Theory Base for Value Network Analysis

This detailed, full-length topic is not intended

to be a comprehensive survey or literature review.

Introduction 

Organizations are facing design and performance issues as their environments, markets, products and service offerings, and stakeholder relationships have become more complex. It has been well established that network analysis can be used to describe work groups, organizations, business webs, and other purposeful networks where both tangible and intangible value exchanges support the achievement of specific outcomes (MacCauley, 1963; Tichy, Tushman, and Fombrun, 1986; Granovetter and Swedberg, 1991; Nohria and Eccles, 1992). Most efforts to understand networks and organizations focus on networks of individuals and are attempting to demonstrate how different network patterns support innovation, team productivity, and knowledge sharing.

The hypothesis for value networks

The working hypothesis for value networks is that network analysis and organizational performance could be more tightly linked if network analysis is significantly expanded to include financial and non-financial asset utilization, value conversion and realization dynamics and flows, linkages to business processes and intellectual capital, and network indicators that clearly link to organization and market-level performance. These analytical approaches very specifically seek insights into the question of exactly how purposeful networks (such as organizations, cross-boundary task networks, public agency collaborations, and societal change networks) can more effectively create value, achieve business outcomes, and generate sustainable success.

The emerging common usage term for these efforts is Value Network Analysis (VNA). VNA explorations focus very specifically on improving organizational and firm performance by understanding the actual dynamics of value creation in financial and non-financial terms as well as economic and societal impact.

Early discussions of value networks were usually focused on supply chain, using frameworks, scorecards, and variations of supply chain models to describe supply chain networks (Parolini, 1999; Bovet and Martha, 2000). Others took a more extended view of the value network to include customers and strategic alliances (Normann and Ramirez 1993; Christensen, Rosenbloom, and Richard, 1995; Christensen, C 1997; Stabell, Oystein and Fjeldstad, 1998.). Yochai Benkler (2006) moved more solidly into a value analysis approach with his landmark book, The Wealth of Networks, but focused primarily on Internet-based social production models, a distinct type of network. Shoshana Zuboff (2002) also drew a bit closer to value creating networks in The Support Economy with her brief discussion of the importance of intangibles in federated support networks, although she did not employ any SNA-based visualizations and analytics. Most discussion of value networks or business networks confines the definition and perspective to the relationships between the firm and various external stakeholder groups (Bien and Caswell 2008). Internal value networks - cross-boundary networks operating within the firm have been largely ignored.

Further, a decade of research and practice in intellectual capital has demonstrated that the impact of organizational (or purposeful network) interventions and actions must be understood in both tangible and intangible terms (Sveiby, 1997; Edvinsson and Malone, 1997; Wallman and Blair, 2000; Lev, 2001; Eccles et al., 2001; Taug, 2004). Based on that premise, a more rigorous approach to VNA, grounded in financial and intangible asset management, living systems theory, and organizational methods has been proposed by Allee (Allee 1998, 2000, 2003, 2008, Allee and Schwabe 2009). Other relevant work is emerging from the study of Complex Adaptive Systems, multi-variant analysis, organizational theory, organizational behavior, and computational analysis.

Limitations of classic network analysis

Although classic network analysis provides powerful insights into patterns of human relationships and communication flows, it falls short in describing overall organizational performance. The empirical link between network patterns and value creation or realization for the firm or the generation of economic and social good also has not been well demonstrated. However, business applications of Social Network Analysis (SNA), sometimes referred to as Organizational Network Analysis (ONA) when applied to organizations, have expanded dramatically in recent years. Several analysts and researchers are using SNA, both metaphorically and analytically, to try to apply SNA to organizational performance and strategic alliances (Cross and Parker, 2003; Dawson, 2003; Iansiti and Levien, 2004; Anklam, 2007; Basol and Rouse, 2008). But progress has been limited due to certain inherent limitations of SNA:

a.    SNA is a structural analysis of network linkages. Given a set of nodes and links it provides insights into structural roles, degrees of separation between entities, "betweenness," and other factors, but does not directly address economic or social value creation and outputs.

b.    The empirical link between organizational-level structure and firm-level performance remains to be adequately demonstrated.

c.    All linkages defined in a social network are exactly of the same nature and only one link is represented between actors. This makes analysis of multiple variables and unique characteristics cumbersome, requiring separate networks to be generated for each different type of social or economic exchange between actors.

d.    Its use as a managerial tool is limited because of the high level of technical expertise required to analyze and interpret the network patterns.

Contribution of VNA to network theory 

One of the more extensive modeling approaches for value networks is described in this book. This approach defines a value network as any purposeful group of people or organizations creating social and economic good through complex dynamic exchanges of tangible and intangible value. This definition allows application of the value network perspective to internal value creating activities as well as external facing networks. The value network approach proposed by Allee can be applied to small purposeful networks, such as a work group or project team, as well as to larger and more complex networks. For example, the Allee VNA methodology demonstrated linkage of value network patterns with both economic performance and intellectual capital formation, in the 2007 evaluation study for the European Commission of IST-RTD Impacts on Regional Innovation Systems (European Commission 2007). Its value has also been well demonstrated at the business network level, the more traditional perspective of a value network (Tapscott, Ticoll, and Lowy, 2000) and in practice addressing many different kinds of business issues and processes. 

The value network business modeling language offers researchers, analysts, managers, supervisors and front-line workers a more organic and accurate way to describe, analyze, evaluate, and improve organizational and firm-level performance, especially in complex environments. A VNA modeling language moves network analysis from being an expert analyst’s tool to an organizational design tool with broad applicability and usage for any type of organization seeking to improve its performance.

As an integrative language VNA fills the analytical and managerial gap between other organizational tools. By modeling the work at a system level, VNA provides an even more effective way for SNA and other methods to optimally contribute to overall organizational effectiveness. Since it shows unique transactions, critical sequences or “flow paths” can be teased out and analyzed with business process tools. If it can be assumed that many intangibles tend to flow along human-to-human pathways, then conducting SNA at the level of individuals can determine if the those pathways are open. VNA also provides a way to define critical causal loops surfaced in system dynamics analysis in terms of the needed roles and interactions to support healthy system-level behaviors. Figure 3 shows the relationship of VNA to other organizational performance methods and tools.

VNA fills the analytical gap between other 

organizational performance tools.

VNA as an emergent discipline for organizational design and performance 

The potential of a value network modeling language will only be realized if there is a coherent and widely accepted modeling language that demonstrates clear linkages between network patterns and organizational performance. Other fields of practice have been negatively impacted by not having this clarity in their early stages. Knowledge Management (KM) for example, was early on perceived as way to focus on management of intangibles, but the tide of technology companies repackaging document management systems as “Knowledge Management Systems” greatly diminished perception that KM practices could contribute substantially to improving organizational and firm performance. The intangible asset theory base followed by the early KM pioneers was lost in the shuffle. Consequently KM practitioners have struggled to demonstrate business impact.

The roots of the emergent discipline of VNA can be found in organization theory, organizational behavior, management science, complexity theory, and systems thinking. There are many potential contributing methods such as multi-objective optimization of location on a network and computational methods for understanding complexity. With this rapid and widespread adoption of VNA it is essential that proven and validated taxonomies, methodologies, and practices be developed so that methods can be applied consistently and coherently across multiple disciplines and industries.

References

Allee, V. (1998), "Human Capital and Value Creation in the Knowledge Economy," HR Monthly, May 1998.

Allee, V. (2000), "The Value Evolution," Journal of Intellectual Capital, vol. 1, pp. 17-32.

Allee, V. (2000), "Reconfiguring the Value Network," Journal of Business Strategy, July-August 2000.

Allee, V. (2002), "A value network approach for measuring and modeling intangibles," paper presented at the Transparent Enterprise Conference, Madrid, available at: www.vernaallee.com.

Allee, V. (2002), The Future of Knowledge: Increasing Prosperity through Value Networks, Butterworth-Heinemann, Boston, MA.

Allee, V. (2008), "Value Network Analysis and Value Conversion of Tangible and Intangible Assets," Journal of Intellectual Capital, Volume 9, Issue 1, pp 5-24.

Allee V., Innocenti A., Koumpis S., Mavridis A., Molinari F., Pasher E., Shachar S., Schwabe O., Tektonidis D., Tresman M, and Vontas A., (2007), "Effectiveness of ICT RTD Impacts on the EU Innovation System: Final Report," Evaluation Study for the European Commission, DG Information Society and Media Directorate C Lisbon Strategy and Policies for the Information Society, Unit C3 - Evaluation and Monitoring, December 11, 2007.

Allee V., Innocenti A., Koumpis S., Mavridis A., Molinari F., Pasher E., Shachar S., Schwabe O., Tektonidis D., Tresman M, and Vontas A., (2007), "Effectiveness of ICT RTD Impacts on the EU Innovation System: Annex to the Final Report," Evaluation Study for the European Commission, DG Information Society and Media Directorate C Lisbon Strategy and Policies for the Information Society, Unit C3 - Evaluation and Monitoring, December 11, 2007.

Anklam, P. (2007), Net Work: A Practical Guide to Creating and Sustaining networks at Work and in the World, Butterworth-Heinemann, Boston, MA.

Basole, R.C. and Rouse, W.B. (2008), "Complexity of service value networks: conceptualization and empirical investigation," IBM Systems Journal, Vol. 47, No. 1, 2008, pp 53-70.

Benkler, Y. (2006), The Wealth of Networks: How Social Production Transforms Markets and Freedom, Yale University Press, New Haven, CT.

Biem, A. and Caswell, N. (2008), "A value network model for strategic analysis," Proceedings of the 41st Hawaii International Conference on System Sciences " 2008.

Bovet, D. and Martha, J. (2000), Value Nets, Wiley, New York, NY.

Capra, F. (1996), The Web of Life, Anchor Books.

Christensen, C. (1997), The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business School Press, Boston, MA.

Christensen, C., Rosenbloom, M., and Richard, S., "Explaining the attacker's advantage: Technological paradigms, organizational dynamics, and the value network," Research Policy. Amsterdam: Mar 1995. Vol. 24, Iss. 2, p. 233 (25 pp).

Cross, R. and Parker, A. (2003), The Hidden Power of Social Networks, Harvard Business School Press, Boston, MA.

Dawson, R. (2003), Living Networks: Leading Your Company, Customers, and Partners in the Hyper-Connected Economy, Prentice Hall, New York, NY.

Eccles, R.G. and Nohria, N. (1992), Networks and Organizations: Structure, Form and Action, Harvard Business School press, Boston, MA.

Eccles, R.G, Watson, L., and Willis, M., "Breakthrough ideas for 2007: here comes XBRL," Harvard Business Review, February 2007.

Eccles, R.G., Herz, R.H., Keegan, E.M, and Phillips, D.M.H. (2001), The Value Reporting Revolution, PricewaterhouseCoopers, New York, NY.

Edvinsson, L. and Malone, M.S. (1997), Intellectual Capital: Realizing Your Company's True Value by Finding its Hidden Brainpower, Harper Business, New York, NY.

Granovetter, M. and Swedberg, M. (2001), The Sociology of Economic Life, Westview Press, Boulder, CO.

Iansiti, M. and Levien, R. (2004), The Keystone Advantage, Harvard Business School Press, Boston, MA.

Lev, B. (2001), Intangibles: Management, Measurement and Reporting, Brookings Institution, Washington DC.

MacCauley, S. (1963), "Non-contractual relations in business: A preliminary study," American Sociological Review, vol. 28 no. 1, 55-67.

Nohria, N. and Eccles, R.G. (1992), Networks and Organizations, Harvard Business School Press, Boston, MA.

Normann, R. and Ramirez, R. (1993), "From value chain to value constellation: designing interactive strategy," Harvard Business Review, July-August.

Parolini, C. (1999), The value net: A tool for competitive strategy, Wiley, Chichester.

Sams, K. (2008), "The Making of a Transformation: Flight Test employees use Lean+ processes to redesign operations," Boeing Frontiers, Volume VI, Issue IX, pp 24-35, February 2008.

Stabell, C. and Fjeldstad, Oystein D. (1998), "Configuring value for competitive advantage: On chains, shops, and networks," Strategic Management Journal May 1998. Vol. 9, Iss. 5, p. 4-3 (25 pp).

Sveiby, K-E. (1997), The New Organizational Wealth: Managing & Measuring Knowledge-Based Assets, Berrett-Koehler, San Francisco, CA.

Tapscott, D., Ticoll, D., and Lowy, A., Digital Capital: Harnessing the power of business webs, Harvard Business School Press, Boston.

Taug, J. (2004), "Intangibles and capital conversion in complex organizations," dissertation, Fielding Graduate Institute, Santa Barbara, CA.

Tichy, N.M., Tushman, M.L., Fombrun, C., "Social network analysis for organizations," The Academy of Management Review, October 1979, Vol. 4, Issue 000004, p. 27 (13 pp).

Value Networks Consortium available at: www.vnclusters.com.

Value Networks open resource site for Value Network Analysis, available at: www.value-networks.com.

Wallman, S. and Blair, M. (2000), UnSeen Wealth: Report of the Brookings Taskforce on Understanding Intangible Sources of Value, The Brookings Institution, Washington, DC.

Zuboff, S. (2002), The Support Economy: Why Corporations are Failing Individuals and the Next Episode of Capitalism, Viking, New York, NY.

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