What You Need to Know About Value Streams

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Value streams, at their ideal notions, are defined by the sequential processes a business uses to create solutions that provide the best possible quality and value added to people and society. Value streams can either deliver the end customer value directly or support internal business processes to achieve this. Lean methods focus intensely on the value added to the end consumer, where value is achieved only when the end user, or internal business process, receives the benefit of some new solution or capability. By lean, we mean identifying and understanding the various flows of value that are the most critical steps. A business needs to have a clear idea of what solution it offers to its customers in order to evaluate and map out its value streams.

Operational value streams and development value streams

There are two types of value streams – operational value streams and development value streams. Operational value streams are a series of steps used to provide goods and services to a customer, either internal or external. This is primarily how a business makes its money. The other, development value streams, are a series of steps used to develop new offerings. To differentiate this further, development value streams build the systems that operational value streams use to deliver value.

The importance of identifying value streams and understanding the series of steps through the organisation is to improve added value. Value streams also shed light on
opportunities to implement lean business models, whereby you can look to substantially reduce overheads, decrease wasted resources and overall maximise the value added to the end consumer.

Lean business models and KPIs

In particular, lean business models can simplify financial governance and increase the flow of value through the business. It is an interesting notion to move from funding projects to allocating budgets to value streams. This new approach does come with the question of how do we measure success? In saying this, each value stream must define a set of criteria, or Key Performance Indicators (KPIs), that can be used to evaluate the ongoing investment. The definition of the KPIs will be based on the type of value stream under consideration. For example, some value streams produce revenue, or end-user value directly, in which case revenue may be an appropriate measure. Other metrics such as market share may provide additional insight. Other value streams, or elements of a value stream, are creating emergent new offerings. In this case, potential ROIC is not the best economic measure. Instead you may wish to use non-financial, innovation, accounting KPIs to get fast feedback as it may be a better choice given it provides qualitative data through focus groups and interviews.

Value streams are a new way of thinking about business processes, and together with lean business models, they account for identifying a series of steps whereby processes can be evaluated to be more competitive in today’s vastly globalised and fast-paced market spaces. Lean models have the notion of minimising waste and resources while at the same time increasing the value added to the end-user or customer. By utilising this paradigm shift it creates new ways of doing business that can inform better business decisions, helping businesses to stay competitive in a hugely competitive world.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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