Digital Value Chains in Business Software Design

Part 1 - Introducing the Digital Value Chain

What is a Digital Value Chain?

The digital version of the business value chain uses the same principles of business analysis as the traditional physical value chain. In the real world, goods are purchased, transformed into something else and sold on at a profit.

More than a linear set of standard business functions, the digital value chain is best described as a hierarchical collection of processes, organised so as to achieve maximum value exchange for every stakeholder.

Too academic? It’s simply nothing more or less grand than the design of your digital money making machine. Or, in other words, the blueprint of your digital business engine.  

Designing Money Making Machines

With that out of the way, let’s explore how the components of the digital value chain and the ways they are joined together, can help us in the design of your digital business.

Each component process of the digital value chain has an input, an output and does something in between. A very useful tactic, and indeed the secret sauce to our methodology is that they can be defined, are best defined and should only be defined with first a verb and then a noun, in combination. We call these components “gears”. For example, the top “gear” which introduces us to the objective of the business is labelled “make” (verb) “money” (noun) or “run” (verb) “the business” (noun).  

More words are allowed for explanation but this is kinda sloppy and loses precision quickly.  Software engineers really do need precision. Their world is all about 1’s and 0’s, no grey areas in between. They need to be told explicitly how the business runs to make money for you.

These gears are organized, grouped and joining together in a hierarchical tapestry. We use traditional value chains, sales cycles, funnels, loyalty loops and any number of other useful business process constructs to design our digital value chains.  

When assembled well, the digital value chain will be able to tell the story of how the business works. A digital value chain can generally be read left to right and top to bottom. Going through each gear - and telling the story of how we take stakeholders and other digital objects from points A to points B. Sidebar: computers don't relate to customers at all, only digital representations of them. We call them users, computers just call them objects. A is where they come into the system, naive and hopefully willing to play. B is where they are fulfilled, maybe lighter of pocket but still delighted to try again and recommend others to the business.

I hope that’s a sufficiently painless introduction to the idea of the Digital Value Chain. We find that it has amazing value. Understanding how your engine will work before trying to build it kinda makes sense. More of this in the next part - “Using the Digital Value Chain”.