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There is no agreed upon definition of value network. A general definition that subsumes the other definitions is that a value network is a network of roles linked by interactions in which economic entities engage in both tangible and intangible exchanges to achieve economic or social good. This definition is similar to one given by Verna Allee. [1]
Different definitions provide different perspectives on the general concept of a value network.
Clayton Christensen defines a 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 at disruption because they become co-opted." [2]
Fjeldstad and Stabell define a value network as one of three ways by which an organisation generates value. [3] The others are the value shop and value chain.
Their value networks consist of the following components:
One example of a value network is that formed by social media users. The company provides a service, users contract with the company, and immediately have access to the value network of other customers.
A less obvious example is a car insurance company. The Company provides insurance. Customers can travel and interact in various ways while limiting risk exposure. The insurance policies represent the company's contracts and the internal processes.
Fjeldstad & Stabell and Christensen's concepts address how a Company understands itself and its value creation process, but they are not identical. Christensen's value networks address the relation between 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 and Stabell's value networks emphasize that the created value is between interacting customers, as facilitated by value networks.
Normann and Ramirez argued in 1993 that strategy is not a fixed set of activities along a value chain. [4] Instead the focus should be on the value creating system. All stakeholders are obligated to produce value. Successful companies conceive of strategy as systematic social innovation.
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. [1] 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 mobilize collective action to implement change. [5]
All exchanges of goods, services or revenue, including all transactions involving contracts, invoices, return receipts of orders, requests for proposals, confirmations and payments 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.
Two primary sub-categories 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. [6]
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 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.
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. [7]
Product and service offerings are constantly changing – and so are the processes to innovate, design, manufacture, and deliver them. Multiple, interdependent, and concurrent processes are too complex for traditional process mapping, but can be analyzed very quickly with the value network method.
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. [8]
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.
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.
Customer relationship management (CRM) is a process in which a business or another organization administers its interactions with customers, typically using data analysis to study large amounts of information.
In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.
Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people, the value relating to its relationships, and everything that is left when the employees go home, of which intellectual property (IP) is but one component. It is the sum of everything everybody in a company knows that gives it a competitive edge. The term is used in academia in an attempt to account for the value of intangible assets not listed explicitly on a company's balance sheets. On a national level, intellectual capital refers to national intangible capital (NIC).
Marketing is the act of satisfying and retaining customers. It is one of the primary components of business management and commerce.
A service is an act or use for which a consumer, company, or government is willing to pay. Examples include work done by barbers, doctors, lawyers, mechanics, banks, insurance companies, and so on. Public services are those that society as a whole pays for. Using resources, skill, ingenuity, and experience, service provider's benefit service consumers. Services may be defined as intangible acts or performances whereby the service provider provides value to the customer.
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.
A core competency is a concept in management theory introduced by C. K. Prahalad and Gary Hamel. It can be defined as "a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace" and therefore are the foundation of companies' competitiveness.
An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names, reputation, R&D, know-how, as well as any form of digital asset such as software and data. This is in contrast to physical assets and financial assets.
Business process modeling (BPM) is the action of capturing and representing processes of an enterprise, so that the current business processes may be analyzed, applied securely and consistently, improved, and automated.
A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations.
In management, business value is an informal term that includes all forms of value that determine the health and well-being of the firm in the long run. Business value expands concept of value of the firm beyond economic value to include other forms of value such as employee value, customer value, supplier value, channel partner value, alliance partner value, managerial value, and societal value. Many of these forms of value are not directly measured in monetary terms. According to the Project Management Institute, business value is the "net quantifiable benefit derived from a business endeavor that may be tangible, intangible, or both."
Value network analysis (VNA) 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. Robust network analysis approaches are used for understanding value conversion of financial and non-financial assets, such as intellectual capital, into other forms of value.
Value 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 price at which it is convertible. The larger topic of :Value conversion" is relevant to the managing of intangible assets or intellectual capital. It refers to the act of transforming financial to non-financial value or an intangible asset into a financial asset. Intangible asset management has largely focused on valuation of intangible assets like trying to assign a financial value to an asset such as reputation. The theme of value conversion also runs through social exchange theory and more classical views of exchange value.
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. The principles of value shops were first conceptualized by Thompson in 1967, and properly defined by Charles B. Stabell and Øystein D. Fjeldstad of the Norwegian School of Management in 1998, who also created the name.
Verna Allee is an American business consultant and writer on topics including value networks, knowledge management, organizational intelligence, intellectual capital and the value conversion of intangibles.
In marketing, a company’s value proposition is the full mix of benefits or economic value which it promises to deliver to the current and future customers who will buy their products and/or services. It is part of a company's overall marketing strategy which differentiates its brand and fully positions it in the market. A value proposition can apply to an entire organization, parts thereof, customer accounts, or products and services.
New business development concerns all the activities involved in the creation of a new enterprise and in realizing new business opportunities, including product or service design, business model design, and marketing.
Capability management is the approach to the management of an organization, typically a business organization or firm, based on the "theory of the firm" as a collection of capabilities that may be exercised to earn revenues in the marketplace and compete with other firms in the industry. Capability management seeks to manage the stock of capabilities within the firm to ensure its position in the industry and its ongoing profitability and survival.
Operations management for services has the functional responsibility for producing the services of an organization and providing them directly to its customers. It specifically deals with decisions required by operations managers for simultaneous production and consumption of an intangible product. These decisions concern the process, people, information and the system that produces and delivers the service. It differs from operations management in general, since the processes of service organizations differ from those of manufacturing organizations.
Network Orchestrator Companies are defined as:
... companies [that] create a network of peers in which the participants interact and share in the value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more. Examples include eBay, Red Hat, Visa, Uber, Tripadvisor, and Alibaba.