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12
Converting resources: the value chain 
The 
value chain 
describes those activities of the organisation that add value to purchased inputs. 
Primary activities are involved in the production of goods and services. Support activities provide 
necessary assistance. 
Linkages 
are the relationships between activities. Managing the value chain, 
which includes relationships with outside suppliers, can be a source of strategic advantage.
The 
value chain 
model of corporate activities offers a bird's eye view of the firm and what it does. 
Competitive advantage
 
arises out of the way in which firms organise and perform 
activities 
to add value
. 
BPP Tutor Toolkit Copy

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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
48
 
12.1 Value activities 
Value activities 
are the means by which a firm creates value in its products. 
Activities incur costs and, in combination with other activities, provide a product or service which earns 
revenue. 
12.2 Example 
Let us explain this point by using the example of a 
restaurant
. A restaurant's activities can be divided 
into buying food, cooking it, and serving it (to customers). There is no reason, in theory, why the 
customers should not do all these things themselves, at home. The customer, however, is not only 
prepared to 
pay for someone else 
to do all this but also 
pays more than the cost of 
the resources (food, 
wages, and so on). The ultimate value a firm creates is measured by the amount customers are willing 
to pay for its products or services above the cost of carrying out value activities. A firm is profitable if the 
realised value to customers exceeds the collective cost of performing the activities. 
(a) Customers 
purchase value
, which they measure by comparing a firm's products and services with 
similar offerings by competitors. 
(b) The 
business 
creates value 
by carrying out its activities either more efficiently than other 
businesses, or by combining them in such a way as to provide a unique product or service.