Value Exchanges and Collaboration Protocols
The building blocks of value streams
Zeptos is your neighborhood coffee haven, serving top-notch single-origin coffee, locally sourced pastries, and a cozy vibe. It’s the go-to spot for walk-ins, dine-ins, and work-ins. Complete with blazing-fast Wi-Fi and a welcoming workspace. Sip, savor, or settle in—Zeptos has you covered.
In our last episode, Value Streams and Value Networks, we introduced the idea that a value stream can be viewed as an emergent flow of value within a value network, where the unit of "flow" is an abstraction called a "value exchange."
That discussion was rather abstract and theoretical. This episode will bring matters back to earth with a straightforward, worked-out example to illustrate key concepts.
Value Networks
This episode is part of a series on Value Networks, a modeling technique developed by Verna Allee in the mid-nineties that provides a robust formal foundation for reasoning about value in a fundamentally novel way.
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 value-creating collaborations. Transactions represent interactions between two roles, where one delivers something to the other.
The deliverable may be tangible or intangible.
For our purposes here, this simple definition suffices to understand the material in this episode.
Previous episodes have explored this model and its applications to modeling complex systems for value delivery.
An Example
Let’s use a neighborhood coffee shop, Zeptos, as a running example of a business value network. Figure 1 shows the network.
We model only two roles: Zeptos represents the people who own and operate it, and Visitors represent those who use its services. In addition to providing coffee and pastries, Zeptos also provides a free workspace for visitors, who are not obliged (but encouraged!) to dine in when they visit.
Figure 1 shows the transactions in the value network, which are detailed in Figure 2. A transaction's deliverables may be tangible or intangible.
The tangible ones (shown in blue) are easy to understand. Still, the intangible ones, such as the ambiance Zeptos creates for its customers and the vibe the customers bring to the store, are equally important and, in some sense, more important to fulfilling the Zeptos value proposition.
Similarly, the deliverables in information exchanges between visitors and customers, such as the signage advertising the benefits or the process for taking orders, may be tangible or intangible but are crucial components of the value network.
The value network model highlights that “value,” even in this simple case, is a complex, multi-faceted affair involving complex exchanges of goods and services.
We will break down the process of analyzing value into simpler logical building blocks that we can use to reason about more complex scenarios consistently.
Collaborations and protocols
A collaboration is a coordinated effort between roles in a value network to achieve shared or complementary goals or desired outcomes. The structure describing the interactions between the roles in a collaboration is called a protocol.
Formally,
A protocol is a sequence of transactions between roles in a value network, defining the transfer or exchange of deliverables necessary to achieve the desired outcome of the collaboration.
The deliverables exchanged may be tangible goods or money, or intangibles like information or experiences
Structurally a protocol is a sequence of directed edges1 in the graph representing the network's roles and transactions, representing a temporal order in which the transactions occur in the collaboration.
It is typical for a collaboration to contain multiple protocols representing alternate sequences by which the collaboration may achieve its outcomes.
Here are some collaboration protocols in our coffee shop value network, each representing a collaboration between Visitors and Zeptos.
{Visit Shop}
{Visit Shop, Order Coffee, Serve Coffee, Pay Money}
{Workspace Available, Visit Shop, Provide WorkSpace, Provide Ambience}
We are particularly interested in collaborations that result in a reciprocal exchange of deliverables between key roles2.
We define a value exchange as a protcol that results in at least one reciprocal transfer of deliverables between two roles in the network.
The second and third protocols involve reciprocal exchanges of deliverables, which are thus value exchanges.
Let’s examine one in more detail.
{Visit Shop, Order Coffee, Pay Money, Serve Coffee, Give Review}
This protocol involves multiple reciprocal exchanges. Visualizing protocols as an interaction diagram between the roles involved is helpful.
In a value exchange, we expect arrows to go in both directions in the visualization and +/—signs to appear on both sides of the exchange. In this example, the protocol involves only two roles, but generally, a protocol representing a complex exchange may involve many intermediate or supporting roles.
In our model, a core principle is that sustainable collaborations are built on reciprocal value exchanges where each party can independently evaluate the collaboration’s value by assessing the deliverables exchanged over the course of the collaboration.
This ensures collaborations remain mutually beneficial and are grounded in contributions that can be objectively and independently assessed by all parties involved.
A value exchange is a construct with significant expressive power to model the flow of value.
Its use cases extend across a spectrum, including:
Simple two-party commercial exchanges and complex interactions involving multiple participants in a value network.
Exchanges that generate value over short periods and those that unfold over extended time frames.
Exchanges that produce tangible, measurable value and that create intangible value, observable or quantifiable, only indirectly.
By modeling the structure and drivers of these value exchanges in detail, defining what 'value' means for each exchange, and analyzing the history of exchanges within the network over sufficiently long time frames, we develop a disciplined method for reasoning about the 'flow of value' in the network.
Protocols vs Processes
It is important to understand that a protocol differs from a process. In a protocol, the deliverables from one transaction do not necessarily serve as inputs to the next transaction. In complex multi-party protocols, sequential transactions may involve entirely different roles and function independently.
The relationship between protocols and processes can be viewed as complementary: protocols specify which roles produce which deliverables and map the overall flow of tangible and intangible deliverables required for a collaboration to succeed. Conversely, processes represent the internal activities or workflows within a role that produce those deliverables. These processes may be simple and repeatable or complex and collaborative, i.e., another collaboration.
For example, in the protocol above, the Serve Coffee transaction naturally corresponds to a key business process. However, the protocol situates this process within its broader human context, capturing tangible and intangible interactions between people that contribute value to the collaboration. At this level, we are less concerned with the operational details of serving coffee and more focused on modeling the factors that shape the customer’s experience at Zeptos. This approach allows us to evaluate how to create and maximize value from the overall experience.
Protocols emphasize how deliverables fulfill a value proposition by linking their attributes to the desirable and undesirable factors that define the value proposition, ensuring alignment with the collaboration's goals.
Let’s look at this by continuing our example.
Customer Collaborations at Zeptos
The owner of Zeptos has created a compelling value proposition.
Zeptos is your neighborhood coffee haven, serving top-notch single-origin coffee, locally sourced pastries, and a cozy vibe. It’s the go-to spot for walk-ins, dine-ins, and work-ins. Complete with blazing-fast Wi-Fi and a welcoming workspace. Sip, savor, or settle in—Zeptos has you covered.
It appeals to three types of visitors: walk-ins, dine-ins, and work-ins.
While the Zeptos brand stands for expertly prepared premium coffee and pastries and is a base expectation for every customer, each of these three types of visitors defines “value” from their Zeptos experience very differently.
The Walk-In
The walk-in customer is there primarily for the coffee and pastries, but they value fast service more than anything, impacting their perception of value every time they visit Zeptos.
In the walk-in protocol shown below, the visitor places less value on the ambiance and vibe and more on the time it takes to place an order and walk out with a high-quality order. When Zeptos executes this expectation flawlessly, the visitor may return and even give the coffee shop a glowing review.
For Zeptos, the walk-ins represent a customer value stream. They consider the money the customer pays a fair exchange for the value they provide, assuming they can satisfy customer expectations. If not, a negative review from a disgruntled customer may cause a negative net value from a walk-in.
The Dine-In
The dine-in customers value the ambiance at Zeptos and the collective vibe of the customers. They expect prompt service, but their expectations are less stringent than those of the walk-ins. Overall, they spend more time at the shop and are likely to spend more on each visit.
Dine-in customers assess Zeptos value proposition along different dimensions compared to walk-ins. They are much more likely to assess value based on their overall experience at the shop, and Zeptos needs to execute flawlessly on that count for them to feel they have received value.
For Zeptos, dine-in customers present a distinct logistical challenge. Attracting them requires more significant investment in higher-end facilities and staff, which lowers unit margins. However, in certain months, the profits generated from dine-in customers can significantly surpass those generated from walk-in customers.
Dine-in customers represent the second major value stream for Zeptos.
The Work-In
Work-in customers at Zeptos come for a work-friendly environment rather than coffee and pastries. They value comfortable seating, reliable Wi-Fi, and a productive atmosphere without service expectations. They represent visitors attracted by an entirely different aspect of the Zeptos value proposition.
However, these customers often spend extended periods at Zeptos, and 70% eventually order, transitioning into dine-in behavior. This dual role makes work-ins valuable for their workspace use and their contribution to sales during their stay.
Serving work-ins requires investment in workspace amenities, such as comfortable seating, charging points, and strong Wi-Fi, which adds to higher fixed costs. However, their high conversion rates make this a worthwhile investment.
The 30% of the work-ins that don’t convert to paying customers represent an unbalanced exchange for Zeptos. The visitors receive tangible benefits from Zeptos but only intangible benefits in return3.
The work-in customers are the third major value stream for Zeptos.
Customer Value Streams
Here’s why we call walk-in, dine-in, and work-in customer value streams:
Stable Value Flows: These represent enduring and consistent flows of value within Zeptos' value network, forming a core part of its business model.
Customer-Centric Value Propositions: Each value stream reflects Zeptos' tailored value proposition from the perspective of specific customer needs. The general proposition attracts diverse customers, but each value stream meets distinct customer expectations.
Distinct Service Types: While Zeptos operates as a single service entity, these categories signify three unique service types from the customer’s perspective. Each is defined by its specific collaboration protocols and definitions of value.
Operational Investments: Delivering these services involves different investments, resources, and processes, aligning with the classic definition of a value stream. These differences are represented in the collaboration protocols that govern each stream.
The “value” in these value streams is a contingent quantity, entirely shaped by mutual expectations and the satisfaction of both parties in each collaboration. Each one can exceed, meet, or fall short of expectations, resulting in a net positive or negative flow of value.
By consistently delivering on its value proposition for each customer value stream, Zeptos stabilizes and creates a coherent flow of value across its network. Customer reviews act as an adaptive feedback mechanism in the network, signaling Zeptos and others when this flow is disrupted.
Ultimately, as we discussed in Value Networks and Value Streams, the flow of value in the network is an emergent phenomenon, observable only when aggregated over many collaborations over time.
What is a value stream?
We’ll close this episode with a definition.
A value stream is a collection of value exchanges that describe value-creating collaborations between two roles in a value network.
In this definition, a value stream's identity is determined by its value proposition, the deliverables produced, and the criteria by which participants evaluate those deliverables against the value proposition. This perspective centers value streams around what is delivered and how value is perceived rather than how it is delivered.
A more formal explanation of this perspective requires additional conceptual tools, which we’ll explore in the next episode. However, it’s essential to note that value stream identity is established by defining the nature of value delivered, leaving the delivery mechanisms to the value stream model.
This marks a key departure from Lean value streams, which focus primarily on the delivery processes. Of course, we address these processes in the value stream model, but we explicitly model the “value” in “value streams” before doing so.
In a future episode, we will dissect the differences between these perspectives.
Key Takeaways
Value exchanges form the building blocks of value streams, representing reciprocal exchanges of deliverables between roles in a value network.
Collaboration protocols define the structured interactions between people required to achieve specific outcomes, emphasizing tangible and intangible deliverables.
Distinct customer value streams emerge when services are tailored to meet specific expectations and experiences through customized collaboration protocols.
The Zeptos example gave us three value streams: walk-ins, dine-ins, and work-ins. Each is shaped by tailored collaboration protocols and customer-centric value propositions. Customer reviews provide adaptive feedback to manage these value streams dynamically.
Stable and coherent value flows emerge when mutual expectations are consistently met for each value stream.
In contrast to the Lean perspective, value stream identity is determined by the value delivered and how it is perceived rather than the processes involved in delivery.
Looking Ahead
This episode focused on how value exchanges and collaboration protocols define customer value streams within a value network.
However, value networks are not static; they evolve through feedback, long-term dynamics, and internal interactions. In future posts, we’ll explore how feedback mechanisms like customer reviews guide the network’s adaptation, how sustained value exchanges shape its growth and stability, and how internal value streams, such as supplier relationships and staff workflows, interact with customer-facing streams to create a cohesive value network.
These deeper models will help us understand the full potential of value networks in modeling complex systems.
Acknowledgments: Marc Charon read this post's early drafts and provided valuable feedback, which improved it greatly. Thank you!
Note that this can be any ordered sequence of edges involving any number of roles in the network. In Verna Allee’s original formulation of the Value Network, the process of identifying transaction sequences in a value network was called sequencing. Sequencing was used to check the consistency and completeness of a value network for an activity and was a core part of value network mapping. We use it similarly but build upon it in defining collaboration protocols and value exchange models.
Verna Allee used deliverables and “value” interchangeably in her original formulation of Value Networks. This is a significant aspect where we diverge from her concepts. We believe that requiring reciprocity to assign value semantics to transactions provides a more explicit view of value semantics in value networks and allows us to consider deliverables from their value separately.
It may not always be a bad deal. If the work-in happens to be Keanu Reeves, the vibe value may exceed anything they purchase. The point is the assessment can only be made by the participants when they collaborate.