What is a Value Stream, and Why Should I Care?
The concept of a value stream is widely used within society, and the field of business is certainly no exception. Yet, when business people are challenged to define what a value stream is, their words often get stuck in their throats or they throw out a response with an apparent lack of confidence in their voices. At the same time, value streams are a crucial component of a business ecosystem to deliver customer value and survive as a company. Real-life examples from Amazon, for instance, demonstrate how continuously optimizing your value streams results in a competitive advantage. Before diving into the reasons why understanding your value stream is crucial, we first need to get our definitions straight.
Defining a value stream
“Value stream optimization”, “Value stream mapping”, and “Value stream management” You have probably come across at least one of these phrases in the past and have likely been part of a value stream. Despite your background, you shouldn’t feel embarrassed if you can’t easily define what a value stream is. As ScaledAgile writes on their website: “Value Streams are complex, and no one in the enterprise likely understands any one single flow exactly”1. Despite this challenging situation, the following paragraph hopefully decreases the rate at which your heartbeat rises when asked to define a value stream in the future.
A value stream is defined as the series of steps an organization undertakes to produce a service or product that delivers customer value. It contains the employees who execute these steps, the technology used by the employees, and the flow of information and material needed to provide the final output. Originating from lean manufacturing principles, the focus on “customer value” is essential. The core of the lean methodology is to minimize waste by identifying and eliminating non-value-adding activities in…you guessed it…the value stream.
With this overarching definition in place, we may dive into the two different subcategories of value streams: operational value streams and development value streams.
The operational value stream
Each specific type of product or service has its operational value stream. The flow of an operational value stream is initiated by a sort of trigger, commonly a customer request for a specific product or service. The trigger generates the flow of material and information through the several steps of the operational value stream, each step corresponding to an activity needed to process the order. The operational value stream is continuous for as long as new customer requests are received. In summary, the definition of an operational value stream can be defined as “the activities needed to produce a product or service which generates customer value”.
According to ScaledAgile, examples of Operational Value Stream may include the process of manufacturing a product, the process of delivering a service, or the fulfillment of an e-commerce order. To provide you with a real-life example, let’s turn to a ubiquitous example to just about everyone, Amazon . The operational value stream is triggered when a customer requests a specific pair of products. From there, the customer’s order will be processed by their web systems and sent to a warehouse where an employee will locate and package the items. Then the package will be labeled, routed, and shipped to the customer. Each of these steps are part of Amazon’s operational value stream, which ends with the customer receiving their requested items.
The development value stream
Closely intervened with the operational value stream is the development value stream. A development value stream is “the process to convert a business idea into a technology solution that produces customer value”. For the operational value stream to generate continuous value, it is dependent upon the generation of aforementioned solutions. To be clear, a solution refers to any product, service, or software enabling the operational value stream to produce customer value. In line with the continuous delivery pipeline established by ScaledAgile, development value streams usually consist of four phases; explore, integrate, deploy, and release.
To add some additional texture to this definition, let’s again look at Amazon. Imagine the first time Amazon gets notified about a customer’s need for a particular product without having the operational value stream in place to process that request. Several issues need to be tackled: what supplier to use? How to structure the supply chain? How much may the operational value streams of other products be copied and translated to this new product? How should the eCommerce website facilitate the sales of the new product? All these issues require the activation of development value streams.
Each development value stream would start with an exploration phase. The first step is to hypothesize what version of a solution would require little input in terms of resources to create the most considerable customer value. Still, in the exploration phase, Amazon could conduct market research where they ask various stakeholders about the hypothesized solution. Once a clear hypothesized solution has been declared, Amazon ends the exploration phase by synthesizing, generating a vision, consolidated backlog, roadmap, and objectives for the intended solution.
Next, in the integrate phase, Amazon builds and tests its hypothesized solution. If successful, they are ready to move onto the next stage.
During the third stage, deploy, the solution is tested end-to-end and validated in a staging environment. Once this is done, the solution is ready to be released.
Finally, In the release phase, Amazon would have to monitor the solution and ensure it operates in an intended fashion. This final release phase further consists of knowledge sharing and learnings among the people working in the development value stream.
It is important to remember that the development value stream is a continuous process and not structured like a waterfall. The learnings from the development value stream, for instance, “how to display the frontend of the website”, might generate new ideas about important features that should be added and developed. The development value stream is crucial for idea generation and continuous updates to ensure an organization stays competitive and relevant.
Why should I care?
Yet, the crucial question remains: Why should I care about these definitions? As mentioned previously, the concept of value streams stems from lean manufacturing, where the focus is on eliminating non-value-adding activities. (For clarification, non-value adding activities imply anything the customer is not prone to pay for due to lack of perceived value). The goal is a process where delays, lead times, and operating costs are eliminated, resulting in a situation where we have minimized waste while simultaneously maximizing productivity and product quality.
For business to survive and thrive, meeting and exceeding expectations of your customers has never been more paramount. If your organization is not focused on value streams, you are likely operating at a disadvantage. Turning focus onto and developing your value streams, will better equip your organization to maximize the value being produced by each step, while cutting out delays and unnecessary steps. EIT has helped our customers visualize and streamline their value streams. For information on how EIT can help you visualize and streamline your value streams, visit us here.