What in the world is value stream management? A quick Internet search will yield many different definitions.
“Value Stream Management (VSM) is an approach that helps organizations streamline their processes, optimize resource allocation and reduce waste to deliver value to their customers.”
“Value Stream Management is a systematic approach that focuses on increasing the flow of business value from customer request to customer value”
SAFe defines it as, “Value Stream Management (VSM) is a leadership and technical discipline that enables the maximum flow of business value through the end-to-end solution delivery life cycle.”
Forrester and Value Stream Consortium go even further with, “Value Stream Management is a combination of people, process and technology that maps, optimizes, visualizes, measures, and governs business value flow through heterogeneous software delivery pipelines from idea through development and into production.”
These are some of the top ones, and there are many more out there. The challenge comes is determining which of these definitions are more reflective of what VSM is, in theory and in practice. Likely all are accurate in their own way, with a different perspective of what value stream management is, but it does not lessen the confusion around what exactly it is.
Then, throw ‘value’ and ‘agile’ on top of the VSM acronym—these are two of the core elements of VSM. These two words have been thrown around so much in the business world, you would think they were competing for the title of ‘Most Overused Buzzword’. And now, to add to the confusion, we have Value Stream Management (VSM), which sounds like something you would do with a river. With so many different definitions and understandings of what ‘value’ and ‘agile’ mean and the fact that many organizations still haven’t fully adopted these techniques, you might be wondering, "Why should I care about VSM?"
VSM is the real deal. It's a lean management approach that can help businesses identify and eliminate waste in their processes, leading to increased efficiency, better quality, and happier customers. So put down your thesaurus and let's dive into the world of VSM. In this blog we will break down VSM in a way that anyone can understand, without any technical mumbo jumbo.
A brief history of VSM
VSM history can be traced back to the mid 20th century, with the development of the Toyota Production System (TPS) in Japan. It was created in the 1950s to improve efficiency and reduce waste in Toyota’s manufacturing processes. One of the core principles of TPS was to focus on the flow of value through the entire production process, from raw materials to the finished product.
In the 1990s, efforts were made to adopt the same lean manufacturing concepts to optimize organizational business processes by visualizing and analyzing the flow of value in a process. Over time, VSM evolved into the broader methodology that we know today.
VSM as a framework, an approach, principles, and technique draw upon humans’ collective experiences, knowledge, and lessons learned around how to effectively run businesses.
VSM in the context of Value and Value Stream
A simple explanation of VSM can be done by highlighting the relationship between three key words: Value, value stream and value stream management.
In a business context, value refers to the benefits that a customer or a business receives from a product or service. It is the end goal that a business strives to deliver to its customers.
Value can be categorized in many ways. For example, for a business, value could be increasing their sales and margins—quantitative, which is their internal value driver. It is usually tied to the ‘why’ of the business— the reasons behind why the business exists. For the same business, value can also be functional or qualitative (increase quality, generate better user experience, increase customer satisfaction), where the focus is on their customers, or an external value driver. Value can also be about reducing risk or reducing cost for the business, and it can also be non-discrete, like increasing team morale or company reputation.
Whatever the type of value, they share some key points in the context of value.
- Identifying Value. Many teams or organizations can get this wrong because the perception of value differs based on where one is situated in the organizational perch and scope of influence. This is crucial because if you don’t clearly understand what your entire team is aiming for then anything they do to achieve that value is bound to become a wasted effort.
- Value needs to be measurable. Once you have defined what value you want to generate, identify metrics that will enable you to measure the value generated. For example, if improving customer satisfaction for a CRM solution is the value statement, achieving CSAT score of 9.5 for the next Product release could be a relevant metric.
- It needs continuous validation. Continuously validate to ensure you are on track to achieve your metrics. Identifying leading indicators upfront can help with this.
There are various techniques like OKRs that can be leveraged to clearly identify, measure, and validate value generation. But more on this in future blogs.
A value stream is the sequence of activities that an organization or a team undertakes to deliver a product or service to its customers and generate value. Value streams contain all the activities, people, systems, and the flow of information needed to deliver the value using the products or services.
In the CRM solution example above, value stream can be the flow of activities like Innovation, Funding, Planning, Development, Marketing, Training—plus the people, systems and data involved in the flow—all coming together to deliver the solution to intended users and generate value eventually.
Value Stream Management (VSM)
Value Stream Management is the process of analyzing and improving value streams, which can be one or many, to maximize the value delivered to the customer while minimizing waste and inefficiencies in the value stream. It can also be considered as, “An approach that focus on maximizing efficiencies and minimizing waste in an organization.”
These are key goals of value stream management.
- Ensure that the journey of work from idea to value realization is friction-free.
- Ensure that there is a continuous “steady stream” of value flow.
- The ability to measure and accelerate the flow of value.
- Gain insights in to where the waste is and understanding how long it takes to deliver value in the hands of customers.
- Foster end-to-end collaboration and conversations throughout the entire value stream to help with effective decision making.
- Support complete transparency, traceability, visibility, and traction across the entire value chain.
VSM typically involves the following stages at a high level.
- Value stream identification. Identify how value flows in your organization today.
- Value stream mapping. Create a visual representation of the value-stream with all the stages, systems, people, and information flow.
- Identify areas of improvement. Analyze the flow in value stream mapping to identify areas of improvement like process bottlenecks, team silos, cycle time, and anything else that may inhibit the flow.
- Implement improvements. Improvements that optimize the flow can include process changes, organization restructuring, technology changes, the way work is organized, and similar factors.
- Continuous monitoring. Continuously monitor the value stream by measuring the impact of improvement changes on the flow of value. This helps in re-evaluating the improvements.
In this series, we will take a closer look at VSM and its application in the real world using a banking example that we can all relate to. By identifying value, value streams, and applying VSM principles, organizations in nearly any industry can reap the benefits of improved efficiency, reduced waste, and happier customers.