You may be able to make your small business more innovative and strategically sound by simply thinking through your company’s most important economic relationships. By using a process known as value net analysis, you can build synergies, identify threats, or even remake your company’s identify thanks to a new perspective.
Breaking Down Value Net
The value net model originated in the book Co-opetition by Adam Brandenburger and Barry Nalebuff. The two authors applied game theory to competitive analysis and business strategy.
Reacting to the traditional Porter’s Five Forces model of business competition, which focuses on economic relationships in isolation, Brandenburger and Nalebuff stressed the importance of interdependent and cooperative relationships. They suggest that business owners should think about the “added value” and “complementarity” among those with whom they deal.
Value net looks specifically at interdependence between four different factors or components:
- Complementors (such as vertical products and services)
Your organization might use value net analysis to better understand key relationships between the four component groups. For example, raw materials eventually flow from suppliers to customers. The interaction between competitors and complementors could highlight useful strategic ideas for your business.
How to Apply Value Net Analysis
Value net is a visual model, so you’ll need to get out a pen and paper or use a visual software to get started. Begin by identifying your key economic relationships. Start with the largest competitors, suppliers, customers, and complementary organizations and keep writing until you can’t think of any others.
Next, pare down your list to those whose relationships with your business are economically significant. In other words, think about those whose absence would be noticeable. Then, arrange them in a diamond shape around your company.
Start critically reviewing the relationships or potential relationships between each group. For example, consider how the influence of your rivals on your customers. Try to imagine your complementors or suppliers becoming a direct threat by entering your market. Maybe you and a rival could work together to negotiate cheaper bulk prices from a shared supplier.
Whatever these relationships signal, your final task is to react to opportunities and threats in a strategic and intelligent way.
Which Businesses Should Use Value Net?
Value net is a more natural fit for companies that work with raw inputs and capital goods, such as manufacturers, because the distinctions between supplier, rival, and complementor are more clear. If your business falls into this category, it should be pretty straightforward to implement the analysis.
However, your business can benefit from these concepts even if you don’t manufacture a product or work with traditional suppliers. Every business has multiple economic relationships, even if it just a handful of customers and a few competitors. If nothing else, you may find it a useful exercise to pull out of the day-to-day operations and spend time on macro-level thinking.