Why Organize Around Value Streams?
Why Organize Around Value Streams?
If your team wants to pursue any of the following improvement opportunities then understanding and organizing around value streams will help.
- Improve Cash Flow
- Reduce Lead Time (increase predictability?)
- Bolster Customer Satisfaction
- Limit Costs
A logical first question - What is a value stream? A value stream is all of the people in their departments, with all of the tools, resources and funding needed in order to listen for customer requests (triggers) and then produce the desired outcome that results in getting paid. Another way to say it is that the value stream is a trigger followed by an exchange of value, and everything in between.
If you are part of a business then you are also part of a value stream. Many of us do not think of our business in those terms. Those who do may be familiar John Shook and Mike Rother’s book, Learning to See. But let's slow down for a minute and talk about the thing that those around you may or may not see clearly - the value stream and why it provides an ideal organizational structure for a business’ improvement efforts.
When it comes to business improvements, there is a hierarchy to follow. The first thing we want to do is to pursue the greatest value. The second is to improve flow and the third is to cut waste. This makes sense if you imagine the reverse - why would we want to get really great at delivering products and services that are not our most valuable?
Improve Cash Flow
Understand where the value is
While work often comes with a price tag attached - it does not always have a similar tag that states the value. In order to pursue the greatest value, leaders will have to decide how they want to assign value to customer requests. The value conversation can be a tough one sometimes. At Lab Zero we find that many times our customers focus on delivering on a “First in, First out” basis. Others prioritize based on revenue, regardless of cost. Some even prioritize based on political capital or influence. These approaches do not make sense if they lead us to pursue less valuable opportunities and delay more valuable ones.
Leaders should agree upon what they want and how they will measure it. The bottom line (profit) is a likely candidate. Sometimes the top line (revenue) is preferred. Perhaps it is revenue up to $X and then profit? In any case, once you know your target, visualizing your system’s value stream is a powerful way to get the teams aligned and to help them make decisions that optimize the whole system.
Remove silos and discover sub-optimization
Where you find silos, replace them with cross-functional teams. Breaking down silos can actually improve cash flow by exposing the error of locally optimized sub systems. If you do not break down silos, you are likely to wind up with a faster dog and stinkier cheese (neither of which has a real effect on speed to value). When sub-processes are evaluated in isolation, we often sort them out in a way that is fine locally - but creates problems elsewhere. As stated by Dr. W. Edwards Deming,
"The obligation of any component is to contribute its best to the system, not to maximize its own production, profit, or sales nor any other competitive measure. Some components may operate at a loss to themselves in order to optimize the whole system, including the components that take a loss." The New Economics, page 97
There are certainly sections of the business’ current state that are funded to insure that staff utilization is high. This often looks efficient when viewed in isolation. Unfortunately it can also create costs up to and including the loss of new prospective customers. Localy optimized processes that hurt cash flow are sometimes referred to as “penny wise and pound foolish”. They can be extremely hard to eliminate if a business is not accustomed to looking at their value streams holistically.
Reduce Lead Time
When you look at your business, you see it working. You know the way the various teams in their part of the world do the things they do which allow others in other parts of the world to do their things. When we look at your business, we see that image above. When your teams see the business the way we do, amazing improvements are possible. And we are not just talking about shortening the distance that the sailboat needs to go, or reducing the number of dominos. Seeing and organizing around the value stream positions your business to perform only the necessary steps to move from trigger to cash without delay.
Optimize the end-to-end
The most common approach is to do all of the current steps in less time! Unfortunately trading up for that faster dog is not the way to initiate a step-level change in speed to value. Digging deeper, can you provide value in fewer steps? Does work stall while waiting for pro-forma or redundant approvals? What are the absolutely essential things that must be done in order to provide the valuable outcome? And what about feedback loops? Is your system tuned to be error-proof? If an error occurs, is it discovered and fixed immediately or does the need for rework hide for a while and then pop up later? Many techniques to optimize from end to end come from agile thinking. Are your teams leveraging agile principles in a way that takes them beyond simply “operative” to “adaptive” or even “innovative”? Once your teams share a vision of the system as trigger-to-cash, optimizing it from end to end becomes possible.
Leaders everywhere are learning (and re-learning) more about Lean these days. Lean Manufacturing has strong applicability to knowledge work and much of our writing at Lab Zero flows freely between Lean and Agile concepts (see reading list, below). A big concept in Lean - and in the Kanban University approach that we teach - is Work In Progress (WIP). You may have heard phrases like “Stop starting, start finishing” and “It’s not no - it’s not yet” that refer to the importance of limiting WIP. In fact, Little’s Law applies here - turns out you can get things sooner by doing less!
Trimming the tail
How often does the organization continue to refine deliverables from stale commitments that capture modest residual value? The responsible thing to do for the business is to free up the capacity and go after higher value. Seeing the value stream allows us the perspective to know when to “Trim the Tail”. When the whole end to end team is in it together, someone might notice that it is wise to structure our commitments as incremental in writing the contract. A smart play is to work with customers as partners in the process. Increasing speed to value is typically a great way to “bolster customer satisfaction”. In fact, the U.S. Air Force Sustainment Center “Art of the Possible” presentation from 2015 puts it nicely;
“We must free up limited resources by increasing the speed, or in other words - reducing wasted time and effort. Speed is not working faster; it’s working more efficiently, and thereby increasing value for your customer.” U.S. Air Force Sustainment Center “Art of the Possible”
Bolster Customer Satisfaction
Don’t let the customer feel your pain
Picture this - you’ve ordered something online and you expect the package to be delivered in a few days. All you really care about is that the package arrives in good condition when you expect it. But imagine if you felt every bump that the package feels along the way? Your customer does not want to feel the pain of your process. They don’t want to know about the scissors that cut the balloon string or the springboard that sends the cat up to catch the string. But all too often, we do indeed share the pain of our process with our customer.
Perhaps your customer has been handed off to a different team and they now have to re-explain things. Or maybe you never even landed the customer that insisted upon a faster and relatively painless process. And do you think that some current customer will bail because this last go ‘round was the straw that broke their back?
Focus on your customers’ profit too - they cannot afford to wait a month for your contract process! As a good steward of your business, you should consider their business too. Your goal should be to deliver more quickly with less pain. Using the value stream visualization - from the perspective of the customer - to improve flow results in better predictability for everyone. Predictable lead time will make everyone happier and will improve the prospect of repeat business.
Your business has costs which get in the way of profits. So we will want to minimize them where we can. Some costs are important and are a helpful part of the business. Other costs are not. We’ll get to these wasteful costs next. But first - what is the worst kind of cost? The cost that you pay now AND then again in the future. Non-value adding waste is even worse when it is not only failing to add, but also subtracting value from your future.
At the simplest level, a business is a trigger-to-cash process. Anything that gets in the way, slows cash flow and costs money. Funny thing though - that pesky stuff that gets in the way includes all the workflows and business relationships that are how your business creates value. So you need some of that stuff - you need the chunks of time that add value.
Remember the old business allegory: “I know that half of my marketing budget is wasted, but I don’t know which half.” Maybe you haven't heard that one. It is from a time when marketers could not measure the performance of every interaction that they purchased. Similarly, today we have ways to see our value stream, and to be able to distinguish between the helpful bits and the waste. Once we visualize the value stream, we will see the wasteful chunks of queues, handoffs and re-work.
Learning to see the value stream allows a team to target the problems that slow cash flow and annoy customers. Only by paying attention can we expect dramatic improvements in cash flow and in the customer experience. Dramatic change is possible because the value stream visualization is a map that shows you exactly where problems lie. And when everyone can see the problems, everyone can do their part to fix and eliminate them.
But looking at the business as nothing more than trigger-to-cash is dehumanizing. The antidote is that we place respect for people at the heart of what we do. We respect the people who are our customers by focusing on the problems they want to solve and providing value in a way that keeps them around. We never take the customer for granted and we place them at the center of our business. And we respect the people we work with by acknowledging that they who do the work, know the work - and how to improve the work. A shared sense of situational awareness and trust from leadership are milestones on the quest to create unstoppable teams.
All of this goes beyond our current state. Organizing around value streams is not just a way of compressing the current process, it is a way of rethinking the process. Our goals are value over flow and flow over waste elimination. To get started - set a seemingly audacious goal that I know you can actually pull off. Lets double your team’s profit in one year.
Additional Reading by Lab Zero
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Lab Zero is a San Francisco-based product team helping startups and Fortune 100 companies build flexible, modern, and secure solutions.