Verna Allee has more than twenty years of deep experience in value networks, intangibles, knowledge management, intellectual capital, and new business models, Verna has been a trusted advisor to more than 100 Fortune 1000 companies, government agencies, civil society organizations, and startups, focusing the power of intangible value for increased 
efficiency and competitive advantage.
She began her management career in the late 1970s as co-founder of a networked sign manufacturing company. Frustrated by organizational complexity in her early corporate experiences, she organized a new company as a value network – a radical idea at the time. Within five years, the company was handling large installations from Alaska to Florida. Determined to carry her insights into global companies, and drawing on consulting experience in the early 1990s, Verna developed the ValueNet Works® methodology, a cornerstone in the field that intersects business process and human networks. Verna Allee is the author of three books and more than 50 industry articles and papers on value networks and knowledge management and is a popular keynote speaker at business conferences around the world. She can be found at ValueNetworks.com.
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Related Podcast: What’s behind Collaboration and Value Networks?
Transcription of Podcast
Joe Dager: Welcome everyone. This is Joe Dager, the host of the Business901 podcast. With me, today is Verna Allee. Verna has more than 20 years of deep experience in value networks, intangibles, knowledge management, and new business models. She is also cofounder and CEO of Value Networks. Gartner named ValueNetworks.com is a cool vendor in 2009 and to start this podcast off, Verna, could you explain to me what is a cool vendor?
Verna Allee: Those are vendors that Gartner sees as up and coming vendors or up and coming technologies that are trending towards where they believe the future is going to lie.
Joe: How did you get started in knowledge management and knowledge networks? Did you always want to be a knowledge management expert?
Verna: Actually, I had two passions. One was understanding how businesses went together, how the whole thing works, and the other passion was intelligence and particularly collective intelligence. How, we understand something one way, learn something different, and begin to see the world differently.
So my advanced degree is actually in the study of human consciousness with a specialization in organizational leadership.
I was attracted to organizational development because I thought they addressed those questions and, much to my surprise I found that, for the most part, they didn’t. There was an awful lot about group behaviors back in the days of vision, mission, getting people sort of on the same page, but no one was really asking the kinds of questions that I was interested in, and then I discovered a few people were.
There was a community of practice that started with the question not of knowledge management, but they started with the really intriguing question of how is value really created. These were a group of people that were focusing on the very new concepts in the 1990’s of intangibles and intellectual capital and from that business foundation they said, “Oh, what we really need to pay attention to in order to be successful and create value and grow our intangible assets is the way people create and share knowledge.”
A lot of people in the KM field didn’t really catch that part of the equation that the reason to focus on knowledge is not for knowledge’s sake, but to create value within the company and for others, such as customers and stakeholders.
So that’s how I moved into KM. It wasn’t just KM. In fact, I’ve never actually called myself a knowledge management consultant. I just think I help people do business better, and knowledge is one of those questions, along with intangibles and relationships and processes, that we need to pay attention to.
Joe: You wrote several books on knowledge management?
Verna: Yes. One of the early books out, when I was writing the “Knowledge Evolution” in 1996, there were only about three other books that were of interest and relevant. One was Nonaka and Takeuchi’s book on “The Knowledge Creating Company”, one was Dorothy Leonard’s book on the “Wellsprings of Knowledge”, and the great Peter Drucker’s “Post?Capitalist Society” and other than that in 1996 there were less than a 100 articles anywhere in the business press on the topics of knowledge in organization, intangibles, intellectual capital, any of that. There was virtually nothing, even in the psychology literature, on group intelligence or collective intelligence.
Joe: Knowledge management seemed to be a pretty big buzz word in the late ’90s and maybe the early part of 2000?2003, in that range, but it seemed that it’s died out a little bit. Has it or has it just involved in different words or is it still alive and well?
Verna: It’s still alive and well, but it’s gone mainstream. Usually when something is a big buzzword and really hot topic it’s new, and you’re trying to get people to understand what the issue is and that was what the work was in the 1990’s.
Knowledge? What are you talking about? Knowledge management? Why should I care about that? But it became obvious so quickly that this really is a critical aspect of how business works that it really has gone mainstream.
You don’t necessarily find any more knowledge management departments or rather knowledge officers. The work of KM has really become everybody’s work, so you find parts of it in IT, parts of it in HR. Some aspect of knowledge management has more or less become foundational for any good management team.
Joe: So have we gotten better at it then?
Verna: Now that’s…
Joe: I read a statement one time that only 20 percent of the knowledge is actually captured within a company.
Verna: Now why would you want any more than that? I mean really. I look back at what my office looked like 10 years ago and I had huge file cabinets full of documents and articles that I would save and I still have the same cabinets, but I’m selling them back to the office company, the office furniture people, because they’re empty.
We don’t have to store things nearly as much as we think we do. We can get our hands on things more easily electronically, but I think the evolution has been that we’ve actually let go of what I think of the busy work of KM, which is just trying to collect things.
I mean when people talk about capturing all the knowledge in an organization that makes me feel tired. You know, that feels like work and what we’ve come to appreciate is that most of the knowledge that we really need travels human to human, that we do need to access documents and information, absolutely, but when it comes to knowledge work, knowledge work is really largely executed through conversations and through search.
And those we have gotten much, much better at through the social media, through conscious conversation and methods such as knowledge cafes and conversation, and, of course, through the capacity for search. So I think we’ve gotten better. Yes, I really do. Now that I think about it I would say, “Yes, we’re doing what we need to do.”
Joe: I think that’s a great point because, the other side of that 20 percent is that 80 percent of the paperwork we would file we never use again.
Verna: That’s right. That’s why we have these little backup hard drives where we dump all of our files in case we ever need them again and how often do we? We’re constantly moving on to new knowledge. What we repurpose are things that we worked on within the last two to three years. We don’t repurpose materials, as a rule, that are older than that.
In many cases, obviously a company that relies on a lot of forms those forms might endure for a very long time, but they tend to be the materials that we have used or reused recently. We always go back to something we worked on, the slide deck that we used three months ago, not the one that we used five years ago.
Joe: A lot of that work seems to have evolved into Value Networks. Can you explain and give a little background on Value Networks for me?
Verna: Many, many years ago, in the early ’90’s, I was working two questions. I was working the knowledge question, and I was also working the business modeling question. The early ’90s were the heyday of process engineering when everybody was modeling the work as a business process, which is really a great approach, and it was a learning curve that we needed to get through. But if you think about process, process is basically the industrial age production line, right?
It’s linear, and it’s mechanistic. Even in the early ’90s people were starting to use computer technologies. Companies that I was working with, like Telecoms, were very large and complex. They had working groups; they had project teams, and work was more chaotic than process.
So I said, “Well, how can we model the work as a dynamic flow system, but still get some rigor behind that?” So I looked at virtually every modeling method that was out there from system dynamics to interrelationship diagraphs and context diagram and even object-oriented data analysis.
At that time I was helping companies through the benchmarking phase of very complex reengineering process, through the learning phase of that. The challenge we were running into was people were trying to compare business processes with industries that were very unlike their own.
So at a level of knowledge complexity, a flow chart is not a systems tool. It doesn’t help you understand the whole system; it helps you understand one process within that system. So I said how can I find a modeling approach that will allow us to model not just the processes, but their interrelationships and a whole lot more besides so that we can actually compare one system to another?
So I tinkered, and I experimented and I started using what is now Value Network mapping in its early stages to support benchmarking projects, to map the activity. I like to use the term activity now instead of process for a reason.
If you think of the term process and you visualize process in your mind people generally say I see an engineering type schematic, a drawing, a flow chart. If I use the term business activity, the image that pops in their mind is real people interacting. So can we model the real activity of people interacting in a way that also shows us how the processes are working? That’s how I developed the modeling method.
I realized that even though I was helping people do these maps to support benchmarking as a way to talk to another industry, people were getting dramatic breakthroughs.
One of my favorite stories is a very large Telecom trying to redesign all of technology support worldwide. This was a very high level team, and it was in still the early stages, both of my consulting work and this modeling method. These people came in from all over the world, corporate headquarters. It was a very big deal for me to get this opportunity.
So we’re doing this mapping to try to describe the activity in a general way to talk with other companies and all of a sudden the room goes dead quiet. You could hear a pin drop. And I look around at all these guys, and they were all men. This was still back before women were in the technology field so much. And they were all giving each other a look like, “Oh my gosh, do you see what I see?”
I said, “Well, what is it?” One of them finally walked to the map, and he pointed to one area in the network map and he said, “It’s right here.” This whole group of people is literally in the way. If they weren’t there, everything would run smoothly.
Nine months, we never saw this. We’ve used every process tool. We’ve flow charted, we’ve scatter?grammed; we fish bombed. Nine months and we never saw this.
I said, “Well, that sounds pretty serious because I knew at the level we were talking this group’s probably hundreds of people.” And he said, “It’s very serious. It’s us. It’s our own group.” What I didn’t realize is that was actually what they were looking for is that kind of breakthrough because they were facing a very, very serious reorganization. And they did it. They designed themselves right out of the job.
But I thought wow, this has such potential for helping people cut through complexity and deal with the real issues. But it was really early. It was in the early 1990’s, so I continued to work with it and experiment with it.
Then in 1997?98 I was working with Don Tapscott and his group showing them how to do this Value Network modeling, and we were very interested in knowledge flows. Knowledge management was a big topic. My new book “The Knowledge Evolution” in 1997 was one of the big best?sellers in that area.
So I got invited into this project, and I said wait a minute. I think I mapped knowledge plays, and I went back to this modeling and found that it worked not just for the formal transactions of the process interactions, but also to depict the way specific kinds of knowledge, information, and intangible run through the activity.
That’s where it really came together and then I started calling it Value Network analysis because I was able to link those knowledge flows into intangible asset management as the engine for creating value.
But what happened in that period was, it brought together the best that we understood about knowledge and knowledge flows and the importance of human to human knowledge. It brought together the process management and engineering concepts that were so critical for productivity. It brought together the intangible asset management and dynamic pull systems as a way to model all of this.
So I was very excited about it, but it was still too early as far as the market, so I didn’t start publishing about it until the early 2000. But that’s how it came together, and I see it as the trending. I saw the potential for it and now people are really starting to really gravitate towards it as the importance of value creating in networks is really coming to the forefront.
Joe: Is it something difficult to learn or for a company to start looking at things this way?
Verna: People can actually learn the basics of the value network modeling in about three hours and very quickly start mapping their own activities. The reason for this is the basic modeling elements are very simply. There’s only three.
The first is the node in the network. Nodes are roles. Real people who are executing roles, make decisions and initiate action. So how is a role different from a job title? A job title might be Technician Level Three, but the roles that you play on a daily basis can be many different roles. In one activity, you might be a project manager. In another role, you might be a designer. You might have a role as an expeditor in another activity. So this is what we capture in the activities. What is the role you play in this activity? And that’s a node.
So whenever we do something we activate those roles. I always like to use the example of people running down to the river when the river is flooding. They don’t sit down and draw up an organization chart, and they don’t do a process flow diagram. They pick roles.
I’ll be a shoveler, I’ll be a bag holder, I’ll be a traffic controller, I’ll be a food provider, and they very quickly negotiate how they’re going to work together from that role perspective.
So from the role perspective, what we have is the second element of what do we provide to each other, and we call that the deliverable. So what do I deliver to you and what do you deliver to me? We diagram those with the third element, which is a directional arrow.
So we have a node, which is a real person providing something and we show that it’s moving with the arrow and a little label on the arrow is what it is exactly.
So let’s get back to that issue of knowledge. If I told you, Joe, to deliver knowledge to our colleague Dave could you do that?
Joe: I could probably tell him something and give him some type of knowledge, I would hope.
Verna: There you go. So that knowledge is too big. If I asked you to tell our friend Dave how to get to your house, directions to your house, that you can do, correct?
Joe: Sure.
Verna: When we deliver knowledge to each other, it’s always very specific, whether we realize it or not. It can be a message. The form doesn’t matter. It can be physical, nonphysical. We can give them as directions by email, by telephone, by carrier pigeon, but the deliverable, our directions, is directions to your house.
When we model business activity we get into the very specific kinds of exchanges that are critical for success, and we define two types of exchanges. We call them tangible or intangible.
Tangibles are those things that are formal, contractual. If you don’t do, these somebody’s going to want their money back. The things you must do, the value that must be delivered. We also are modeling all of those intangibles or informal exchanges that really build relationships and help things run smoothly. That is what is missing from process modeling.
Process modeling focuses only on the formal transactions and with value network modeling we’re saying it’s the people that make things work, so it’s not enough just to have the formal transactions. We also need to understand the dynamics of those relationships and what is critical for this activity.
Joe: When I listen to you talk I relate it to Lean so much because when people look at lean they look at it as a tool type thing, not recognizing it’s a culture, and it’s really a people thing. It’s the best methodology I know that looks at things from a people perspective because one of the big lean things, or even the Toyota culture, is learn by doing. That sounds similar.
Verna: Actually, we do a lot of work with Boeing. Boeing is a very heavy user of value network modeling, and they call it a Lean plus tool. So they say, “This is what you do before you do a deeper dive into the other Lean approaches.” So they’ve actually positioned it as Lean at Boeing, and it’s worked very, very well.
A number of the Value Network facilitators and modelers actually come from the lean organization. It’s an enhancement, and because we have the formal transactions, it captured everything, and let me relate this a bit to Dave Snowden and his focus on storytelling, once you have everything captured you should be able to tell the story of that value network.
So if we actually went back and asked, “Well what typically sets off activity in this network?” You can actually trace the story through every single transaction, and every activity has a different pattern.
At Boeing, one of the major reorganizations they did was an in?flight test evaluation and once we had the basic model of how we thought the new value network should work. They ran scenarios. They got two engineers together who’d been testing airplanes for 38 years, and they said, “OK, think of a scenario that might happen around an airplane and let’s test fly this value network.” They were able to literally trace the story of every single situation through the value network.
Now, here’s the difference: with process and Lean you’re trying to find the one best path, the one perfect path that everyone should follow. With value network modeling what you’re trying to do, is create a robust and resilient network that can handle multiple pathways that can handle anything you throw at it.
So you have a very, very different philosophy. I think this is something people need to understand when they think about business modeling is there are many situations. No two airplanes are alike, and no two come into testing alike. One could have, you know, wing damage; another may have an electronic challenge, and another one might be an old model with missing parts. Maybe another one the paperwork is not quite right, and it’s more of a paperwork problem than anything else.
So they’re going to take different pathways through that value network. We’ve all seen pictures of brain scans. Your brain is activated differently according to what it is you’re trying to do. So if you listen to music your brain is activated in one kind of pattern. If you are dancing you have a different pattern and if you are sleeping it’s quite a different pattern still.
I think of the value network modeling as something that allows us to understand the pattern of different activities within the same organization or within the same basic value network structure. It’s a very, very different way of thinking about productivity.
Joe: You published a book on the web that’s about this, and that’s for anyone to use?
Verna: That’s right. We just published in March of 2011 trying to decide what do I want to do? Methodology books are very difficult to get published. It’s not the Harvard Business Group kind of publication. This was more of a how?to guide to do the modeling in value network analysis.
I went around the world talking with different people. I realized that in traditional publishing you publish one book in one language. It can take a year, a year and a half to get a book published, and I realized that if we did this as a web book then we could actually use the Google translate widget and instead of publishing in one language it would be available in 52 languages.
So I loved the idea. It’s not the kind of book that you make tons of money off of anybody and also having grown up poor. I’m a bit of a maniac on people being able to access good things when they don’t have a lot of money. You know, working in India and Brazil, different places, our website gets hit by over 90 countries every month and a lot of those are third world countries and you know people don’t have resources to buy expensive US books or English books.
So this is really in alignment with my own values, and it’s a way to make this work accessible to everyone. So we’re very, very pleased with this response.
Joe: Well, I think the wealth of information on it is fantastic because that’s what attracted me. I was looking for more information about value networks or value networking within the sales and marketing cycles and seeing how co-creation, collaboration and all these buzzwords that we hear nowadays. But, as you said in a discussion before with me, there’s not a lot behind those words.
Verna: Yes. We use collaboration all the time as if everyone understands what that means, but if you want me to collaborate I need to know exactly what you mean by that. It’s different with different cultures and even across different organizations.
But if you say what I really need from you to build trust is transparency in the budget process that’s something I can actually deliver. I can be held accountable for that. So I can’t actually deliver trust to you, but I can deliver our behaviors that we can negotiate and define as deliverables in our value network.
The book is called “Value Networks and the True Nature of Collaboration” and it’s at valuenetworksandcollaboration.com, so it’s just a website. But we find that as much as people care about collaboration and use the word, very few people actually have a way to define what that is, and particularly, to define the rules of engagement or the rules of collaboration for this relationship or this activity.
I believe that we need to be explicit about the behaviors and what we really need from each other. And this is a way to get to that without all that undue emphasis on my culture, your culture, this kind of thing. We’re just focusing on what we need to be successful together in this activity.
Joe: When I look at these things, and I looked at value networks, it looked really messy to me. It doesn’t seem like I can explain it to anyone, or I can go from step one to step two and get anything done. And it just seems like “OK, we’re going to leave a bunch of free spirits run the company here.”
Verna: Well you can actually probably say the same thing in systems dynamics modeling or whatever. But what it really is a way to negotiate how we work together. No one can manage the whole system. It’s sort of the grand myth of managing that you can somehow manage the whole system. No, we don’t. And we certainly can’t administer or manage a network.
What we manage, very simply, are our own roles. So if we look at it from the perspective of “In my role, I manage my inputs and my outputs.” And when we have a healthy value network, you look at any given role and the number of inputs and outputs are manageable. If it’s too much, you’ve got a problem. You’ve got a bottleneck; you need to redesign.
We used to think that the more intangibles you have in the network, the better it is. But that’s not necessarily true. We’ve found in practice that if you have too many intangibles, that means the informal interactions, you probably have people doing workarounds because your process is broken. We have found that more and more.
There’s some kind of a healthy ratio of tangibles and intangibles. And when you look at your role, you should be able to say “Oh, that’s not so hard. I can do that.” If it is overwhelming when you look at it from where you stand in the network, then you probably have some redesigning to do. I always like to say the center of the network is where you are.
You may need to see that larger picture around you. You may need to be able to see out there at the far horizon of the network. But when it comes to practical everyday work, what we manage is simply our own roles. And when people model the network, they negotiate their roles and just what they understand. I don’t understand everything about how you play your role, but I can negotiate with you about how you and I interact.
Joe: One of the things that we talk a lot about in lean is Kaizen or individual Kaizen and continuous improvement. Continuous improvement is more about making someone else’s job easier. That person is in your line of sight, and that’s what creates value. And I think value networking lays some basis for that, doesn’t it?
Verna: Yeah, that’s exactly the way to think of it is you think of who is in your line of sight. When you map very large, complex networks, the ones that do look so overwhelming to you, and the way those are created typically is we have people just simply map their neighborhood. What does it look like from where you sit? In your activity and from where you sit, what does your neighborhood look like?
And then we piece together, in our applications, match and merge the networks, if any two networks share the same role, share the role, you can merge those networks together. So you can actually piece together the entire system of extremely large, complex networks. When people look at it and are trying to use it from a practical standpoint what they really do is zero in on their own neighborhood.
Joe: How would you tell someone to get started in understanding value networking?
Verna: I think the book is actually a good place to start. That is actually what it was designed for is to help people learn to use value networks and to learn the basics of it. We’ve had pretty good feedback that it is very helpful for that.
Many times you learn the method or technique and people are afraid to use it until they know everything about it. With the value network modeling, we actually encourage people just to play with it. Take an activity you’re familiar with and say “Well, what are the five or six roles involved in this and how do they interact. Let me see if I can map it out.” There’s a chapter on mapping basics that’s the place to start.
Just start to work with it a little bit, just to play with it and just take it a step at a time. When we run a workshop, we have a little table map that is downloadable from the book called the “ValueNet Map.” And we have people run a little exercise on it like, what are four key roles in innovation and how do people interact? They can master the basic language of the modeling within an hour and a half to two hours.
Then from there we just have them move right on to saying “What’s the activity you’re concerned with? Let’s map it out.” It’s easy to complicate things over. Because value network modeling does have this very solid theory base in intangibles and systems thinking and dynamics, we can do some very, very sophisticated things with it. But that doesn’t mean we have to start there.
Like for you, to become more masterful at lean. The basics of a lean diagram are actually pretty simple. But there is a lot that you can do with Lean as you learn more and more about it. So the important thing is just to try it. Just work with it a bit, see if it can be useful to you and then just go a little bit deeper, a little bit deeper.
But we find that it extends very nicely from five people on a work team to a project team to a business unit. We have even used it with global action networks, regional innovation networks, and we’ve even mapped entire industries, like global finance.
Joe: I’m not a large company. Can I think this way? Can I use value networking?
Verna: Yes, we’ve actually worked with a number of small companies and startups. It’s a very good way to, when you’re… Well, let me put it this way. Whenever you’re dealing with something new that you have to get a way forward and get organized. I developed this under the great discipline of getting to walk into companies I knew nothing about, working on business issues that were new to me with a group of people I had never met.
In a matter of a very few hours not only had to understand what the heck was going on, but help them to gain some insights themselves. That was the discipline that drove me to value networks. You use it with whatever is on the table.
My first experience of this was a value network company, was at sign manufacturing, which is one of the classics in all businesses in the U.S., and we built a networked sign manufacturing company that in terms of revenue was considered one of the large ones in the industry. We had no employees; it was completely networked.
No matter what business you’re in, your success always comes from your network. So the more you understand it, the more successful you’ll be.
Joe: I think that’s so true. Because when you look at creating knowledge, you very seldom if ever can create knowledge within a vacuum. And by using a value network, it has to be able to provide a rapid increase in knowledge for you, if you understand that network, doesn’t it?
Verna: Right. What you’re really trying to do is just have a deeper understanding of how do we work together. How do we really create value together? How does that work? That’s the only question you’re addressing, and that’s always a good question to ask.
Joe: It’s a perfect sales solution. Has it been used in the sales and marketing arena?
Verna: Absolutely, particularly in complex selling. It helps you understand your customer very, very quickly.
Joe: Where do value networks differ from other traditional methodologies like lean?
Verna: It’s an integrative method. There’s a chapter in the book that specifically addresses how to move from a value network model to a process model. And the other thing I wanted to mention too, now that that’s been questioned, there’s some very exciting work going on right now with the OMG standards group, the Object Management Group.
I’m working with a group of people from the U.S. and Europe around a new standard for value delivery modeling language. What we’re doing is we are using the value network language as part of this so that people can model value, and we have a standard for modeling value where people can pull up literally different views of their value creating universe. One of those views would be a value chain view; another view would be a value network view.
Think of this as a lens that integrates and complements other lenses beautifully. Conceptually, there’s nothing incompatible, and we’re now working out that compatibility at the standards level. I think in the next two to three years, two to five years probably, we’re going to see a lot of technologies that have been established for modeling processes and value chains migrating towards being able to also model value networks.
We need to bring the world of formal interactions and of human interactions together. There are a lot of people who are pursuing this question who see the importance of it and a lot of very exciting work going on at the standards level to migrate our mechanistic mindset to again this more dynamic, human-centric view of business.
Joe: Is there anything you would like to add to this conversation that maybe I didn’t ask?
Verna: I feel like you’ve asked great questions. I’ve enjoyed answering them enormously. Or responding to them, I should say. This is my new definition of expertise. If you’re a novice, you have all the answers. If you’re a real expert, you only have questions. So I’m not sure that I’ve provided any answers, but I would say, it has been great fun responding. I love the questions and hope to pursue more.
Joe: Well, I want to thank you very much, and I really appreciate it. I would like for everyone to take a look at the valuenetworksandcollaboration.com website. I think it’s a great learning experience for people. How can someone contact you? What’s the best way if they have an interest in learning more?
Verna: They can contact me directly through the valuenetworks.com website. They can inquire [email protected] or [email protected].
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