Value network analysis
Encyclopedia
Value network analysis is a methodology for understanding, using, visualizing, optimizing internal and external value network
s 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.
The value conversion question is critical in both social exchange theory
that considers the cost/benefit returns of informal exchanges and more classical views of exchange value
where there is concern with conversion of value into financial value or price.
Value network analysis offers a taxonomy
for non-financial business reporting, which is becoming increasingly important in SEC Filings. In some approaches taxonomies are supported by Extensible Business Reporting Language XBRL
. Venture capitalists and investors are concerned with the capability of a firm to create value in future. Financial statements
are limited to current and past financial indicators and valuations of capital assets. In contrast, value network analysis is one approach to assessing current and future capability for value creation and to describe and analyze a business model
.
Advocates of VNA claim that strong value-creating relationships support successful business endeavors at the operational, tactical, and strategic levels. A value network perspective, in this context would encompass both internal and external value networks — loose yet complex configurations of roles within industries, businesses, business units or functions and teams within organizations that engage in mutually beneficial relationships. Tools used in the past to analyze business value creation, such as the value chain
and value added
, are linear and mechanistic approaches based on a process perspective. These approaches are considered inadequate to address this new level of business complexity where value creating activities occur in complex, interdependent and dynamic relationships between multiple sets of actors.
Other claims for value network analysis are
Along with the more traditional business transactions the critical intangible exchanges are also mapped. Intangible exchanges are those mostly informal knowledge exchanges and benefits or support that build relationships and keep things running smoothly. These informal exchanges are actually the key to creating trust and opening pathways for innovation and new ideas. Traditional business practices ignore these important intangible exchanges, but they are made visible with a value network analysis.
The visualizations and diagrams link to a variety of assessments, usually handled in Excel type spreadsheets — to increase value outputs, to leverage knowledge and intangibles for improving financial and organizational performance, and to find new value opportunities. When the analysis is complete people gain insights into what is actually happening now, where more value can be realized, and what is required to achieve maximum value benefit across the entire business activity that is the focus of the analysis.
It is conventional to refer to the actual "things" that move from one Participant to another as "deliverables," whether tangible or intangible. If users find it conceptually unusual or contextually difficult to refer to an intangible (informal) thing as a "deliverable," they may, instead, prefer to use an alternative descriptive term "contribution."
Value network
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 . The nodes are connected by interactions that represent tangible and intangible deliverables. These deliverables take the...
s 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
Value conversion
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...
of financial and non-financial assets, such as intellectual capital
Intellectual capital
The value of an enterprise is made of physical assets, various financial assets and, finally, intangible assets, i.e., intellectual capital . The term intellectual capital conventionally refers to the difference in value between tangible assets and market value. ....
, into other forms of value.
The value conversion question is critical in both social exchange theory
Social exchange theory
Social exchange theory is a social psychological and sociological perspective that explains social change and stability as a process of negotiated exchanges between parties. Social exchange theory posits that all human relationships are formed by the use of a subjective cost-benefit analysis and...
that considers the cost/benefit returns of informal exchanges and more classical views of exchange value
Exchange value
In political economy and especially Marxian economics, exchange value refers to one of four major attributes of a commodity, i.e., an item or service produced for, and sold on the market...
where there is concern with conversion of value into financial value or price.
Value network analysis offers a taxonomy
Taxonomy
Taxonomy is the science of identifying and naming species, and arranging them into a classification. The field of taxonomy, sometimes referred to as "biological taxonomy", revolves around the description and use of taxonomic units, known as taxa...
for non-financial business reporting, which is becoming increasingly important in SEC Filings. In some approaches taxonomies are supported by Extensible Business Reporting Language XBRL
XBRL
XBRL is a freely available, market-driven, open, and global standard for exchanging business information. XBRL allows information modeling and the expression of semantic meaning commonly required in business reporting. XBRL is XML-based...
. Venture capitalists and investors are concerned with the capability of a firm to create value in future. Financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
are limited to current and past financial indicators and valuations of capital assets. In contrast, value network analysis is one approach to assessing current and future capability for value creation and to describe and analyze a business model
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
.
Advocates of VNA claim that strong value-creating relationships support successful business endeavors at the operational, tactical, and strategic levels. A value network perspective, in this context would encompass both internal and external value networks — loose yet complex configurations of roles within industries, businesses, business units or functions and teams within organizations that engage in mutually beneficial relationships. Tools used in the past to analyze business value creation, such as the value chain
Value chain
The value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...
and value added
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
, are linear and mechanistic approaches based on a process perspective. These approaches are considered inadequate to address this new level of business complexity where value creating activities occur in complex, interdependent and dynamic relationships between multiple sets of actors.
Other claims for value network analysis are
- that it is an essential skill for a successful enterprise dependent on knowledge exchanges and collaborative relationships, which are seen as critical in almost every industry.
- that this type of analysis helps individuals and work groups better manage their interactions and address operational issues, such as balancing workflows or improving communication.
- that the approach also scales up to the business level to help forge stronger value-creating linkages with strategic partners and improve stakeholder relationships.
- that it also connects with other modeling tools such as Lean ManufacturingLean manufacturingLean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination...
, Six SigmaSix SigmaSix Sigma is a business management strategy originally developed by Motorola, USA in 1986. , it is widely used in many sectors of industry.Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability in manufacturing and...
, workflowWorkflowA workflow consists of a sequence of connected steps. It is a depiction of a sequence of operations, declared as work of a person, a group of persons, an organization of staff, or one or more simple or complex mechanisms. Workflow may be seen as any abstraction of real work...
tools, business process reengineeringBusiness process reengineeringBusiness process re-engineering is the analysis and design of workflows and processes within an organization.According to Davenport a business process is a set of logically related tasks performed to achieve a defined business outcome....
, business process managementBusiness process managementBusiness process management is a holistic management approach focused on aligning all aspects of an organization with the wants and needs of clients. It promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. BPM attempts to...
, social network analysis tools and system dynamicsSystem dynamicsSystem dynamics is an approach to understanding the behaviour of complex systems over time. It deals with internal feedback loops and time delays that affect the behaviour of the entire system. What makes using system dynamics different from other approaches to studying complex systems is the use...
.
Basics of value network analysis
Value network analysis addresses both financial and non-financial value. Every business relationship includes contractual or mandated activities between participants — and also informal exchanges of knowledge, favors, and benefits. The analysis begins with a visual map or diagram that first shows the essential contractual, tangible revenue- or funding-related business transactions and exchanges that occur between each node of the networks. Nodes represent real people, typically individuals, groups of individuals such as a business unit or aggregates of groups such as a type of business in an industry network. During analysis when adopting a reflective, double loop or generative learning mode, it is beneficial to regard nodes as role plays (shortened to roles). Practitioners have found {2} that conversation between participants about role plays within a larger whole invariably results in transforming individual behaviour and gaining commitment to implementing needed change as elaborated below.Along with the more traditional business transactions the critical intangible exchanges are also mapped. Intangible exchanges are those mostly informal knowledge exchanges and benefits or support that build relationships and keep things running smoothly. These informal exchanges are actually the key to creating trust and opening pathways for innovation and new ideas. Traditional business practices ignore these important intangible exchanges, but they are made visible with a value network analysis.
The visualizations and diagrams link to a variety of assessments, usually handled in Excel type spreadsheets — to increase value outputs, to leverage knowledge and intangibles for improving financial and organizational performance, and to find new value opportunities. When the analysis is complete people gain insights into what is actually happening now, where more value can be realized, and what is required to achieve maximum value benefit across the entire business activity that is the focus of the analysis.
It is conventional to refer to the actual "things" that move from one Participant to another as "deliverables," whether tangible or intangible. If users find it conceptually unusual or contextually difficult to refer to an intangible (informal) thing as a "deliverable," they may, instead, prefer to use an alternative descriptive term "contribution."