Value Chain Networking Definitions

This article is an excerpt from the Total Financial Network (TFN) white paper by Christopher Vincent titled Value Chain Networking.  Download the entire white paper in pdf format HERE.

This is Part 1 – Return to the Introduction

As summarized in Aristotle’s Metaphysics, “The whole is greater than the sum of its parts,” this is too the case with the concept of VCN. However before understanding fully how the concept works and can be utilized for business, it is important to define the key concepts and how they are both independent and can become interdependent on the process of VCN.

 

Value Chain or Value Stream

The term “Value Chain” also referred to as “Value Stream” and the business management concept thereafter were first popularized in Michael Porter’s 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

From Wikipedia, at the Firm Level, a Value Chain is defined as follows…

“A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activity’s value.”

At the Industry Level…

“An industry value chain is a physical representation of the various processes that are involved in producing goods (and services), starting with raw materials and ending with the delivered product (also known as the supply chain).”

To better understand how a value chain works view the general company example below.

The key separation to note is the split between primary activities and support activities. While necessary for business continuance, support activities do not add value to the product and therefore are not considered part of the value stream. Some Lean Manufacturing or Six Sigma experts will go as far as to refer to these processes as waste, even “necessary waste.”

A typical analysis used to identify the value stream in a company and thus identify opportunities to improve processes, reduce cycle time and eliminate unnecessary waste is “Value Stream Mapping.” For the businesses that are not sure of what makes up their Value Chain, creating a simple process map on their core business practices should first be conducted to identify these elements.

Understanding the value chain of the suppliers, vendors, business customers and even competitors is critical when analyzing and creating the make-up of the Value Network.

Value Network

The international bestselling book by Thomas Freidman called the “The World is Flat: A Brief History of the Twenty-First Century” analyzes globalization and alludes to the shift required for companies to remain competitive where historical and geographic divisions are becoming irrelevant.

With the onset of the internet among other technological advancements, the business world is a level playing field in terms of commerce where all competitors have an equal opportunity. Technology and locality no longer become a sustainable competitive advantage.

Value Network enthusiasts assert that Value Networks and the true nature of collaboration meets this challenge head on with a systemic, human-network approach to managing business operations and ecosystems. Value network modeling and analytics provide better support for collaborative, emergent work and complex activities.

A value network is a business analysis perspective that describes social and technical resources within and between businesses. The nodes in a value network represent people (or roles). The nodes are connected by interactions that represent tangible and intangible deliverables. 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.

In many cases Value Networks consists of groups of companies working together to produce and transport a product to consumers. Relationships among the customers for one organization are also an example of a Value Network. Companies can link their customers together directly or with more indirect methods such as event coordination co-branding and dual-sponsorship activities.

The purpose of value networks is to create the most benefit for the people involved in the network. 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.

Business may not be aware of how their Value Networks impact both the internal and external functions of their business and are typically more cognizant of “relationship management” approaches which foster two-way value-creating interactions.

Other business may be more aware of the business web and ecosystem development that consists of resource sharing, delivery, innovation, knowledge sharing, time-to-market advantage among other benefits that are shared among companies within their immediate and ancillary business Value Network.

Business Networking

A commonly utilized practice and fundamental for many sales people and commercial service providers, Business Networking and the relationships developed are the glue that holds suppliers and customers together.

From Wikipedia…

“Business networking is a socioeconomic activity by which groups of like-minded businesspeople recognize, create, or act upon business opportunities. A business network is a type of social network whose reason for existing is business activity.”

Wikipedia also defines Networked Businesses as…

“With networking developing, many businesses now have this as a core part of their strategy. Those that have developed a strong network of connections suppliers and companies can be seen as Networked Businesses, and will tend to source the business and their suppliers through the network of relationships that they have in place. Networked businesses tend to be open, random, and supportive, whereas those relying on hierarchical, traditional managed approaches are closed, selective, and controlling.”

While Business Networking is an innate activity for most established companies, it is worthy to look at it empirically and understand what the specific intent or strategy is for any given business. When developing a Value Network or perhaps any business relationship, it serves as the integral activity necessary for growth.

Continue to Part 2: Understanding the Value Chain & Impact of the Value Network