Value Network

A value network refers to a network of businesses working together for value creation for customers. The network includes an organization's customers, suppliers, partners, and distributors. It aims at enhancing collaboration, driving innovation, and streamlining processes throughout the value chain.

Industries related to supply chain management technology, healthcare, and manufacturing apply value network analysis in their operations. It enables organizations to increase their competitive edge and create value for members, driving innovation and flexibility. Companies use it in joint promotional efforts, market expansion, specialization, risk mitigation, plus adaptability to dynamic market situations.

• A value network combines different businesses for customer value creation, promoting collaboration, innovation, and streamlining processes throughout the value chain.
• It has four major types - Clayton Christensen's Networks, Fjeldstad and Stabells Networks, Normann and Ramirez's Constellations, and Verna Allee's Networks. 
• It offers shared resources, collaboration, efficiency, expansion, market reach, risk mitigation, cost reduction, access to expertise, adaptability, flexibility, and enhanced agility.  
• It involves businesses collaborating to create consumer value, while the value chain comprises sequential steps from initial design to final delivery, encompassing the making of finished goods for customers.

A value network is defined as a strategic network system outlining collaborations, relationships, and interactions between businesses to add value to the end customer. It results in creating and delivering value-laced products and services to customers. These networks liaison with organizations to cooperate, interconnect, and share resources for combined success. It is a strong pillar for organizations to forge strong relationships between partners, suppliers, and customers in the hyper-competition scenario.

The emergence of globalization in the nineties led to a rise in the complexities and interdependence of businesses. However, it started from conventional supply chain management to a wider focus on value creation and collaboration. A Harvard professor, Michael Porter, proposed the value network concept in 1985 in his book "Competitive Advantage: Creating and Sustaining Superior Performance."

It primarily functions by having different organizations collaborate. The collaboration may take forms like dissemination of expertise, information, technology, expertise, and promotion within each other. Consequently, network-forming participant organizations offer members unique expertise, resources, and capabilities. Hence, unique and value-added products are created.

It presents certain challenges while being beneficial. The issues include difficulty in communication and coordination, conflict of interest, overlapping objectives, power imbalance, information leakage, and security break-ins.

Value network mapping has multiple implications, like optimized processes, developing innovation, and access to specialized skills. Furthermore, it also gives the flexibility to adapt to market demands quickly and effectively to fulfill customer aspirations by addressing their complaints.

Investors and analysts benefit from it in market analysis, investment strategies, and risk mitigation. Moreover, to evaluate businesses' financial wellness and growth potential, it is crucial to comprehend the interconnection and linkages inside value network mapping.

In short, it encourages cooperation and resource sharing through coordinated operations amongst companies, improving risk assessment and knowledge of interconnectedness.

Major types of value networks are as follows:

1. Clayton Christensen’s Networks: It was promulgated by a renowned author and business professor named Clayton Christensen. It theorizes how businesses may add value by comprehending the connections and interrelationships among different ecosystem players. It also includes clients, suppliers, alongside partners.
2. Fjeldstad and Stabells Networks: The value network analysis by Fjeldstad and Stabell is called "Fjeldstad and Stabells networks" in academics. Moreover, it seeks to understand how businesses manage networks along with ecosystems strategically to provide value for their customers and maintain a competitive edge.
3. Normann and Ramirez’s Constellations: By recognizing the complicated and interrelated character of value networks, Normann and Ramirez's constellations theory expands on the idea of value networks. Researchers offer the idea of "business constellations," emphasizing the complex interactions between stakeholders, customers, and enterprises to shape value creation through innovation.
4. Verna Allee’s Networks: Verna Allee, a recognized expert in the management of knowledge and value networks, developed the principles and concepts that make up Verna Allee's networks. She focuses on helping businesses maximize their intellectual capital and knowledge networks for value generation, team expansion, and technological innovation.

Moreover, within healthcare, the Spamton Value Network, Legal Value Network, Aetna Value Network HMO, and Puget Sound High-Value Network each represent distinct approaches to optimizing services and collaborations, catering to specific needs and goals.

Other Minor Types

Other minor types of value networks are:

1. Supplier-Centric Value Networks: These networks place the relationship between manufacturers and suppliers on a high pedestal. Consequently, they optimize the supply chain through increased coordination, efficiency, coordination, and communication among manufacturers and suppliers.
2. Manufacturing-Centric Value Networks: It focuses on collaborations and processes of manufacturing between different manufacturers. It aims to enhance product quality, production efficiency, and cost reduction.
3. Distribution-Centric Value Networks: Such networks center around optimizing logistics and distribution processes. Here, the collaboration happens between transporters, distributors, manufacturers, and retailers. As a result, customers receive products in timely and efficient delivery.
4. Customer-Centric Value Networks:  Here, the requirements of end-use customers are emphasized to be understood and met. Organizations work together to create tailored and personalized services and products catering to particular consumer preferences.
5. Innovation-Centric Value Networks: Organizations working together focuses on developing innovation and technological advancements. It leads to newer technologies, products, and services.
6. Industry Clusters: These networks relate to networks of related businesses with a geographic focus within a single industry. Such networks encourage cooperation, knowledge exchange, and shared assets amongst similar businesses.
7. Ecosystem Value Networks: Networks of ecosystem value capture benefits outside of specific industries and support creative business strategies and solutions.
8. Cross-Industry Value Networks: By collaborating and developing distinctive value propositions, these networks bring together industry members to produce cutting-edge goods, services, or solutions.
9. Cooperative Value Networks: Collaborative value networks prioritize common objectives, mutual advantages, and solid connections to improve value creation and trust.
10. Virtual value networks: They work around digital spaces that leverage digital platforms and technology for value creation, communication, and collaboration. Its spread considers different industries like platform-based ecosystems, virtual communities, and online marketplaces.
11. Global value networks: These networks bring together players from many geographical areas to solve complicated supply chains plus global trade, improve operations, and overcome cross-cultural difficulties.

Let us use a few examples to understand the topic.

Example #1

In the automotive industry, a value network takes shape to deliver genuine value to customers, as per research by Francesco Ricciotti (2019). This network collaborates with manufacturers, suppliers, dealerships, and service centers. Suppliers ensure the provision of top-notch components to manufacturers, while dealerships and service centers play a pivotal role in boosting vehicle sales and maintenance.

This strategic value network empowers manufacturers to focus on their core competencies, leveraging the expertise of suppliers and dealerships. As a result, this approach streamlines post-sales service, distribution, and production processes, all contributing to a seamless and impeccable customer experience.

Example #2

In the imaginary world of "Techopia," the dynamic value network known as "InnoConnect" exists and flourishes. InnoConnect is a hub for visionary tech pioneers, venture capitalists, and industry specialists. Furthermore, the network facilitates the convergence of state-of-the-art technology, invaluable mentorship, and initial funding, all of which prove instrumental for fledgling startups.

Therefore, venture capitalists seize the opportunity for early investments and substantial returns. Esteemed figures in the industry guide startups, collaborating with them to forge pioneering products. Consequently, a culture of rapid innovation thrives, leading to groundbreaking discoveries and a vibrant tech landscape in Techopia Within the collaborative ambiance of InnoConnect.

Value network has certain benefits as follows:

• Shared resources: It helps organizations share resources with each network member.
• Collaboration: It encourages collaboration amongst members, leading to enhanced innovation and problem-solving capabilities. It is due to various stakeholders coming together to bring varied perspectives to the network.
• Effectiveness and Increased Efficiency: All participants feel the positivity of increased capability and strength due to workflows and process optimization.
• Expansion and Market Reach: It also enables wider reach to new markets, new consumers, and distribution systems. It happens because the network offers new avenues of expansion, cross-selling, and marketing efforts.
• Risk Mitigation: Risk gets reduced due to the involvement of many organizations in the network ready to provide deep insights into various product and market segments.
• Cost Reduction: It opens up better tools for pool resources, improved deals with suppliers, and profit from economies of scale, leading to cost-cutting and more competitiveness.
• Access to Expertise and Specialized Skills: Every participant in the network brings in new expertise, knowledge, and specialized skills for all. Therefore, participants get access to a larger area of capabilities, assuring all equitable access to the correct resources concerning particular projects and tasks.
• Adaptability: Members of the network get enough leverage and tools to adapt to dynamic situations, challenges, or opportunities quickly.
• Flexibility: All members support each other in adapting to different situations like technological progress, dynamic markets, and consumer demands.
• Enhanced agility: It helps organizations imbibe quick responses to market changes, making them highly agile.
• Increased customer experience: Network members use the network to fulfill the needs, demands, expectations, and innovation requirements using their network. As a result, the customer experience increases manifolds.

Here are the main differences between a value chain and a value network:

This article has been a guide to what is Value Network. We explain the topic in detail including its examples, comparison with value chain, benefits, and types. You may also find some useful articles here -

• Perceived Value Pricing
• Network Externalities
• Network Effect