There is an increasing need for companies to gain insights into what is actually happening around them and where value can be created and captured. Linear value chains have in many cases been replaced by complex, interdependent and dynamic relationships between multiple sets of actors in different industries, different parts of the world, using different business and revenue models.
The increased turbulence creates threats and opportunities for organizations to respond to and quickly reconfigure its business models and with that its different roles in relation to external actors. To capture opportunities more quickly than rivals do, organizations must have agile business models and constantly analyze where value can be created and captured.
An intricate network of roles and relationships
The value network surrounding an organization comprises of different stakeholders and organizations (nodes) that have an effect on the outcome of the organization's activities. Between the nodes are different forms of formal and in-formal relationships connecting the nodes, forming the network. In contrast to linear value chains and One-Sided Business Models, such as buying ingredients to sell lemonade on the driveway, the number of different actors having multiple roles creates an intricate network of roles and relationships.
Nodes with multiple roles
One actor in the value network can simultaneously be a value provider (e.g. out-licensing important technology, co-educating customers, partner in working towards establishing a standard, co-developing new technology, supplier of services, providing user data), a value recipient (e.g. in-licensing technology, buying products and services, having access to process knowledge and technical know-how, benefiting from complementary products and services), a value neutral (e.g. competing with similar products and services, providing substitute technology, products or services, non-connected experts, authorities and regulators, standardization bodies). Additional to the complexity of nodes having multiple roles is that roles, relationships and business models are constantly changing.
Different business and revenue models
Each of the actors in the value network has its own business and revenue models and actors outside the industry may at any time enter with business models disrupting the whole industry, such as Apple entering the music industry or Google entering the navigation technology industry. Organizations need to constantly monitor actors in the value network, at the edges of the industry and potential outside actors that could for example provide something at a much lower cost or even for free. A good question to ask is what an industry outsider would do to take advantage of the weaknesses in existing value network and business models? Some examples of potentially disruptive business models:
- Give away or subsidize hardware to sell software or services
- Give away or subsidize software to sell hardware or services
- Give away or subsidize services to sell hardware or software
- Give away one version of the hardware, software and/or service to sell another
- Give away or subsidize hardware, software and/or services, supported by advertising
- Give away or subsidize hardware, software and/or services, sell access to 3rd party
For more examples: 50 Business Models built on Free
Mapping the value network
To understand the value network, an organization should for every value proposition map out each and every actor that could have an effect on the outcome. This should initially be done as broadly as possible generating a very long list of actors. Different approaches can be used to identify actors such as:
- Roles in relation to one’s own organization "all suppliers, partners, competitors, customers, substitutes…"
- Type of organizations "all incumbents, SMEs, start-ups, research institutes, university research groups, governmental organizations…"
- Different forms of activities or expertise "content idea, content creation, publishing, distribution, content aggregation…"
The next step is to categorize each actor in the list to make it more manageable. This can be done in the style of a mind-map or in Excel lists that are perhaps more easy to sort and filter. The way to categorize and group actors is very situational specific and the approaches above can be used as a starting point.
Analyzing the value network
It is important to understand how value is converted from one form to another across the value network. Ideally each actor and relationship should be analyzed and a starting point is to analyze each group of actors and each identified key actor:
- How do value move through the network?
- Where are the bottlenecks?
- Who are benefiting from whom?
- What values are provided from each actor?
- Who are the main value creators?
- What are their objectives and strategies?
- Where are the unique assets and capabilities?
- How well are assets being used?
- How well are the values being realized?
- Who are the main value recipients?
- What do the value recipients need to compromise?
- What social value or cost is generated by each actor?
- Where are the main costs and risks of each actor?
With an understanding of the value network the next step for an organization is to analyze its own position in the value network.
Analyzing one’s own position
Based on the value network analysis the organization can start evaluating its own situation and different alternatives for adjusting its position in the value network:
- What roles and relationships is it dependent upon?
- What are the value propositions (including benefits) it provides to other actors?
- How are different external offerings affecting own value propositions?
- What are the financial and non-financial transactions in these relationships?
- How will success increase other actors' success and vice-versa?
- How will the organization enable other actors to win versus their competition?
- How can it change the game to its own and others advantage?
- How will its position evolve over time?
Positioning through strategic moves
Based on the existing and sought for position, the organization can then use strategic moves to affect identified actors, formulate alliances and partnerships and change its business models, to manage the value network:
- Who to collaborate with, for what purpose, in what form?
- Who to form strategic alliances with?
- What to bring to the table and what to expect from the collaboration?
- What actions to take to affect other organizations or relationships?
- How to adjust value propositions and business models?
Turning turbulence into an advantage
To understand the current and future capability for value creation, it is essential for every organization to understand the surrounding value network and how value is converted from one form to another across the network, and adjust its business models accordingly.
Opportunities arise from strategic moves and from pure luck. The challenge is for organizations to have agile business models to be able to act on these opportunities. I believe that organizations that really understand their different roles and surrounding value networks can turn the turbulence into an advantage.