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A Non-value-add Critique Of The Value Chain Concept
By Charles Betz
Expert Author
Article Date: 2007-02-12
Recently I've become aware of a value chain critique called "value network." As stated on Wikipedia,
"The value networks model challenges the traditional notion of a value chain. Historically we have been in an industrial age, focused on a linear value model, and have recently begun to switch to a new business style in which there are a web of different resources that work together to create value."
For reasons that will become clear to all of you soon enough, I need to get on the record here. The value network concept adds no value to Porter's classic value chain, and, by obscuring the all-important distinction between primary and supporting processes, actually does harm. In fact, it appears to be a reaction to a caricature of Porter, not a fair reading.
I have Porter's seminal Competitive Advantage here on my desk. In his discussion of the value chain, in no place does he state that each step of the value chain is always sourced by one player, nor does he insist that the value chain be restricted to one firm. In fact, he is clear that the issue is complex, and that firms may achieve their value chain by increasing their scope or by partnering with others.
His key insight is that - regardless of sourcing - value is derived from a logical sequence of activities. Supplier sourcing precedes manufacturing, which precedes distribution, and so on. The fact that any one of these sub-processes may have one to many parties fulfilling them is not relevant. That is an implementation issue.
What attracted me to the Value Chain concept is the distinction between primary and supporting processes. We struggle with this mightily in enterprise IT: architects versus developers; security staff versus operations. A conceptual framework to help us manage these contradictions is essential, and the Value Chain is the most useful I've seen: it's concise, accurate, and business people relate to it (because most of them have seen it in their MBA programs).
To summarize, a Value Network is an instantiation of a Value Chain. They are not contradictory. Posing the Value Network as an "improvement" on the concept of Value Chain indicates a lack of understanding of the concept of abstraction, and ultimately is a naive critique. Value Chains are abstractions of Value Networks. They are how we understand and analyze Value Networks. To lose the abstraction is to dive back down into the muddy details that the Value Chain theory has started to help us clarify.
It is inevitable, of course, that an academic of the stature of Michael Porter should have attracted his critics. That is the nature of academia.
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About the Author:
Charles Betz is a Senior Enterprise Architect, and chief architect for IT
Service Management strategy for a US-based Fortune 50 enterprise. He is author of the forthcoming Architecture and Patterns for IT Service
Management, Resource Planning, and Governance: Making Shoes for the Cobbler's Children (Morgan Kaufman/Elsevier, 2006, ISBN 0123705932). He is the sole author of the popular www.erp4it.com weblog.
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