Question

Question Two 1.5 Marks a. Explain the value chain defined by Michael Porter, and compare it with the REA ontology definition. b. Based on Porter's generic value chain, explain the difference between Primary and Support value activities, and what is the use of a Margin?

Answer 1

a Value chain : According to Michael Porter, value chain can be defined as a group of business processes that increase the value of any organization's offerings and thus are very useful. REA ontology definition : According to the REA ontology definition, the value chain can be defined as a group of activities in business where resources flow with certain expectations. The expectation incudes that value is added to them within each activity of business. b Primary activities : These are the processes that include the events that are used to give uniqueness to the organization in the market and helps in the establishment of the customer value. Primary activities include activities in inbound and outbound logistics, operations, sales, marketing etc and are critical for running any kind of business. Support value activities : These activities helps in simplifying the tasks for achieving the primary activities. Support activities includes activities in human resources, technology and development, and infrastructure. Use of margin: Margin is defined as the difference between total value and the expense involved in performing the value activities. For an organization to make more profit, it should create more value.