Reassembling the Value Network for Business Model Innovation

A company never creates value in isolation. There are always other companies involved in some way to realising and delivering the final product for the customer. Such value chains of companies optimise connections on their complementary capabilities, which enables each to focus on what they’re good at.

The composition of a car is a good example here. Car manufacturers design, and assemble cars under their own brand. But all the parts required for assembly come from different suppliers (for pistons, suspension, braking technology, seat manufacturing, etc), and distribution & sales of the car to the final customer is done through networks of car dealers.

Value chain analysis is great for supporting business as usual. However, when you need to shift your business to a seemingly similar, adjacent customer segment (as is often case in today’s turbulent business environments), the value chain’s usefulness breaks down. The solution lies in framing partnership relations in a different way, as I’ll explain in this article.

The Functional Value Chain
Value chain analysis is a great way to understand production systems. You sketch out the value chain for the product from its origin to the end consumer. The value chain shows the companies involved in value creation, and the sequence in which value creation is achieved.

Portable Network Graphics image-A155CC32B15A-1

The linkages in the value chain can be used to describe the relation between each company in that chain. The value chain is a great tool to examine how and where value is created, and where the risks in the production system reside.

The Disfunctional Value Chain
The value chain approach works well for analysing very formalised, industrial production systems with a clear hierarchy in the organisation of production. But the knowledge that comes from analysing the value chain gives an elusive sense of control about the ability to actually change a production system.

The instant you want to focus on a different customer segment, or change your value chain, because a partner role is not contributing value (or has become obsolete) you start sensing the illusion. Change takes more than replacing some of the mechanics in a sequential production system.

When changing your company, and changing the value chain with it, you see that in reality you are part of a complex, highly interdependent, nested production network, that is designed to drive value creation towards a very narrow purpose.

Portable Network Graphics image-7D4D416D17AC-1

Attempts to focus on a customer segment outside of the scope of that system flushes up restrictive dependencies, and the configuration’s immune system will have you ousted, rather than change with you. You’re on your own!

This is what Unilever experienced with the recent hostile take-over bid from competitor Kraft. Though Unilever, and its customers are on a change route to sustainable consumption, shareholders remain with their demand of maximising shareholder value. The Kraft bid showed how Unilever has set each foot in a different value network, and that this inconsistency can painfully split a company.

Changing Partner Relations
Professor Tim Kastelle said it well:

“not only do our end users have to prefer our idea, but we also have to get others within the value network to stop using [and supporting] our competitors”.

In order to change your business model to serve a different customer segment, you need to draw in partners involved in other value networks, and lure them to investing resources into yours.

To achieve this, the perspective on partnership relations needs to shift from that of value chain efficiency, and scale, to that of value network discovery, and growth. This entails that partnership relations shift from tweaking business model efficiency, to a joint search for creating, delivering, and capturing new value.

This shift can be seen in Amazon’s partnership with an air freighter. It’s not that existing value chain partners like UPS, and Fedex aren’t able to work to the particular requirements  of Amazon’s operations. It’s more so that Amazon’s B2C customer segment is adjacent to UPS, and Fedex’s existing core B2B customers. They have different demands regarding delivery rhythms, volumes, and shipping rates than Amazon’s customers.

The Business Model, and Partnership Canvas: Tools that change Perspective
The objective is to define the logic of tying 2 business models together in an exercise of joint value creation. Search is required to figure out how you can collaborate in such a way that both your, and your partner’s business benefit from this new value.

Portable Network Graphics image-9081F2A86F28-1

Partnership Design, which is based on Alexander Osterwalder’s Business Model Canvas, and my  Partnership Canvas, provides a way for achieving this. Partnership Design frames partnering as a business model innovation challenge. It brings focus to value inputs that partners can respectively bring to the table to jointly create a new form of value for delighting customers.

Portable Network Graphics image-CC18E0BF978A-1

By focussing on the potential of synergy between value offered, and value desired from each partner, discussions on relationships are framed around the merit of their creative potential. It allows thinking to escape the trap of conventions of efficiency in partnership relations, and upfront disqualification of new linkages due to differences in company size, market power, and assumptions about where industry boundaries lie.

Portable Network Graphics image-2C44EE45E233-1

By looking at your partners one-by-one, you can start to gradually reassemble your value network, around a new customer segment.

The Business Model, and Partnership Canvas help teams to quickly flesh out key hypotheses. These need to be tested to verify whether the new relationship will add value to both their partner’s, and their own business model at the same time.

Continue the exercise for all the partners that you’ll need to build the value network, and watch the ripple effects change an industry!


Interested to learn how you can reinvent your industry through partnerships?
Check out our upcoming Partnership Design Masterclasses

Join the Partnership Design Linkedin group for support

Or contact me for specific questions.

What happens when product, and business development people join the same squad?

Product development, and partnership teams are critical for business value creation, and growth. The product development team is key for improving a company’s offer to customers. This attracts more of them, and can also increase value from the lifetime of each customer relationship. Partnership teams aim to achieve company growth; They’re like a SWAT team that opens access for other companies’ resources, and exposes the product to new markets.

Product, and partnership teams usually operate separately. This separation seems logical. Each team focusses on what they’re good at: creating product value, and driving growth. But in this article I’ll show how the separation of functions drives a wedge into the overall business value creation process, and how collaboration needs to change to resolve it.

Product, and Partnership: Better when they’re together.
Instead of looking into ways for improving partnership, and product development teams to function separately, lets take a look at what would happen if we just put these people on the same team.

Product, and partnership teams in tandem, generate more value, than they would separately. A great example of a company that has achieved this is Nespresso. By combining Nespresso’s capabilities on (coffee) product marketing, with the coffee machine manufacturing partners’ capabilities of channel marketing for kitchen appliances, Nespresso achieves significantly more leverage from the partnership than they would from just outsourcing manufacturing.

Another example is Tesla’s (former) partnership with Toyota. By jointly working on developing electric vehicle parts, and electric car manufacturing systems, Tesla learned about mass-production of cars. This was key for launching their famous Model S. So, by not only focussing on combining technologies in the partnership, but also utilising that technology in a new way of production, the partnership actually took product development to a whole new level for Tesla.

These examples show how transgressing product, and partnership team boundaries, broadens the scope for new business value creation. Neither Nespresso, nor Tesla would be where they are today, if they wouldn’t have looked at product development and business growth in an integrative way.

From marriage to divorce…
In a fledgling company you see that the functions of product, and partnerships, are combined within the same, small group of people: the same team. Often the startup CEO takes on both product and business development roles. In this situation, it’s natural to align the functions of product, and partnerships, and make product value creation and growth efforts click.

But the moment the startup starts evolving into a real company, the product, and partnership functions will branch off into separate teams. And that is where the seamlessness of their alignment is lost.

The product team starts focussing on its own resources, and existing product development roadmap, rather than looking out for ways to leverage their work through partnering.

Partnership teams will tend to focus on the existing product and finding partners for that. They have to work with what’s on the shelf, because they’re usually not in a position to tailor the product to growth opportunities themselves.

The upshot is that both product, and partnership people each start tweaking their part of an existing business model. They gradually lose the ability to operate jointly, and invent new ones in a concerted, fundamental ways.

Re-uniting product and growth.
What can we do to put the power of product, and growth back together again?

Firstly, it comes down to a joint understanding between both teams about the process that is applied for product development. Product, and partnership teams need to jointly define, and have visibility on priorities, as well as on the big questions that need to be solved to bring the product forward.

Secondly, the product and partnership teams need to start jointly experimenting with growth opportunities for the product, and make those experiments part of the product development process. It’s not sufficient to start searching for growth once the product is done. The product will also likely need to adapt to the growth opportunities that arise.

Thirdly, product and partnership teams need to start operating in the same rhythm of iterations in product development. This means that partnership teams should be able to shift with changing priorities of the product. The other way around, product teams should also be able to adapt to shifts in opportunity on the partnership end.

To support these 3 points of alignment, visual tools like the business model, and partnership canvas are really helpful. These tools enable all participants to step in and create the alignment that is needed to search for repeatable, and scalable partnership opportunities, that sync with the direction that the product needs to take. Once product, and partnership are able to apply rapid joint framing of priorities, and decision making on what steps to take, then the business value creation process is mended. The company will operate in the mode that is once did as a startup.


Interested to learn how you can reinvent your industry through partnerships?
Check out our upcoming Partnership Design Masterclass in Amsterdam

Join the Partnership Design Linkedin group for support