This is a second part to my Blog on the difference between cost and value, in the first part I was arguing that in fact Business and IT has moved beyond arguments on ‘alignment’, and in fact is now totally converged. The converged situation presents the opportunity to rethink the entire design of processes in a radical manner. We can now abandon the current designs which were established in a paper age, and then computerised as a method of cutting operating cost. The value element comes from turning the process around to focus on how to create extra revenues in the market place.
This leads neatly to the title of this piece and to the work on Value Networks, definable as ecosystems that create value through the improved abilities of individuals and organisations to work together. Value Networks are in themselves a good example of a totally converged business and technology model as they are being developed by a mixture of Business with Business Schools and Technology vendors with Implementers.
The classic definition on product value and cost seems to be clear though a more thoughtful comment moving to focus on value comes from the 37Signals blog.This is closer to what I really want to consider in depth in our new converged Business and Technology world. Something I started to do in my recent Blog on RadioHead giving away their new CD on line, though actually they didn’t give it away, they asked people to pay what they thought it was worth i.e. its value to them. A few gave derisory sums, most paid near to what they would have expected to pay for a download, or even a conventional CD ordered online, some paid more. But did they pay what the music was worth in terms of its value, or what it cost?
I think their reference point was in fact based on what the music as a product is seen to cost as a CD, and that is largely a cost recovery charge. It’s the payment for the resources necessary to have promoted the awareness of the existence of the product so you knew it was available to buy; the cost of the factory to produce the CD; and the cost of distribution. Add in the costs on the shop to stock to support this and still more cost recovery starts to emerge too. So did you want a CD, or did you want to listen to the music?
Then there is the ‘Green’ side to all of this in terms of the amount of energy, and resources used to produce and transport this unwelcome ‘product’, plus the disposal of the packing etc. The real value was to listen to a piece of music, and in a digital economy that’s pretty inexpensive, and fairly ‘green’, or put another way; good value.
My contention is that the rise of the technology literate generation with changes in their behaviour, together with increasing pressures for sustainable ‘green’ initiatives will all make for some serious rethinking of what is the product, and what constitutes the ‘value’ to the buyer, rather than the cost recovery element of the productisation for distribution. If we do get an economic slowdown in the coming couple of years this could well be the trigger for this to happen pretty fast as price constraints start to bite.
And where do Value Networks fit into this? Right now all enterprises use networks built to support the physical cost recovery products, whereas the need will be to find new partnerships based on the digital value model. Having your product stocked by a big retailing group with many geographically distributed outlets may give way to distribution via digital partners who can create awareness, support transactions, and virtual distribution.
Awareness’ is another way of saying social networking where information circulates in communities fast, leading to social tagging that might see your product as a YouTube hit, then we have the online transaction provider before we complete the circle by building a new social group committed to your product. Maybe the two big CRM providers; Oracle and had a plan in mind when they joined the Open Social standard for applications inside Social Networks? And maybe this explains the very high price tags on buying into Social Networks that we have seen.