Value network
Encyclopedia
A value network is a business analysis perspective that describes social
and technical
resource
s within and between business
es. The node
s in a value
network
represent people
(or role
s). The nodes are connected by interactions that represent tangible and intangible deliverable
s. These deliverables take the form of knowledge
or 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.
networks and suppliers.
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.
s (the other being the Value shop
configuration).
F&S's value networks consists of these components:
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.
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. Revealing the hidden network patterns behind business processes can provide predictive intelligence for when workflow performance is at risk. 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. Allee says, value network analysis can lead to profound shifts in perception of problem situations and mobilise collective action to implement change
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.
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.
Social
The term social refers to a characteristic of living organisms...
and technical
Technical
Technical may refer to:*Technical , a fighting vehicle based on a pickup truck*Technical analysis, a discipline for forecasting the future direction of prices through the study of past market data*Technical drawing, also known as drafting...
resource
Resource
A resource is a source or supply from which benefit is produced, typically of limited availability.Resource may also refer to:* Resource , substances or objects required by a biological organism for normal maintenance, growth, and reproduction...
s within and between business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
es. The node
Node
In general, a node is a localised swelling or a point of intersection .Node may refer to:In mathematics:*Node , behaviour for an ordinary differential equation near a critical point...
s in a value
Value
Value or values may refer to:Concepts of worth:* Value theory – overview of approaches in various disciplines* Value ** Value * Value ** Theory of value ** Value investing...
network
Network
-Mathematics:* Graph * Complex network* Structure* Flow network-Electric, electronic, biological, and biosocial: * Electrical network* Computer network* Biological network* Artificial neural network* Social network...
represent people
People
People is a plurality of human beings or other beings possessing enough qualities constituting personhood. It has two usages:* as the plural of person or a group of people People is a plurality of human beings or other beings possessing enough qualities constituting personhood. It has two usages:*...
(or role
Role
A role or a social role is a set of connected behaviours, rights and obligations as conceptualised by actors in a social situation. It is an expected or free or continuously changing behaviour and may have a given individual social status or social position...
s). The nodes are connected by interactions that represent tangible and intangible deliverable
Deliverable
Deliverable is a term used in project management to describe a tangible or intangible object produced as a result of the project that is intended to be delivered to a customer . A deliverable could be a report, a document, a server upgrade or any other building block of an overall project.A...
s. These deliverables take the form of knowledge
Knowledge
Knowledge is a familiarity with someone or something unknown, which can include information, facts, descriptions, or skills acquired through experience or education. It can refer to the theoretical or practical understanding of a subject...
or other intangibles
Intangibles
The term intangibles is most commonly used to describe things that are recognized but not easily quantified; a common example are economic intangibles which describes something not easily quantified within a given theory of economics...
and/or financial value. Value networks exhibit interdependence
Interdependence
Interdependence is a relation between its members such that each is mutually dependent on the others. This concept differs from a simple dependence relation, which implies that one member of the relationship can function or survive apart from the other....
. They account for the overall worth of products and services. Companies have both internal and external value networks.
External value networks
External facing networks include customers or recipients, intermediaries, stakeholders, complementary, open innovationOpen Innovation
Although the idea and discussion about some consequences date back at least to the 60s, open innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at the University of California, Berkeley, in his book Open Innovation: The new...
networks and suppliers.
Internal value networks
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 exchangeTrade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
and the relationships between roles. Value networks operate in public agencies, civil society
Civil society
Civil society is composed of the totality of many voluntary social relationships, civic and social organizations, and institutions that form the basis of a functioning society, as distinct from the force-backed structures of a state , the commercial institutions of the market, and private criminal...
, in the enterprise
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
, institutional settings, and all forms of organization
Organization
An organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
. Value networks advance innovation, wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...
, social good and environmental
Social environment
The social environment of an individual, also called social context or milieu, is the culture that s/he was educated or lives in, and the people and institutions with whom the person interacts....
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."
Fjeldstad and Stabells value networks
Fjeldstad and Stabell presents a framework for "value configurations" in which a "Value network" is one of two alternatives to Michael Porter's Value ChainValue chain
The value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...
s (the other being the Value shop
Value shop
The value shop was first conceptualized by Thompson in 1967. A value shop is an organization designed to solve customer or client problems rather than creating value by producing output from an input of raw materials....
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
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
Verna AlleeVerna Allee
Verna Allee, born 1949 in Kansas, United States, is an American business consultant and writer on topics including value networks, knowledge management, organizational intelligence, intellectual capital and the value conversion of intangibles....
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
Value network analysis
Value network analysis is a methodology for understanding, using, visualizing, optimizing internal and external value networks and complex economic ecosystems. The methods include visualizing sets of relationships from a dynamic whole systems perspective...
, a whole systems mapping and analysis approach to understanding tangible and intangible value creation among participants in an enterprise system. Revealing the hidden network patterns behind business processes can provide predictive intelligence for when workflow performance is at risk. She believes value network analysis
Value network analysis
Value network analysis is a methodology for understanding, using, visualizing, optimizing internal and external value networks and complex economic ecosystems. The methods include visualizing sets of relationships from a dynamic whole systems perspective...
provides a standard way to define, map and analyse the participants, transactions and tangible and intangible deliverables that together form a value network. Allee says, value network analysis can lead to profound shifts in perception of problem situations and mobilise collective action to implement change
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.
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
Value network analysis
Value network analysis is a methodology for understanding, using, visualizing, optimizing internal and external value networks and complex economic ecosystems. The methods include visualizing sets of relationships from a dynamic whole systems perspective...
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...See also
- Clayton Christensen
- Creativity techniquesCreativity techniquesCreativity techniques are methods that encourage creative actions, whether in the arts or sciences. They focus on a variety of aspects of creativity, including techniques for idea generation and divergent thinking, methods of re-framing problems, changes in the affective environment and so on. They...
- Complexity science
- Economic networkEconomic networkEconomic network or refereed network of independent individuals has the primary purpose of making a strong community in order to gain strength and perform as a significant player in relation to current market situation...
- Institutional
- InterdependenceInterdependenceInterdependence is a relation between its members such that each is mutually dependent on the others. This concept differs from a simple dependence relation, which implies that one member of the relationship can function or survive apart from the other....
- KnowledgeKnowledgeKnowledge is a familiarity with someone or something unknown, which can include information, facts, descriptions, or skills acquired through experience or education. It can refer to the theoretical or practical understanding of a subject...
- Open innovationOpen InnovationAlthough the idea and discussion about some consequences date back at least to the 60s, open innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at the University of California, Berkeley, in his book Open Innovation: The new...
- OrganizationOrganizationAn organization is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job.There are a variety of legal types of...
- Social good
- Social networks
- TradeTradeTrade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
- Value (economics)Value (economics)An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
- Value chainValue chainThe value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...
- Value conversionValue conversionValue conversion is the act of converting one type of value or financial instrument into another type of negotiable value. In the securities profession the definition of conversion value is very narrowly defined as the positive difference between the market price of a convertible security and the...
- Value network analysisValue network analysisValue network analysis is a methodology for understanding, using, visualizing, optimizing internal and external value networks and complex economic ecosystems. The methods include visualizing sets of relationships from a dynamic whole systems perspective...
External links
- OpenVNA - the non-commercial, open network site leading value network standards, taxonomies, visualization, analytics, vocabulary, methods, tools and techniques.
- NetLab- at the University of Toronto, studies the intersection of social, communication, information and computing networks.
- Value Network Analysis and Value Conversion of Tangible and Intangible Assets, Verna Allee.
- CASOS - Center for Computational Analysis of Social and Organizational Systems at Carnegie Mellon.