As more and more people talk about the value fabric and begin to use it to represent digital ecosystems, a question often arises: What are the similarities and differences between the value chain and the value fabric?
A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The concept comes from business management and was first described and popularized by Michael Porter in his 1985 bestseller, Competitive Advantage: Creating and Sustaining Superior Performance. In the value chain, inbound logistics, operations, outbound logistics, marketing, sales and service are categorized as primary activities. Secondary activities include procurement, human resource management, technological development and infrastructure.
A value fabric is a mesh of interwoven, cooperating organizations and individuals collectively called parties. The value fabric shows the interaction among collaborating parties.
A value fabric is a mesh of interwoven, cooperating organizations and individuals collectively called parties. The value fabric shows the interaction among collaborating parties. Some parties engaged in a value fabric deliver value directly to their customers and assure that the value continues to meet their customer expectations. Other parties deliver and assure value indirectly. Customers also play a role in the value fabric.
Here is an example of a fabric that shows a cloud broker and its interactions with other parties engaged in the fabric. The arcs and their labels represent key points of interaction among the parties.
A value fabric is more like a value system than a value chain. A value system, or an industry value chain, includes the suppliers that provide the inputs necessary to the firm along with their value chains. After the firm creates products/services, they pass through the value chains of distributors (which also have their own value chains), all the way to the customers. All parts of these chains are included in the value system.
Both the value chain and the value fabric:
- Can be used by any industry. Although the value system was originally envisioned for products, or tangible goods, such as those offered by the manufacturing industry, it has also been adapted for the service, or intangible goods, industry.
- Involve collaborating parties.
- Focus on value of products/services offered to the market.
- Involve the customer.
- Contain a set of underlying activities and information.
Value fabrics represent the next step in the evolution of the value chain/system required in order to more fully accommodate the way enterprises conduct business in today’s digital world.
- Collaboration versus chaining
Even though the value system resembles a mesh or network, the linkage appears visually to be sequential. In today’s digital world, and in the world of the 1990s when value system first came on the scene, sequential collaborations among parties are viewed as out of date. Straight lines imply a sequence, and often imply a single collaboration, while arcs imply a more involved, closer collaboration that is not sequential and often involves multiple parties.
More importance is placed on value threads/streams (a group of inter-related activities) in which parties, including the customer, engaged in the fabric participate. This is quite different when compared to the concept of an implied chain of value activities in the value system.
- Definition of value
The value system places a high importance on the value of the product/service being offered to the market by an enterprise. The value fabric expands this to include value added by other parties, value delivered to the customer and value provided directly to customers by other parties engaged in the fabric, as well as value continuing to be realized by the customer.
- Increased focus on the customer
Unlike in the value system the customer can/does play an integral role in the fabric. They are directly involved with value threads/streams which are woven into the fabric by carrying out activities within the threads not traditionally performed by them. These include configuring their own products/services, assisting in the diagnosis of problems associated with them, and monitoring the status of their service level agreements with an enterprise.
Underlying the fabric is a set of processes and the associated information that manages the entire lifecycle of a customer. It also includes metrics that measure how well an enterprise is delivering value to the customer. This is all part of managing the customer experience, which includes best practices on how to do so.
- Use of standardized frameworks
The value system references a Value Reference Model (VRM), developed by the trade consortium Value Chain Group, that offers a proprietary information model for value chain management, encompassing the process domains of product development, customer relations and supply networks. It includes an integrated process framework that guides the modeling, design and measurement of business performance by uniquely encompassing the planning, government and execution requirements for the design, product and customer aspects of business.
While proprietary models are a step in the right direction, standard, industry-wide and agnostic models are preferred, such as those provided by TM Forum. The models should also be accompanied by an application framework, an integration (interface) framework, and a metrics framework, as well as best practice guidance, such as how to enter into service level agreements with multiple parties. All of this, provided by TM Forum Frameworx, enables an enterprise to conduct business in the digital world.
- The digital bridge
Key to making the most of the value fabric is the ability for all the parties to effectively collaborate in delivering value to the customer. The digital bridge is a pathway among engaged parties that simplifies partnering, integration and end-to-end management of digital services or any service. It provides a common language, business processes, information, KPIs and application programming interfaces (APIs) for successful digital partnerships. All collaborations among engaged parties are facilitated using the digital bridge, and this is where standardized frameworks — such as TM Forum Frameworx, with its component frameworks (process, information, application, integration), open digital service interfaces, and best practices, including service level agreement KPIs — provide important capabilities that support the collaboration.
Until next time…
You might also like: