Value networks (value webs), are the human and technical resources that work together to form relationships and add value to a product or service. Included in a company’s value network are research, development, design, production, marketing, sales, and distribution. These components work interchangeably to add to the overall worth of a product or service.

Value is created from the relationship between the company, its customers, intermediaries, complementors and suppliers (1). Two types of values that are added to a value network are tangible and intangible value exchanges:

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 chain. 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).

A Non-Linear Approach

The value networks model challenges the traditional notion of a value chain. Historically we have been in an industrial age, focused on a linear value model, and have recently begun to switch to a new business style in which there are a web of different resources that work together to create value.

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 (4).

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 (6).

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.

Market space strategies and investments

Identifying lucrative and powerful investment opportunities requires the ability to quickly assess a complex environment and accurately map the current and emerging market space. A value network analysis helps identify, analyze, evaluate, prioritize, and manage investments in market spaces - ranging from providing seed capital through joint venture financing and support of management buy-ins or buy-outs. it views a firm as a series, chain, or network of basic activities that add value to its products and services, and thus add a margin of value both to the firm and its customers. In the value chain conceptual framework, some business activities are primary processes; others are support processes

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 and business webs and 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

Change is all there is. 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.

References

1. Haag, Stephen.Management Information Systems.Toronto: McGraw-Hill Ryerson, 2004.194
2. Understanding Value Networks by Verna Allee (retrieved May 2006)
3. Value networks create value by mediating exchanges between their customers by Computer Sciences Corporation (retrieved May 2006)
4. Carnegie Mellon Software Engineering Institute (retrieved May 2006)
5. Value Network Clusters (retrieved May 2006)

Allee, Verna. The Future of Knowledge: Increasing Prosperity through Value Networks, Butterworth-Heinemann, 2003

“Value Networks: How Organizations Really Work,” Dr. Alexander Schieffer, Knowledge Management Research & Practice, January 2005

See also

• Value
• Value chain

Networks | Value