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Do you Value Chain or do you Value Network?

The 4th Business Model Revolution

2b1stDo you value chain or do you value network? Is this wording game that important?

We believe it just summarizes the gap between the conventional economy and the new one leading to the 4th industrial business model revolution.

Over the last decade, we have seen the emergence of new business models with Google, Apple, Facebook, Amazon, Microsoft, the so-called GAFAM, disrupting all economies and industries.

Innovation and technologies are the first reasons to explain how these companies became disruptive and successful in inventing new business models.

Unfortunately, this explanation falls short to help conventional industry to reinvent itself and implement its digital transition in efficient manner. GE and many other famous brands illustrate currently the dimension of this challenge.

Business Model for Systemic Innovation

If innovation triggers the creation of start-ups, the survival or expansion of these newly born companies depends on their capability to remain innovative to preserve their competitive advantage.

In the same way as the conventional companies, maturing start-ups need to adopt a business model which favors systemic innovation, otherwise they would disappear.

In 2012, our company, 2B1st Consulting, was started up to bridge two worlds, the energy sector, which may be considered among the most conventional industries, with the information technologies to develop the most advanced digital solutions to help companies to play proactive and collaborative.

From this unique position, we could realize how the success of the digital economy against the conventional one relies on the:

  • Business model before the technology
  • Value network organization against the conventional value chain

One business model favors the detection and implementation of innovation, while the other prevents it, that’s where we see the value of the fourth industrial business model revolution.

Value _Chain_vs_Value_Network

First Business Model for Mass Production

If we look back one century ago, the first business model of the industry, see Ford T example, was pretty simple whereas all activities were undertaken under the same roof.

In such configuration, innovation could pop up at any point of the process and be implemented instantly, it could be in the products or in the manufacturing line.

At that time, innovation and production were going in parallel, speeding up innovation monetization.

Second Business Model with “Just-in-Time”

In the 1960s, Toyota introduced genuinely the second revolution of industry business model with the “Kanban”.

In Japanese language “Kanban” means “Ticket” by reference to the ticket used to organize the production on “Just-in-time” basis.

This “Just-in-time” concept had the virtue to establish a 1-to-1 internal supplier-customer relationship along the production flow cutting the intermediary stocks, space, times and costs.

Monitoring the costs at each step of the production process, the value chain was born.

Third Business Model with Global Outsourcing

In the 1980s, the industry made a third step in the industrial business model revolution in combining outsourcing and globalization.

The consequence was to stretch the value chain around the world, ending most of the time somewhere in China.

If this externalization of most of the value chain had a big impact to kill the costs, it again diluted the value creation, thus preventing innovation.

In this endless value chain configuration, it becomes nearly impossible to detect potential innovation, especially at the low end of the chain.

In addition, implementation costs are as high as the chain is long. In this context, few innovations have a chance to materialize. But if it does, that’s where it becomes disruptive and may hurt all the players involved in the same value chain.

Here we can see how industrial business models relying on value chain are reaching the end of a cycle.

Fourth Business Model with GAFAM Value Network

Instead, we can observe that the GAFAM do not have a value chain, but run a business model based on a value network.

The strength of this value network is to enable companies to detect new technologies, new solutions, new ideas and to implement them shortly.

Through “generous” incubators and business angel initiatives, GAFAM maintain an active knowledge network to detect emerging technologies and adapt their value network constantly to adopt and monetize innovation on fast track, what a value chain model can’t allow.

Critical Networks for Digital Transition

In conclusion, innovations and technologies are needed for companies to feed their digital transition and maintain their competitive advantage, but it’s not sufficient.

At the image of fourth industrial business model revolution introduced by the GAFAM, the digital transition requires the combination of two factors:

  1. Develop a dynamic knowledge network to capture innovation in and out the conventional value chain.
  2. Convert the value chain business model into value network organization to facilitate innovation implementation and monetization.

Digital Solutions to Create Value on Collaborative Mode

In practice, the digital transition means to replace the conventional 1-to-1 supplier-customer relationship from the value chain era by a collaborative mode of co-working in a value network business model.

To be more specific, the large companies will consider the key players of their value chain no longer as suppliers or customers but as partners.

Standing at the same level in the so-build value network, these partners are then able to innovate and create value on collaborative mode.

In counter-part these partners must accept to share intellectual property and corresponding value creation in one way or another.

In conclusion, the fourth industrial business model revolution leaves two alternatives to the conventional economy, either to go collaborative on value network and true partnerships or die “Just-in-Time” at the head of a value chain.

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