COMM1180 Value Creation
Week 1: Value chain
Dr Linda Chang (School of Accounting, Auditing and Taxation)
Objective
Introduce the Value Chain framework
Provide guidance on how to use the Value Chain framework to identify
and understand the activities performed by an organisation to create
value.
We will apply this framework to conduct a simple value chain analysis of
Apple Inc.
Porter’s Value-Chain Analysis
Useful framework to used to understand the sequence of processes
of value creating activities.
Help organisations understand:
How a product moves from raw materials state to the end customer.
Total costs involved in creating products and services.
Which activities create value and which do not.
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The Value Chain
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Source: Porter, M. E. 1985 The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press.
Firm Infrastructure
Human resource management
Technology development
Procurement
Primary Activities
Activities involved in the creation and delivery of products or
services, including any after sales support
Five categories:
Inbound logistics
Operations
Outbound logistics
 Sales and Marketing
Service
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6Inbound logistics:
Associated with receiving, storing and distributing raw
materials or inputs of the product:
Example: Apple Inc.
 Distribution of iPhone from warehouses to the Apple Stores.
Evaluation of value creating potential:
How efficient are inbound logistics activities?
Proximity of distribution facilities to minimise shipping times
Warehouse layout to ensure distribution efficiency
Primary
Activities
•Inbound Log
•Operations
•Outbound Log
•Marketing & Sales
•Service
7Operations
Associated with transforming inputs into the final
product form.
Example: Apple Inc.
 Managing Apple online – provide one-stop shop for all Apple
products and access to specialist assistance.
Evaluation of value creating potential:
Efficiency of operations to minimise costs
Do operations activities increase quality of products/services?
Primary
Activities
•Inbound Log
•Operations
•Outbound Log
•Marketing & Sales
•Service
8Outbound Logistics
Associated with collecting, storing, and distributing
the product or service to customers
Example: Apple Inc.
 Shipping iPhones to customers
Evaluation of value creating potential:
Efficiency of shipping processes to minimise
transportation costs
Effectiveness of delivery processes to customers
Primary
Activities
•Inbound Log
•Operations
•Outbound Log
•Marketing & Sales
•Service
9Marketing and Sales
Associated with promoting the sales of products and
services to end users and the inducing users to make
purchases
Example: Apple Inc.
 Designing iPhone advertisements
Evaluation of value creating potential:
Innovative approaches to promotion and advertising
Selection of most appropriate distribution channels
Proper identification of customer segments and needs
Primary
Activities
•Inbound Log
•Operations
•Outbound Log
•Marketing
& Sales
•Service
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Services
Associated with providing after sales services to
enhance or maintain the value of products and
services provided to customers.
Example: Apple Inc.
• AppleCare – Provide one stop for technical support,
hardware service and software support.
Evaluation of value creating potential:
Efficiency of response to customer help requests
Effective management of parts and equipment inventory
Primary
Activities
•Inbound Log
•Operations
•Outbound Log
•Marketing & Sales
•Service
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Source: Porter, M. E. 1985 The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press.
Firm Infrastructure
Human resource management
Technology development
Procurement
Support Activities
 Provide support necessary for primary activities to take place and
support other support activities. These activities not directly involved
in producing goods and services for customers.
Four categories:
Procurement
Technological development
Human resource management
Firm Infrastructure
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Procurement
 Purchasing inputs (including input materials and fixed
assets) used by the organisation to create value.
 Example: Apple Inc.
 Managing iPhone manufacturing outsource partners
 Evaluation of value creating potential:
 Selecting appropriate suppliers
 Procurement of quality input material
 Development of collaborative relationships with suppliers
Support
Activities
•Procurement
•Tech Dev
•HRM
•Firm Infrastructure
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Technological Development
Activities associated with the development of new
knowledge that enables product and process
innovation.
Example: Apple Inc.
 Inhouse development of wireless Bluetooth chip for Airpods.
Evaluation of value creating potential:
Effective R&D activities for product and process innovation
initiatives
Ensuring positive collaborative relationships between R&D
and other departments
Support
Activities
•Procurement
•Tech Dev
•HRM
•Firm Infrastructure
15
Human Resource Management
Activities involved in the recruiting, hiring, training,
development, and compensation of all types of
personnel.
Example: Apple Inc.
 Recruitment of Bluetooth technology developers
Evaluation of value creating potential:
Effective recruiting, development and retention of employees
Quality work environment to maximize overall employee
performance and minimize absenteeism
Rewards and incentives to motive employees
Support
Activities
•Procurement
•Tech Dev
•HRM
•Firm Infrastructure
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Firm Infrastructure
Activities that support the coordination of the entire
value chain and not individual activities
Example: Apple Inc.
 Planning and managing a multi-channel platform that integrates
contents (software, media and apps) and hardware (MacBooks,
iPhones and iPads).
Evaluation of value creating potential:
 Effective planning systems to attain overall goals and objectives
Manage relationships with diverse stakeholders
 Effective integration of value-creating activities
Support
Activities
•Procurement
•Tech Dev
•HRM
•Firm Infrastructure
Managing Value-Chain Activities within and
across organisations
Value chain is not a collection of independent activities
Need to understand:
Interrelationships among activities within the firm
 Development of new iPhone models – what value chain activities are involved?
- Marketing, R&D, Procurement, HR and Firm Infrastructure
Relationships among activities within the firm and with stakeholders
 Research and development of iPhone models – which stakeholders are impacted?
- Customers, Employees, Suppliers, Environment ….
Resource implications of activities
 Does the value created for customer exceed the cost of production?
 Can we reduce costs without affecting value?
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The Value Chain
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Source: Porter, M. E. 1985 The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press.
Firm Infrastructure
Human resource management
Technology development
Procurement