What are Value Networks?

Value networks represent social or technical resources businesses can use to improve their operations. The business environment today abounds with value networks as technology continues to increase the knowledge or intangibles of a company. Networks are either external or internal, although both networks may be present in a company. Companies will often leverage these tools into a competitive advantage in order to increase market share or improve the goods and services offered to consumers.

External value networks are those that include customers, other businesses, shareholders or other agencies that can impact the company. Information gleaned from these groups allows the company to receive feedback on performance and change operations accordingly. Certain groups — such as other businesses and government agencies — can help provide knowledge in terms of changes to the business environment. For example, competitors who change products or enter new markets will signal that other markets or market segments have profit potential. Government agencies will tend to send signals about a change in monetary or fiscal policy that can greatly affect how the company does business.

Internal value networks are the divisions or departments that make up the entire company. Customer service, order fulfillment, accounting, production or human resources are among the networks often found inside a company. The knowledge and intangible benefits gleaned from internal networks and communication ensures that all employees add value to the company. Owners and managers will often seek to break down the barriers that exist in the value networks to help increase the flow of communication throughout the business. Divisions or departments who do not pass information through the company can hinder another part of the company and ultimately create a decrease in the company’s overall value.

Computer technology creates both tangible and intangible benefits in value networks. The tangible benefits come from the equipment or software a company uses to with the network. Many companies will create a hardware system unique to their operating environment that gives them a core competency not easily created and used by another company. This internal value doubles when the company uses a software program or system created by employees in the company. While this can create a strong competency, it can have the disadvantage of linking to external value networks. Outside companies may use networks that have an operating system that is incompatible with other systems. This results in a disadvantage from using specialized hardware or software for the network.