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The Value Chain is Dead – Long Live the Co-Creating Value Network!

Where it was normal in the past to work in a chain, there is a tendency nowadays to create value in a network instead of in a one-dimensional chain.

Rene Schaffels
Manager Sales & Marketing RPI Europe and RPI Global Sales & Marketing Coordinator

By Rene Schaffels MScMBA

You probably know the game: At the beginning of the chain you whisper a message into someone’s ear, and then wait and see what comes out of the mouth of the person at the end of the chain. Maybe you know the following experiment too: You agree to make a drawing with a few people. The first person draws the first line, the next person draws the next pencil line and so it goes around until everyone likes the result. The similarity is that the result of both experiments is often totally different than expected, but that’s where the similarity stops. Although these are experiments, there is a link to the business world.

Where it was normal in the past to work in a chain, there is a tendency nowadays– influenced by new technological possibilities (Internet age) and changing relationships in the society (networks) – to create value in a network instead of in a one-dimensional chain.

For example, previously a main contractor was often engaged with a subcontractor, and another sub-contractor, and so on. This could be the case with external parties, but also within a company, leading to margin-on-margin stacks and with the market often long forgotten. Sometimes this model still pops up: a fortune is spent on market research, a business case is written in the ivory tower, finally the business case gets accepted internally and budget has been made available, and only then the process of implementation by the parties in the value chain – including contractors and subcontractors – can begin. By then the market opportunity could be long gone, changed or picked up by other more nimble parties.

Currently, new drugs or new high-tech machines are often made in Co-Creating Value Networks consisting of a cloud of partners doing business together. This fits perfectly with our current network society and network economy. In this model, customers and suppliers work closely together to create mutual value.

In 2004, the steps for successful Co-Creation were developed by the management authors Prahalad and Ramaswamy:

1) Define clear objectives for the project.

2) Figure out who the right customers are to involve in the process (The customer of today might be different than the customer of tomorrow).

3) Work with customers to find out what they really want to include in a product or service.

4) Design products or systems jointly to meet these customers’ needs. This includes selecting the partners to be included in your network.

5) Decide how to share the value.

6) Overcome internal resistance to change – within seller, buyer and partner organizations. This is a critical step in ensuring that you control the channel.

 

If these steps are completed properly, Co-Creation in a Value Network can be of great value:

  • At least you’ll obtain a different result than if you had gone about it alone
  • Because you leverage the knowledge and creativity of multiple partners, it often delivers refreshing insights that would not have otherwise occurred
  • My experience is that it is a way to shorten the time-to-market, and maintain a connection to the market throughout the entire process

This is one way that RPI applies our mission to “Make Real Connections.” As an example, a customer in the field of Social Media books is connected with another customer in a new market segment (such as Sports Merchandising or Retail). By applying the Co-Creation model, new market opportunities are created that the partners alone probably would not have thought of. It’s a win-win-win situation for all parties with concrete results.

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René holds a MSc. degree from Eindhoven University of Technology and an executive MBA degree from Maastricht University. He wrote his MBA thesis about Co-Creation. René held senior management positions in the Telecommunications, Healthcare and High-Tech business in international sales, marketing and business development roles prior to joining RPI.

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