Value Networks and Value Stream Management

From Purpose to Process

This is the third episode in our series of posts on Value Networks.

Verna Allee initially developed this mapping and modeling technique and elaborated on it in her book Value Networks and the True Nature of Collaboration.

While she developed these ideas in contexts other than software product development, they help us express the collaborative nature of complex knowledge work in richer ways than many of the techniques we use today to model software development processes.

This post will discuss how Value Networks relate to Value Stream Management in software product development.

Value Stream Management

Peter Hines and colleagues?introduced Value Stream Management (VSM) as “a strategic and operational approach to the data capture, analysis, planning, and implementation of effective change within the core cross-functional or cross-company processes required to achieve a Lean enterprise.

This remains an excellent general definition of Value Stream Management, even if the original concepts were developed in the context of industrial production processes and supply chains.

Let’s focus on a few key aspects:

• VSM is fundamentally about improving processes.
• It targets cross-functional and cross-company processes, those that require collaboration across organizational or inter-organizational boundaries.
• VSM has both strategic and operational components.
• It relies on data to analyze, model, plan, and implement system-wide changes.
• The primary goal is to ensure effective change—improving the enterprise's ability to create value more efficiently.

Under this definition, VSM is focused on changes beyond local, continuous improvement efforts (e.g., Kaizen); it emphasizes collaborations at the company and cross-company levels that require coordination among autonomous participants to identify system-level improvements and implement changes2.

While these changes are typically strategically important, they are among the hardest to operationalize. Therefore, a holistic approach to visualizing, modeling, and reasoning about them is critically important.

Value Networks are a powerful tool for tackling this challenge.

Value Networks: A Recap

The Value Network is a straightforward concept built from three simple primitives: roles, transactions, and deliverables. Roles represent (groups of) people and the parts they play in a value-creating collaboration. Transactions represent interactions between roles that exchange something of value. Deliverables represent these things of value and may be?tangible?or?intangible.

Value network mapping aims to identify the roles, transactions, and deliverables in a network of value exchanges.

In our previous episode,?Value Network Mapping: An Example, we illustrated how we might model a value network for an example software company, AssetManager PRO. We mapped the value network at three levels of detail and explored choices for modeling the flow of value.

Figure 2 from the last episode shows an example of these levels of detail.

By mapping roles, transactions, and deliverables, Value Networks enable us to capture tangible and intangible value exchanges between participants.

This helps us see the big picture, defining the ‘flow of value’ and revealing key areas where value is created or could be enhanced across the business network.

With these fundamentals, let’s dive into how these models represent the flow of value within an ecosystem.

Modeling the flow of value

At the top level, the?business value network, roles represent business entities such as the company, its market, suppliers, partners, and competitors. These are the participants in the product ecosystem.

The business value network serves as the strategic canvas for Value Stream Management, where the goal is to harness and optimize value flows within the network to maximize value for both the company and its customers.

This network is a model of an open, complex adaptive system in which roles are evolving populations of participants, and transactions represent measurable value exchanges between these participants.

The “flow of value” is defined by the value exchanges in the business value network. Transactions between roles and their deliverables represent fundamental, measurable units of value exchanged between participants. These include tangible exchanges such as money and products and intangibles such as brand value, reputation, trust, customer satisfaction, etc. Only transactions that result in a concrete exchange of value, whether tangible or intangible, contribute to the flow of value.

Figure 3 shows the business value network for AssetManager PRO. I would recommend that you review our description of this network in the last episode.

The business value network is, first and foremost, a sensemaking and visualization tool that allows a broad range of stakeholders to come together and build a shared model of the value-creating ecosystem in which the company operates. This brings greater clarity to our questions about how the product ecosystem creates value.

Constructing a value network model should be collaborative, drawing on diverse stakeholder perspectives to represent the product ecosystem accurately. The choices made when modeling roles and transactions in the network will significantly impact the insights you can derive from them.

From Visualization to Analysis

When we augment the value network with notions of state and history, the visual models can also be extended to build powerful tools to analyze value creation dynamics in the network.?

We may define the network's state as the value accumulated with participants based on their history of value exchanges, for instance. Transactions cause changes in the network state and may also change population distributions between roles; for example, a successful sales transaction may convert a consumer from Prospect to Customer.

By analyzing the system dynamics of the value network with these definitions: the value exchanges, the population movements between roles reflecting value-seeking behavior, and the analysis of transaction activity over time, we can identify causal relationships to understand value-creation mechanisms within the network.

Systems dynamics models help identify where we can intervene to improve the flow of value in the network and verify whether the changes we make to the system are effective—i.e., do they enhance the flow of value?

In an upcoming post, we will explore how to create these types of systems dynamics models for value networks.

Modeling the flow of work

Once we have modeled the flow of value and identified potential areas for improvement, we can focus on improving the processes needed to support this.

Traditionally, operating model design, organizational design, and lean process engineering have all focused on this topic.

These disciplines focus on the organization’s internal structure, processes, and resources?within?its boundaries. They position customers, partners, and other external actors?outside?the system boundary and aim to optimize internal structures, capabilities, and processes to serve these external actors.

Building on the foundation laid by all these disciplines, Value Stream Management integrates them by focusing on improving cross-company and cross-functional processes to improve the flow of value in the value network.

The rest of this post continues at The Polaris Flow Dispatch on Substack.

We cover:

• The relationship between value stream mapping and value network mapping
• How the layers in the value network map relate to organizational structure and process optimization
• The relationship between the flow of work and flow of value.

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