing goods or providing services, including:

- **Inbound logistics**: Receiving and storing raw materials and components.
- **Operations**: Transforming inputs into finished products or services.
- **Outbound logistics**: Distributing goods or services to customers.
- **Marketing and sales**: Promoting and selling products or services.
- **Service**: Supporting customers after purchase (e.g., installation, repair).

> **Key Term: primary activities**
> Activities that are directly involved in the creation, sale, and after-sales support of products or services.

### Support Activities

Support activities enable and improve the performance of primary activities:

- **Procurement**: Acquiring necessary materials and resources.
- **Technology development**: Implementing systems and processes that improve products or operations.
- **Human resource management**: Recruiting, training, and managing employees.
- **Firm infrastructure**: General management, planning, and organisational structure.

> **Key Term: support activities**
> Functions that underpin and improve the effectiveness of primary activities, helping the organisation operate efficiently.

### **Worked Example 1.1**

**Company Z manufactures laptops and seeks to improve profitability. Which support activity should be examined if the firm wants to improve product innovation?**

> **Answer:** Technology development, as it focuses on research and the implementation of new processes and designs, directly impacting product features and performance.

## Linkages within the Value Chain

No activity in the value chain operates in isolation. Success depends on effective coordination and communication between different functions.

- For example, marketing needs input from operations to guarantee product availability before launching a campaign.
- Procurement and operations must collaborate to ensure timely delivery of materials.

Inadequate linkages may cause delays, increased costs, or poor customer service.

> **Key Term: linkage**
> An interconnection between activities in the value chain where improvements or changes in one can affect others, impacting overall value creation.

## Value Networks

Value does not only depend on internal activities. Organisations interact with external parties, including suppliers, distributors, and partners, forming a value network.

A value network involves all entities—internal and external—that work together to create and deliver value to the end customer.

> **Key Term: value network**
> A system of relationships with suppliers, partners, and customers, enabling information, goods, and service flows to deliver greater overall value.

## Achieving Competitive Advantage

Analysing the value chain enables a business to:

- Identify where value is added or lost
- Target cost reductions without sacrificing quality
- Focus on differentiation (e.g., through superior service or innovative features)

Competitive advantage can be achieved by performing value-adding activities better or more efficiently than rivals.

### **Worked Example 1.2**

**A local bakery reduces delivery times by streamlining outbound logistics. What competitive advantage might result?**

> **Answer:** Improved customer satisfaction and potential higher sales due to faster, more reliable deliveries, distinguishing the business from competitors.

### **Exam Warning**

When evaluating a company’s performance, do not overlook support activities. Weaknesses in areas such as human resources or procurement can undermine even strong primary activities, eroding competitive advantage.

## Analysing Activity Contributions

Each department or function within an organisation should be reviewed for its contribution to value creation. Examples:

- **Procurement** can negotiate better terms or source higher quality materials, impacting both cost and quality.
- **HR** ensures the organisation retains skilled and motivated staff, raising productivity.
- **Technology** may automate tasks, reducing errors and freeing staff for higher-value work.

## Value Chain in Practice

Applying value chain analysis helps management to:

- Identify opportunities for cost savings or improvement
- Strengthen interdepartmental communications
- Align activities with the organisation’s strategy

### **Worked Example 1.3**

**A hotel increases repeat business after investing in staff training. Which category of the value chain is responsible for this improvement, and how does it add value?**

> **Answer:** Human resource management (support activity) provides better-trained staff, leading to improved service (primary activity), resulting in higher customer satisfaction and loyalty.

## **Summary**

The value chain is a practical tool for examining an organisation’s activities and identifying contributions to value and performance. By analysing both primary and support activities, and their linkages, organisations can spot weaknesses and make informed decisions to improve operations, reduce costs, or differentiate their offerings. Value networks further expand the impact, illustrating how relationships with suppliers and partners also drive performance and value.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the value chain and differentiate between primary and support activities
- Recognise the importance of linkages within the value chain
- Analyse the role of value networks in business performance
- Assess how firms achieve competitive advantage through value-adding activities
- Understand each department’s contribution to value creation

## **Key Terms and Concepts**

- value chain
- primary activities
- support activities
- linkage
- value network

Value creation and performance - Value chain activities and linkages