Value networks: what are they?

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Value networks are social or technical resources that companies use to improve operations. External networks include customers, competitors, and government agencies, while internal networks are company departments. Information technology creates tangible and intangible benefits in value networks.

Value networks represent social or technical resources that companies can use to improve their operations. Today’s business environment abounds with value networks as technology continues to augment a company’s knowledge or intangibles. Networks are either external or internal, although both networks can be present in a company. Companies often take advantage of these tools to gain a competitive advantage in order to increase market share or improve the goods and services offered to consumers.

External value networks are those that include customers, other companies, shareholders, or other agencies that may affect the company. The information obtained from these groups allows the company to receive feedback on performance and change operations accordingly. Certain groups, such as other businesses and government agencies, can help provide insight in terms of changes in the business environment. For example, competitors who change products or enter new markets will signal that other markets or market segments have profit potential. Government agencies will tend to send signals about a change in monetary or fiscal policy that can greatly affect the way the company does business.

Internal value networks are the divisions or departments that make up the entire company. Customer service, order fulfillment, accounting, production, or human resources are among the networks often found within a company. The knowledge and intangible benefits gained from internal networks and communication ensure that all employees add value to the company. Owners and managers will often look to break down the barriers that exist in value networks to help increase the flow of communication throughout the business. Divisions or departments that do not pass information through the company can hinder another part of the company and ultimately create a decrease in overall company value.

Information technology creates tangible and intangible benefits in value networks. Tangible benefits come from the equipment or software that a business uses with the network. Many companies will create a unique hardware system for their operating environment that gives them core competency that is not easily created and used by another company. This internal value is doubled when the company uses a software program or system created by the company’s employees. While this can create strong competition, it can have the downside of linking to external value networks. Outside companies may use networks that have an operating system that is incompatible with other systems. This results in a disadvantage of using specialized hardware or software for the network.

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