Value network

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Value network

A Value network is a complex set of social and technical resources. Value Networks work together via relationships to create social goods (public goods) or economic value. This value takes the form of knowledge and other intangibles and/or financial value. Value networks exhibit interdependence. They account for the overall worth of products and services. Companies have both internal and external value networks. External facing networks include customers or recipients, intermediaries, stakeholders, complementors, open innovation networks and suppliers. Internal value networks focus on key activities, processes and relationships that cut across internal boundaries, such as order fulfillment, innovation, lead processing, or customer support. Value is created through exchange and the relationships between roles. Value networks operate in public agencies, civil society, in the enterprise, institutional settings, and all forms of organization. Value networks advance innovation, wealth, social good and environmental well-being.

Clayton Christensen's value networks

Christensen defines value network as:

The collection of upstream suppliers, downstream channels to market, and ancillary providers that support a common business model within an industry. When would-be disruptors enter into existing value networks, they must adapt their business models to conform to the value network and therefore fail that disruption because they become co-opted. (From page 296).

Fjeldstad and Stabells value networks

In Fjeldstad and Stabell presents a framework for "value configurations" in which a "Value network" is one of two alternatives to Michael Porter's Value Chains (the other being the Value shop configuration).

F&S's value networks consists of these components:

A set of customers.
Some service the customers all use, and enables interaction between the customers.
Some organization that provides the service.
A set of contracts that enables access to the service.

An obvious example of a value network is the network formed by phone users. The phone company provides a service, users enter a contract with the phone company and immediately has access to all the value network of other customers of the phone company.

Another less obvious example is a car insurance company: The company provides car insurance. The customers gains access to the roads and can do their thing and interact in various ways while being exposed to limited risk. The insurance policies represent the contracts, the internal processes of the insurance company the service provisioning.

Unfortunately F&S and Christensen's concepts both address the same issue; the conceptual understanding of how a company understands itself and its value creation process, but they are not identical. Christensen's value networks address the relation between the a company and its suppliers and the requirements posed by the customers, and how these interact when defining what represents value in the product that is produced.

Fjeldstad & Stabell's value networks is a configuration which emphasize that the value being created is between customers when they interact facilitated by the value networks. This represents a very different perspective from Christensen's but confusingly also one that is applicable in many of the same situations as Christensen's.

Normann and Ramirez' value constellations

In Normann and Ramirez argued as early as 1993 that in today’s environment, strategy is no longer a matter of positioning a fixed set of activities along a value chain. According to them the focus today should be on the value creating system itself. Where all stakeholders co-produce value. Successful companies conceive of strategy as systematic social innovation. With this article they laid a foundation for the Value Network to emerge as a mental model.

Verna Allee's value networks

In Verna Allee defines value networks as any web of relationships that generates both tangible and intangible value through complex dynamic exchanges between two or more individuals, groups or organizations. Any organization or group of organizations engaged in both tangible and intangible exchanges can be viewed as a value network, whether private industry, government or public sector.

Allee developed Value network analysis, a whole systems mapping and analysis approach to understanding tangible and intangible value creation among participants in an enterprise system. She believes value network analysis provides a standard way to define, map and analyse the participants, transactions and tangible and intangible deliverables that together form a value network. With expert work shop facilitation, Allee says, value network analysis can lead to profound shifts in perception of problem situations and mobilise collective action to implement change

Important terms and concepts

Tangible value

All exchanges of goods, services or revenue, including all transactions involving contracts, invoices, return receipt of orders, request for proposals, confirmations and payment are considered to be tangible value. Products or services that generate revenue or are expected as part of a service are also included in the tangible value flow of goods, services, and revenue (2). In government agencies these would be mandated activities. In civil society organizations these would be formal commitments to provide resources or services.

Intangible value

Two primary subcategories are included in intangible value: knowledge and benefits. Intangible knowledge exchanges include strategic information, planning knowledge, process knowledge, technical know-how, collaborative design and policy development; which support the product and service tangible value network. Intangible benefits are also considered favors that can be offered from one person to another. Examples include offering political or emotional support to someone. Another example of intangible value is when a research organization asks someone to volunteer their time and expertise to a project in exchange for the intangible benefit of prestige by affiliation (3).

All biological organisms, including humans, function in a self-organizing mode internally and externally. That is, the elements in our bodies—down to individual cells and DNA molecules—work together in order to sustain us. However, there is no central “boss” to control this dynamic activity. Our relationships with other individuals also progress through the same circular free flowing process as we search for outcomes that are best for our well-being. Under the right conditions these social exchanges can be extraordinarily altruistic. Conversely, they can also be quite self-centered and even violent. It all depends on the context of the immediate environment and the people involved. Reference--Ehin, Charles. Hidden Assets: Harnessing the Power of Informal Networks. New York: Springer, 2005.

A Non-Linear Approach

Often value networks are considered to consist of groups of companies working together to produce and transport a product to the customer. Relationships among customers of a single company are examples of how value networks can be found in any organization. Companies can link their customers together by direct methods like the telephone or indirect methods like combining customer’s resources together.

The purpose of value networks is to create the most benefit for the people involved in the network (5). The intangible value of knowledge within these networks is just as important as a monetary value. In order to succeed knowledge must be shared to create the best situations or opportunities. Value networks are how ideas flow into the market and to the people that need to hear them.

Because value networks are instrumental in advancing business and institutional practices a value network analysis can be useful in a wide variety of business situations. Some typical ones are listed below.

Relationship management

Relationship management typically just focuses on managing information about customers, suppliers, and business partners. A value network approach considers relationships as two-way value-creating interactions, which focus on realizing value as well as providing value.

Business web and ecosystem development

Resource deployment, delivery, market innovation, knowledge sharing, and time-to-market advantage are dependent on the quality, coherence, and vitality of the relevant value networks, business webs and business ecosystems.

Fast-track complex process redesign

Product and service offerings are constantly changing - and so are the processes to innovate, design, manufacture, and deliver them. Multiple, inter-dependent, and concurrent processes are too complex for traditional process mapping, but can be analyzed very quickly with the value network method.

Reconfiguring the organization

Mergers, acquisitions, downsizing, expansion to new markets, new product groups, new partners, new roles and functions - anytime relationships change, value interactions and flows change too .

Supporting knowledge networks and communities of practice

Understanding the transactional dynamics is vital for purposeful networks of all kinds, including networks and communities focused on creating knowledge value. A value network analysis helps communities of practice negotiate for resources and demonstrate their value to different groups within the organization.

Develop scorecards, conduct ROI and cost/benefit analyses, and drive decision making

Because the value network approach addresses both financial and non-financial assets and exchanges, it expands metrics and indexes beyond the lagging indicators of financial return and operational performance - to also include leading indicators for strategic capability and system optimization.