The thoughts below are based on a paper by people at the Norwegian Business School (Stabell and Fjeldstad). They noted that The Value Chain is not the only – or best- description of Value Creation. They introduced two others; the Value Shop, Value Club (also known as Value Network). All three are described below.
Value Chain
The Porter Value Chain is well known. Primary processes create value by transforming low value raw materials into high-value finished goods. Secondary processes (eg Finance, HR etc) keep the show on the road in the back office.
Stabell and Fjeldstad tried to apply the Porter Value Chain to a bank and found it not to be a good fit. For example, they tried to see depositors as providing raw materials and borrowers as the high-value finished goods. It broke down in many ways – one being that a classic way to improve a value chain is to pressurise the suppliers. Not a good strategy if these are your customers.
The Value Chain is still a great model for many kinds of business (eg manufacturing, or oil industry refining and marketing). The tell-tale sign of a Value Chain configuration is the existence of a market place for intermediate products – so that for each “link” in the chain, there is a choice whether to consume from/ sell to an internal party or an external party.
The Norwegians devised two other “Value Configurations”. The Value Shop (American use of term “shop”, as in, I take my car to the [work]shop to be fixed”) and the Value Club. Note – the Value Club was originally called the Value Network but as we were working with Telecommunications companies, the use of the term network this became too confusing).
Value Shop
A value shop solves problems or exploits opportunities. This includes any kind of consultancy but also medical diagnosis, oil exploration etc. The core process is Matching and Mobilising: Identifying the client need, matching it to the supplier capability, then mobilising the team to solve the problem (or exploit the opportunity).
Supporting processes involve harvesting knowledge and assets from previous engagements, increasing the capability of staff and better engagement with clients.
Value Club
This is perhaps the most abstract and involves selling customers to each other. In other words, mediating between customers. A Value Club does not have suppliers in its primary value creating processes – just different kinds of customers. Classic Value Clubs are any kind of marketplace and any large, capital-intensive shared infrastructure (airport, telephone system). Newer types of Value Club include all the double-sided platform businesses such as peer-to-peer lending, Uber, AirBnB etc.
Each of the Value Configurations has a different set of key questions to address regarding its profitability.
Questions for a Value Chain:
- How can we find the customers to whom our product will appeal?
- How can we refine the product to better fit the customers’ needs?
- How can we reconfigure the flow of work to be more efficient?
- Are we performing each step in the chain as efficiently as the marketplace?
- How can we make the chain as a whole more responsive to perturbations in supply or demand?
- How can we control the chain upstream and downstream from our own operations?
- Do we need to own all the parts of the chain?
- How can we efficiently and effectively interface our chain to the customer?
- How can we link our chain to new customer interfaces, or vice versa?
Questions for a Value Shop
- What is the opportunity and how can we exploit it?
- What is the value of this opportunity?
- What resources do we need and how can we mobilise them?
- What is the profitability of this opportunity?
- What knowledge do we have of this type of problem and how can we better leverage that knowledge?
- How can we achieve rigorous project management in a dynamic environment?
- How do we integrate external resources in a way that is invisible to the customer?
- What is the outcome for the customer?
- What can we learn from this opportunity and use for the next?
(This list should be very familiar to any consulting organisation)
Questions for a Value Club
- Who do we need to bring into the club (and kick out) to enhance its value?
- Who are good users of the club and how can we encourage them to use the network more?
- Who can we sell excess capacity on our club infrastructure to, without alienating other customers?
- How do we maintain our value as a club, as we are increasingly interfaced to generic industry “clubs”?
- How can we strike the right balance between pay-per-transaction and subscriptions?
- How can we identify new opportunities for value-added exchanges between our customers?
- What services can our club provide and what other clubs can we ride our services on?
Value Propositions[1]
The value Propositions of each are different too. For a Value Chain, cost is typically king. For a Value Shop, competition is generally on reputation (ability to solve the problem). “Honey, I found you the cheapest cardiologist in town” is not what your beloved wants to hear.
For a Value Club, it’s often about who the other members are. If you are a driver with 20 years no claims bonus you may be wary of pooling risk in a company that specializes in insuring young drivers with convictions for speeding.
The diagram below summarises the Value Configurations:
Table: The different Value Configurations have particular characteristics
| Value CHAIN | Value SHOP | Value CLUB | |
| Key Capabilities | Make, Move, Market | Match , Mobilise | Mediate, Multiply |
| Result | Product | Outcome | Connection |
| Typical Pricing | Cost | Value | Rights |
| Source of new value | Optimisation | Knowledge | Clusters |
| Key Question | How? | What? | Who? |
Heritage: Stabell & Fjeldstad paper on Value Configurations: https://onlinelibrary.wiley.com/doi/10.1002/%28SICI%291097-0266%28199805%2919%3A5%3C413%3A%3AAID-SMJ946%3E3.0.CO%3B2-C.
The ideas were developed and adapted with CSC Index Research and Advisory Services.
[1] See Value Proposition chapter for discussion of meaning and alternative interpretations of the term