What it means
The method starts with a diagram. Each participant is drawn as a node, and each exchange is drawn as an arrow, labelled as either tangible (goods, services, payments) or intangible (knowledge, trust, access, goodwill).
Once the map exists, the analyst asks what each party gives and receives. Gaps and imbalances show up quickly, such as a party that supplies a great deal of expertise but receives little in return.
These are the places where relationships tend to break down. Estimating dollar values for the exchanges is the step that makes the analysis useful to finance teams.
Tangible flows can be taken from the accounts, while intangible flows need judgement, such as the avoided cost of finding the same information elsewhere. The output is a set of decisions.
A company may start charging for a service that it has been giving away, strengthen a relationship that proves critical, or end an exchange that costs more than it returns. The main caution is that the intangible estimates are subjective and can be argued either way.
They should be shown as ranges, tested with the people involved, and used to prompt discussion rather than treated as audited figures. A second use is in mergers and partnerships.
Before buying a company, an acquirer can map its network to see which relationships carry the value and are at risk of walking away after the deal closes.
In practice
Real-world examples.
Example
A software firm maps its network of developers, resellers and customers. It finds that resellers provide a large amount of free customer support. The firm decides to pay a small support fee to keep that goodwill, since replacing the free support would cost far more.
Example
A hospital group with twelve sites maps exchanges with its suppliers and research partners. Analysis reveals that one supplier gives free staff training worth far more than the price premium it charges. The group keeps the supplier despite a cheaper rival quote, because the saving on price would not replace the training.
Example
A farming cooperative maps the flows between growers, a processor and supermarkets. The map shows that growers give away detailed quality data that the processor uses to win premium contracts. The growers negotiate a share of the premium, which turns a one-way flow into a fair exchange.
Formula
Calculation
Net intangible position = Intangible value received - Intangible value given
A packaging company sits between a supplier and a retailer. The tangible flows, materials for payment and goods for payment, balance out. The intangible flows, estimated in dollars, are as follows. It receives sales insight from the retailer worth $20,000 and priority delivery from the supplier worth $10,000, so received = 20,000 + 10,000 = $30,000. It gives display training to the retailer worth $50,000 and demand forecasts to the supplier worth $30,000, so given = 50,000 + 30,000 = $80,000. Net intangible position = 30,000 - 80,000 = minus $50,000, which means the company gives away $50,000 more of value than it gets back.Case study
Seen in the real world.
This illustrative story involves a fictional company, Northgate Cycles, which sells electric bikes through independent shops. The finance director wanted to understand why the shops were loyal despite thin margins on Northgate's products.
A value network analysis found that the company provided free technician training and shared its customer data with the shops, which the shops valued at about $60,000 a year in total. In return the shops gave Northgate repair feedback and local marketing that Northgate valued at about $90,000.
The imbalance was in Northgate's favour, which suggested the shops were generous partners. Management decided to protect the relationship by introducing a small rebate and keeping the training free. The numbers are fictional, but the approach shows how mapping makes hidden exchanges visible. Without it, Northgate might have cut the free training to save money and lost its most loyal partners.
Watch out
Common mistakes.
- Mapping only the exchanges that involve money. Much of the worth in a network is intangible, and ignoring it gives a false picture.
- Presenting estimated dollar values as precise facts. Intangible values are judgements and should be shown as ranges and discussed openly.
- Doing the analysis once and filing it away. Networks change as partners join and leave, so the map should be refreshed.
Questions
People also ask.
What do I need to start?
A list of the parties you deal with, the main things each gives and receives, and a rough dollar estimate for each flow, which you can refine after talking to the people involved.
Is this a formal accounting method?
No, it is a management technique, and the results do not appear in the financial statements.
How is it different from stakeholder analysis?
Stakeholder analysis ranks who matters and why, while value network analysis traces what flows between them and what it is worth.
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