What is a Value Network?
Modeling the Flow of Value
The Entrepreneur and The Queueing Theorist introduced the first significant theme we will explore in more detail in the rest of this season of The Polaris Flow Dispatch: the role of queueing theory in building causal models for the flow of work in software product development.
In this post, we will introduce the second central theme, Value Networks, which help build causal models for the flow of value.
In our post, Throughput != from last season, we argued that when measuring performance, productivity, efficacy, etc., in software product development, we inappropriately conflate the flow of work with the flow of value.
Many of the measurement techniques we use to measure these aspects of software product development derive from those developed in the manufacturing and service industries.
However, a critical aspect of these two domains is that the flow of work is a reasonable proxy for the flow of value.
In software, especially for software products, it is not.
Many of the metaphors we borrow from manufacturing, code as inventory, low usage features as waste, etc., all rely on the implicit assumption that the “things” we produce are what have value.
However, a line of code, a feature, or a novel product capability has no intrinsic value.
In the software product context, the value “flows” only when a product recipient derives some utility from a product, and the user’s perception of this utility determines whether or not something has value.
This “flow of value” happens at a different time scale, level of abstraction, and between different entities. It is often only indirectly related to the “flow of work” required to produce the product.
The Value Network is a model that lets us explicitly make these connections, model the flow of value, and connect it to the flow of work.
Value Networks
Value Networks are a concept developed by Verna Allee. They blend ideas from network theory, complexity science, and value delivery modeling into an intuitive mapping and analysis technique that is very powerful and general despite its apparent simplicity.
In this short video, she beautifully explains the fundamental intuition behind a value network.
Ms. Allee developed Value Network Analysis in the 1990s and early 2000s. During that period, she explored the interplay between Value Network Analysis and other types of network analysis of complex systems and developed this concept in great detail.
Her book, Value Networks and the True Nature of Collaboration explains these ideas clearly. I highly recommend reading it to understand the ideas she presented in their original form.
Ms. Allee's initial Value Network model was more informal and focused on collaborative mapping and analysis of value creation mechanisms.
The Value Delivery Modeling Language standard from the Object Management Group unifies the value network perspective of high-level business value creation with a richer ontology that models characteristics of activities, resources, deliverables, and value contribution.
It provides a comprehensive way to model the relationships between a business's operating model and the value-creating ecosystem in which it operates at varying levels of detail.
Ms. Allee was a key contributor to the VDML standard, which has a much more precise set of definitions and is much more suitable for capturing and communicating these models in a standard way and for building interoperable analytical models and tooling.
For the most part, we will adopt the more precise terminology of VDML while relying on informal visual notations in Ms. Allee’s formulation to describe models.
The Basic Model
A value network is a complex system model built from a small set of abstract primitives: Roles, Transactions, and Deliverables.
Roles represent (groups of) people and their contributing roles in a collaboration that creates value for the participants.
Arrows between roles represent transactions that exchange something of value between the roles. A key aspect of value networks is that the “deliverables” exchanged in this transaction may be tangible or intangible.
Intangibles constitute a significant component of the “flow of value,” and value networks model these explicitly.
Value network mapping aims to identify the roles, transactions, and deliverables in collaborations that create value. It places people and their interactions at the heart of the value-creation process.
From this seemingly simple set of primitives, rich contextual models can be created that illuminate the relationship between the flow of value and work in product development at different timescales and levels of detail.
This is a much more intuitive way to model value-creating activities between groups of people, and we will see that this perspective complements process-oriented perspectives, such as value streams.
While process-oriented mapping techniques such as value stream mapping provide valuable insights into the flow of work, they can be much more powerful when augmented with value network analysis's perspective for how the work creates value.
Each perspective sheds insights on and enhances the other. Both are useful, but together, they can provide some unique insights. Processes emerge naturally from value network analysis. While process models are also often augmented to describe interactions between actors, they are not the model's primary focus.
In this sense, Value Networks and value delivery modeling are highly relevant to many vital ideas currently at the forefront of software product development, including Value Stream Management, DevOps, and Team Topologies.
Why does this matter?
Value networks let us model and reason about the flow of value in a business ecosystem by capturing the collaborations that generate this value.
VDML enables us to represent these networks at varying levels of detail through a structured ontology.
We can analyze the value exchanges between business participants at higher abstraction levels. At more granular levels, we can focus on the flow of activities, deliverables, and interactions that support these collaborations, all represented uniformly by roles, transactions, and deliverables.
We began this season by exploring queueing theory as a paradigm for reasoning about the temporal dynamics of the flow of work. When we return to this topic, one fundamental connection we’ll make is how queuing network models, derived from value network representations at different levels of detail, enable formal reasoning about both the temporal dynamics of the flow of work and the flow of value.
Value networks are also a robust foundation for building other simulation models, including system dynamics models and agent-based simulations of value-creating ecosystems.
System dynamics models help us understand the network's feedback loops, delays, and accumulations, providing insights into how value creation processes evolve.
Agent-based simulations take this further by modeling the behaviors and interactions of individual agents within the network. They allow us to explore emergent behaviors, adaptive strategies, and the impact of local decisions on the broader ecosystem.
Together, these models enable us to simulate and analyze value networks' complex, dynamic nature, starting with a uniform way of representing value networks.
In the next episode, we will explore Value Network modeling further with a detailed example of a software product business.
AssetManagerPro is a SaaS product that helps commercial property owners manage small to mid-sized real estate portfolios.
The value proposition:
“AssetManagerPro empowers small to mid-size commercial property owners and asset managers with an all-in-one platform that simplifies both financial management and operational logistics with a user-friendly, scalable solution tailored to your specific needs, providing real-time insights into rental income, property metrics, and maintenance workflows—all in one place, at a cost that fits your budget.”
Stay tuned as we model the Value Network for AssetManagerPro.
Nice article Krishna! We worked a lot with Verna, and others, during the days of VDML development. It is a very good idea to use VDML as foundation for value stream management and transformation in software development.
Great article. Is there a difference between Value Drivers, Value Streams (concepts we use in process engineering), and Value Mapping? We are connecting systems in an enterprise using what we call a Digital Twine to enable blueprint of initiatives, process flow and operational management. Would this be a value mapping exercise?