Value Network

Interactions in organizations or departments

What is a Value Network?

A value network refers to interactions in organizations or departments, where people create plans or sell products and services that benefit the organization. The value network comprises individuals working in the organization, the positions within the organization, or a combination of both.

 

Value Network

 

The network can be represented as a graphical illustration that shows the social and technical resources within the organization and how they are utilized to benefit the organization. The nodes in the illustration represent people (actors or roles in the network), and the nodes are connected by relationships. The relationships can be objects, money, or knowledge.

 

Summary

  • A value network refers to a series of interactions between individuals, organizations, or departments that benefit the entire group.
  • The value network can be represented by a mapping tool, where nodes represent people, and the connectors represent the interactions between people in the organization.
  • There are two main types of value networks – internal and external.

 

Categories of Value Networks

There are two main categories of value networks – internal value networks and external value networks. An internal value network comprises interactions within the organization, and it is the combination of processes and relationships between people working in the organization. It exists when two or more people work together to create a product or service that benefits the organization.

 

1. Internal

Value is created when there are effective interactions between people conducting roles within the business. For example, the research and development department is an internal value network, and it creates value when the R&D personnel interacts with other departments to create new products or services that increase the company’s profitability or solve social problems.

 

2. External

On the other hand, the external value network comprises interactions between people who are outside the organization. External networks may include business intermediaries, customers, business partners, stakeholders, open innovation networks, and networks. The participants in the external value network must benefit from the interactions with other people in the network. If one participant does not benefit, the rest of the network will be affected.

 

Common Types of Value Networks

 

Clayton Christensen’s Networks

Clayton Christensen discusses the concept of value network in his book, “The Investor’s Dilemma.” He states that a network comprises everything outside the business that supports it to achieve the overall goal.

Christensen says that new product designers will find it difficult to break into such networks and command a large market share because they are expected to conform to the network model. The designer will need to overcome a lot of resistance from the already existing relationships in the network for their products to be adopted.

 

Fjeldstad and Stabells Networks

Fjeldstad and Stabell offer their idea of a value network in their article “Configuring Value for Competitive Advantage: On Chains, Shops and Network,” published in the Strategic Management Journal. From their standpoint, the key components of a value network include customers, services, a service provider, and a contract that allows access to services.

Fjeldstad and Stabell’s approach to value network is different from Christensen’s approach, which states that the value networks exist independently of customers. An example of Fjeldstad and Stabell’s value network is YouTube, a video streaming and sharing platform.

YouTube provides the service and a contract to access such services, and users must sign up and accept the user agreement to access the service. Once the agreement is accepted, users can interact with other users and video creators through the value network that YouTube provides.

 

Normann and Ramirez’s Constellations

Normann and Ramirez proposed a value network approach in 1993 in the Harvard Business Review. Their approach was provided in the article, “From Value Chain to Value Constellation.”

Unlike the previous fixed models proposed by other researchers, Normann and Ramirez proposed a dynamic fluid system that continuously improves interactions within the model to benefit the entire organization. New designers should map out the nodes, and relationships between the nodes, to find missing relationships that they could use to create value to benefit the organization.

 

Verna Allee’s Networks

Verna Allee’s approach was published in the book, “The Future of Knowledge: Increasing prosperity through value networks” in 2003. Allee stated that a value network is a series of interactions that provide both tangible and intangible benefits to the entire organization.

Allee recommends that businesses should incorporate value networks in their operations due to their ability to find solutions to problems, where they are expressed in terms of value creation.

 

Example of a Company with an Effective Value Network

Walmart Inc. is a popular corporation that has successfully adopted value networks in its systems. The giant company implements both internal and external value networks as a way of finding solutions to the problems encountered in its regular operations.

One of the benefits derived from implementing value networks is finding innovative solutions to the problem of greenhouse gases. Walmart uses renewable energy in a majority of its stores, significantly reducing its greenhouse gas emission and lowering costs incurred in energy consumption.

Related Readings

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Networking and Building Relationships within the Company
  • Interpersonal Skills
  • Corporate Structure
  • Value-Added Resellers (VAR)

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