Big thanks to @forbiddenmatrix , Alexis, @john.grant & Mario (and the LEF) for the call on Thursday, and for your input. Thank you all the people who could not join the call but discussed Y-Axis on Twitter. I think that, together, we have arrived at quite interesting conclusions that will undoubtedly help many people in understanding the Y-Axis.
So, what is the simplest explanation of they Y-Axis? There is a couple of concepts I really like. First of all, a couple of challenges associated with Y-Axis that frequently repeat.
Q: What the Y-Axis really mean?
It is usually labelled as Visibility or Value. Those are just the most common perspectives designed to make mapping more accessible and more structured. The interpretation which constructs the axis is attached at the end of this article.
Q: What does it mean if I move component along Y-Axis?
Almost nothing, but it depends. The Y-Axis (regardless of the label) is not very sensitive to movement. You should aim to arrange things in a way that makes sense to you (put things that you believe are more visible higher), and hopefully it will also make sense for others. There is no objective measurement to say where the component should be placed on Y-Axis, and being wrong and being challenged by others is a part of the game. You have to learn or let others learn.
Q: If two components have the similar number of jumps, are they equally visible? Should they be at the same level?
They can, but they don’t have to. In the world of maths, the relationships between components create a partial order structure. But relations in a value chain, while they resemble partial order, are not equal to each other.
Think of the situation where you want to buy some groceries.
- if you go to a farmer market, you are likely to understand the value chain that produced whatever you are going to buy, as well as you can easily learn where your food grew, with the assumption that the seller is honest.
- If you go to a supermarket, you are likely to see only the final product and the country of origin most of the time.
The example above shows that components become less visible proportionally to the number of nodes between them, but also individuals component characteristics (market vs farmer) play a significant role in filtering underlying value chains. Standards, APIs and contracts are well known to hide underlying implementations (which is a good thing sometimes, as it allows us to focus on something else).
Component B is less visible than C, despite their equal distance to A. Component B and D seem to be equally visible, despite component D having one more hop. Also, component C does something particular to make the dependency on E invisible. This is how you should read the map, and this is how you should construct your map for others to read. Naturally, if you have a lot of components on a map, there is no space to play with the visibility axis, so it does not really matter.
Q: What about marketing? Apple does advertise seemingly invisible processors?
Is it advertising processors or giving customers “feature differentiation” by showing an abstract component, a simplified image of a processor that changes the perception of the device but does not change a way in which the customer need for computing power is addressed? It is a strong argument for the interpretation that some components and their abstract models used in marketing are two different things.
Q: Does the Y-Axis mean that components higher are more valuable to end users?
That is a very good question. The car can be more expensive than a single taxi ride, but does it really make one or the other objectively of bigger value? It depends on what your need is, and if your need is to move from point A to point B, then you need only a tiny fraction of car cost. That brings us to the interpretation that the Y-Axis Value label means actually $ Value, and the Value chain - cost structure.
The thing that you are buying (like a coffee) consists of water (10%), coffee extract (20%), a paper cup (1%), labour (29%) and marketing (50%). Those are the components you will represent in your value chain, and you can break them even further, and position along the Y-Axis depending on how visible they are.
The duality of the Y-Axis becomes apparent.
Construction of the Y-Axis
All people transact with each other. Even a simple ‘Hi!’-‘Hello!’ exchange is a transaction. Some of those transactions are time for money (employment), resources for money, money for money, and others. This network is very dynamic, it changes all the time, and influencing it one place may create consequences in some other place. This graph has no dimensions, you can rearrange is at your wish, only the relations matter. It is said that between every two people in the world there is at most eight intermediaries.
If you look at one person, this person has just many bidirectional transactions.
Because we talk about business, we need money, so we tend to focus on transactions which involve money. This is a conscious choice, not a property of mapping. If you want, you may focus on any other type of value you desire.
The ultimate goal of every person is to maximise income (the value you want, usually money) and minimalise your expenses (the value you have to give in exchange).
Thanks to the marvellous invention which is the property law, we can use components (assets) to generate value other want (and will pay us) or to acquire value we want (and we will pay).
Note that today components rarely exchange money. The financial site is often attributed directly to the owner (or organisation).
Because of the profit-cost optimisation, we can, by convention, put things in such a way that money flows from top to bottom:
This is possible only because we have a graph of dependencies. We can transform it as we wish, and as long as we keep connections intact, it is still the same graph.
Note, we have just got an artificial anchor, which is the source of our income, that should be at the top. Sometimes, it may not be enough, because what is the source of our income may be dependent on some other player, so we have to move up. But since the money comes from the top, we can put an arrow (green one), and assume that everyone will know how the money flows:
Frankly, we do not need that owner there. Of course, it has the right to manage the components, but the person rarely matters in the setup. We can remove it, and assume that the owner gets the profits.
Finally, since money flows from the top to bottom, the value is being added from the bottom to the top. So we can add another Axis that points upward this time (violet one).
It does look familiar, doesn’t it? It is a Value Chain if you remove the green arrow. Everything is here by convention. The visibility label is a by-product of this long process of putting a perspective on the graph of value exchanges.
You cannot forget that the graph is still out there.
The graph is circular, maps, for the sake of simplicity, are not.
ValueY-Axis label is canonical. It means the direction in which the value is added.
VisibilityY-Axis label is a by-product. It is an observation that a representation of reality has a certain general trend.
SubjectivityY-Axis label is also possible in some conditions. If you are talking about consumers, they often want things because of emotions, not because of rational choices. The top of the map is highly subjective (what customers want), and the bottom gets more rational.
I am curious to hear your opinions about this explanation. Does it cover everything you have asked yourself about the Y-Axis? Is there something else that should be covered?