Matt Ridley's excellent Wall Street Journal Article Humans: Why They Triumphed provides a powerful argument for value networks, although he does not use that term specifically. He argues that the spectacular gains of humans in the last 45,000 years are due to "a new idea, borrowed from economics, known as collective intelligence: the notion that what determines the inventiveness and rate of cultural change of a population is the amount of interaction between individuals."
He notes that in the modern world, innovation is a collective enterprise that that relies on exchange. Ridley refers to Brian Arthur's excellent book, The Nature of Technology, which beautifully illustrates that nearly all technologies are combinations of other technologies - that new ideas come from swapping things and thoughts.
So what does this have to do with value networks? At the heart of Ridley's argument is exchange theory, which is also one of the foundations for Value Network Analysis (VNA). Ridley explains:
"Dense populations don't produce innovation in other species. They only do so in human beings, because only human beings indulge in regular exchange of different items among unrelated, unmated individuals and even among strangers. So here is the answer to the puzzle of human takeoff. It was caused by the invention of a collective brain itself made possible by the invention of exchange.
Once human beings started swapping things and thoughts, they stumbled upon divisions of labor, in which specialization led to mutually beneficial collective knowledge. Specialization is the means by which exchange encourages innovation: In getting better at making your product or delivering your service, you come up with new tools. The story of the human race has been a gradual spread of specialization and exchange ever since: Prosperity consists of getting more and more narrow in what you make and more and more diverse in what you buy. Self-sufficiency—subsistence—is poverty."
Value Network Analysis also draws from exchange theory (Homans, 1958) as well as the exchange aspects of living systems theory (Allee 2002, 2003, 2008). In a close parallel with Ridley's argument Allee states:
"At the macro level, the primary conversion mechanism for converting one form of value to another is the network. There are many different kinds of conversion enablers for networks, of course, such as alternative currencies (Lietaer, 2001). But these are only effective when a healthy value exchange network supports them. Because the network is the primary economic mechanism for value conversion, network analysis can be used to describe the value creation dynamics of work groups, organisations, business webs, and purposeful networks engaging in both tangible and intangible value exchanges to support the achievement of specific outcomes and to generate economic and social good."
It follows that the dominant way of modeling business activity, the process, is now reaching diminishing returns. The linear mechanistic process model of process is simply inadequate to fully capture the exchange dynamics that support successful execution of business processes and fuel innovation. Value network modeling:
- Provides a fresh perspective for understanding value creating roles and relationships, both internal and external, upon which an organisation depends
- Offers dynamic views of how both financial and non-financial assets can be converted into negotiable forms of value that have a positive impact on those relationships
- Explains how to more effectively realise exchange value for each role
- Shows the hidden network patterns behind business processes
The value network business modeling language offers researchers a more organic and accurate way to describe, analyze, evaluate, and improve organizational and firm-level performance, especially in complex environments. Value Network Analysis fills the analytical and managerial gap between other organizational tools. Since it shows unique transactions, critical sequences or “flow paths” can be teased out and analyzed with business process tools.
Value Network Analysis and Value Network Analytics are fully supported with the Value Network Insights application, as are other network analysis methods. However, Value Network Insights is the only application that can capture, model and analyze the multiple exchanges supporting complex business processes and innovation networks.
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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. (2003), The Future of Knowledge: Increasing Prosperity through Value Networks, Butterworth-Heinemann, Boston, MA.
Allee, V. (2002), “A value network approach for measuring and modeling intangibles”, paper presented at the Transparent Enterprise Conference, Madrid.
Homans, G.C. (1958), “Social behavior as exchange”, American Journal of Sociology, vol. 63, 597-606.
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