Value networks are focused on describing the social and technical resources that exist within and between organizations. The nodes in a value network represent roles or functions in an enterprise. The nodes are connected by interactions, which represent deliverables that might be tangible (product or money) or intangible (regulatory compliance or risk reduction). The primary purpose for creating a value network is to understand the complex web of relationships and areas of value exchange that exist within and between organizations.
A value network is not just a map of the business enterprise, but it is also the process for capturing the relationships between companies, individuals, roles and processes.
Value network mapping shows that all companies are much more alike than different. When leveraging a value network as a map of an enterprise, it becomes apparent how different organizational units can contribute to common needs within the organization, as well as to common requirements.
Many value networks are not attached to a specific organization; instead they are part of a larger consortium of organizations or 'ecosystem'.
To understand what is meant by value networks and how they differ from one other, we should first discuss value networks as research tools. Mapping a value network allows us to visualize, discuss, analyze, and define a value network in a clear and productive way.
How are value networks created?
Value networks can be derived from many different sources, including buyer and seller surveys, third party customer satisfaction research, competitor benchmarking, and historical unit cost data. You can also gather various stakeholders together to map a value network in real time. Value networks can be created for any number of purposes, including product teams to track costs and deadlines, marketing teams to track customer acquisition costs, and sales and operations teams to track performance metrics. Value networks can also be developed to identify potential alignment between companies that would result in greater value, i.e., enhancing efficiency, agility, product quality, marketing efforts, or executive talent.
The value network as a map of the enterprise
You don’t need to create a complete value network to understand how interdependent organizations are. You can map the organizational nodes into a basic diagram to understand how and where business can be performed effectively. Mapping the value network into a basic diagram gives you a clear, visual artifact that can help drive productive conversations and planning and avoid confusion involved in written documents, presentations, or meetings without a simplified representation to refer to.
While a value network provides a framework for identifying critical relationships and business value that exist within the organization, it does not define the value (the end-to-end value) that an organization should deliver. As such, organizations use the value network as a starting point to develop their own value chain and value stream mapping. Value chain mapping can look similar to a value network, but it should not be defined by its map shape.
In the context of enterprise value networks, the network has 3 pillars:
Capability - The nodes in a value network describe capabilities, often attached to roles, functions or divisions, depending on the zoom level of the illustration.
Interaction - You can describe the complex relationship between nodes and describe the logic and terms that lead to value exchange between them as an interaction model. Examples of interactions can be communication, information flow, or value exchange.
Relationship - Your model describes the relationships that exist between nodes. The relationships are based on role (i.e., people, dollars) or function (i.e., design, security, process). Relationship is defined by an established and continued exchange of value and mutual benefit.
In short, capabilities interact with each other based on their relation to one another.
The value network as a network of value streams
The most decentralized, autonomous, and productive structure for a value network is a collection of value streams interacting as suppliers and customers. A platform team providing services to product teams, who consume a design system from a design team, and get approvals via a accessible self-service legal system provides an agile, high velocity network without hard dependencies. Each value stream has at least one defined customer (internal or external) and consumes the products and services of others as their customer. This is how a company like Amazon builds loosely-coupled services that can be used individually and interchangeably while providing services to other services and products like Amazon.com or customer applications atop that.
The value network as a map of your company
You can think of a value network as a map of your company, and it is comprised of a set of relationships between people and resources. Many of the relationships shown in the graph above can be understood as contracts between different organizations. For example, in a supply chain, the firm that provides the machines that fabricate the product, hires a firm that provides the design, processes the machines, and maintains the machines. The relationship between these two organizations are contractually clear and the value created by this relationship can be measured in dollars and cents. Similarly, the relationship between an enterprise that builds systems and an enterprise that uses the systems can also be characterized as a contract.
The value network as a map of your industry
If you zoom out, a value network can be created as a map of your industry. That map will evolve over time as industries change and industries are disrupted. You can apply the map to create new value by arranging your nodes into a novel structure, and if you do so well, the value network will evolve in a way that creates shareholder value. For example, if you’re in the AI data processing industry and you’re considering a merger with another company, you might create a map of the data processing industry that shows where both your companies have strengths and weaknesses. If you have a successful distribution system and you’re looking for scale, a merger might look like adding the distribution capability of another company to your existing network, while its products become a part of your network.
Conclusion
In a rapidly changing digital world, information technology is the new treasure chest. The ability to search across information sources and analyze and display them in real-time provides critical insight into the current and future state of your enterprise. This skill is becoming more important than traditional data analysis. With the access to this new, easily accessible information, employees can make better decisions. Data-driven decisions improve the quality of products and services and increase business efficiency.
Without off-the-shelf tooling to provide these insights in the short term, creating a value network map in an online whiteboarding application provides all the benefits of a systematic view of your organizations ecosystem that can help you make powerful, valuable decisions with little investment of time, and no investment in infrastructure. As is the case with all maps, the act of mapping will bring your team together and help generate collective insight, understanding, and innovation.
Read more about Value Chains and Streams here
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