A business is a social network of stakeholders that collectively pursue value. Unfortunately, the value being pursued is perceived, shaped, and realized by stakeholders who are evaluating from many distinctive perspectives. Their steerage is likely to be performed across collections of different processes and tools, business scenarios, experiences, and roles, and may only be worthwhile within the viewpoints of selected actors.
Improvements in these contexts are unlikely to just emerge from collective needs, desires, or pressure. Instead, their definition and realization requires deliberate choices and effective implementation. Choices made within near term planning horizons will inevitably impact how readily performance problems can be isolated once deployed, how easily critical information can be shared and utilized in decision-making, and how effectively value can be extracted over longer and fuzzier time horizons.
The multi-dimensional aspects of this problem can highlight different areas of leverage, which can be helpful to shape the key decisions that must be made within this setting. The relationships across these dimensions can help to illuminate how decisions could, should, or must play out over time. The optimal strategies to elaborate such decisions will depend upon which dimension is being focused on, its perceived importance, and the context in which this pursuit of value will need to be performed within over time.
Figure 1 represents the diversity of possible avenues for pursuing this value, and highlights several dimensions that deserve special attention:
- the ability to consistently perform a set of actions that are collectively intended to achieve a desired outcome
- the ability to commit to perform such work, when the set of actions are not yet well defined
- the ability to change approaches in how such work will be performed, in order to tailor the outcomes to better meet the needs of stakeholders
- the ability to predict within acceptable confidence limits what the range of cost, schedule, and quality parameters will be as these actions are implemented
- the ability to partner with organizations to collectively demonstrate or utilize their collective abilities
- the ability to attract investments which will provide adequate returns by using all these abilities
Favorable outcomes begin with the conscientious and meticulous selection of key focus areas (the items depicted in ovals in the diagram) across these candidate sources of value. These focus areas should be targeted to impact key slices of the business's approach and that can favorably and demonstrably influence financial forecasts over selected time horizons. Decisions on each value proposition must consider current performance in these dimensions and the intended and potential unintended effects that changes may introduce across these dimensions systematically, including how they would be impacted by potentially changing business environments. The resources required and benefits expected from these investments may not come from the same place. Benefits from realization may be dependent upon many different factors. Understanding and selection of the optional mix of these leverage points is only the beginning of the journey. Judicious investments must then be made to provide the required resources that are needed to exploit these opportunities.
To unify these perspectives, organizations must consider opportunities from the above dimensions across many different levels of granularity:
- Individual processes, which should be the building blocks of transactional exchanges. Processes are often too isolated by themselves to adequately define and communicate what the expectations are for optimized performance across planning horizons. The fidelity and consistency of cooperating processes are critical to the effectiveness of the other frames of reference which invoke these processes, much as a software application calls a subroutine library. When these processes are documented as vague guidance, performance standards may be difficult to enforce, yet may inject fervent and disruptive debates over whether the processes have been followed or not.
- Jobs, which chain together and integrate specific processes, so that the outputs of one process are appropriate for the downstream inputs of others. A failure to execute a job may result from an inadequacy in one of these processes (or its associated standards, training & support aids), a lack of competency in implementing that process or performing a hand-off, or a flaw in the inputs which are used during execution.
- Work packages, which should connect together information producers and consumers through collection of jobs that are associated with a business opportunity or mandate. These work packages are often further structured and bundled into projects which each have statements of work. Individuals and organizations often manage portfolio of such projects, through periodic checkpoints and workflows as they progress through over time. Unfortunately, these statements of work may not represent the minimum viable investments needed by the business at a particular point in time.
- Value streams describe actions at the highest levels of abstraction as this work is performed across organizations. They are useful in providing a basis for focusing on one or more key aspects across a collection of value-generating activities. This focus helps to validate that processes are sufficiently integrated and optimized for overall throughput, and determines which of the other frames of reference will offer the greatest opportunities for enhancing this value within a particular environment. The robustness and efficiency of this network of exchanges determines the peak and average capacity of the organizations which are involved in implementing their work packages. Since the transactional exchanges across this network often are performed at process and job boundaries, the effectiveness and integration of process inputs, outputs, and flows is particularly important in optimizing throughput.
Organizations use such viewpoints to discover and communicate the changes, or pivots, that are essential to enhance business competitiveness. These pivots must be relevant to the ecosystem, forces, and structure which the performing organizations operate within. Value streams are particularly helpful in this operational context, since they enable focusing on different slices, or dimensions, of a business's network of processes, tools, and people. Through these lenses, value streams can help the organizations which are bound together in the production of value to explore, organize, shape, and connect their efforts, priorities, and resources into a powerful business fabric.
More formally, a value stream is a representation of the sequence of processing steps which apply information, energy, and materials to achieve a specific business objective. For example, as a product (like an automobile) moves through a particular production system, such as an assembly line, new components are incorporated (like an engine), and selected operations are applied to it (like painting) through a series of process steps and assigned jobs. Yet by itself, the act of producing a product, or delivering a service, does not realize value... it is only as that product is put into service that value can be realized, and translated into economic returns. In short, context is everything in value streams, and the details which are relevant to considerations of value depend upon both this context and the particular dimensions of value that have been chosen by the business for evaluation criteria.
Value streams are thus particularly useful when they provide a context for defining and improving critical exchanges across organizational boundaries, and removing waste in processing at the system, rather than at the component, level. As these transactions are implemented over a series of adjacent operations, in an an increasingly seamless fashion, a value stream can begin to achieve continuous flow. As this flow is made visible, the batch sizes of work through the value stream can be more effectively managed so that work does not accumulate at bottlenecks within this flow. Visual indicators of work in progress can then be used to signal impediments in processing, and call attention to areas in which improvement investments are warranted. As batch sizes are explicitly reduced, candidate opportunities for improvement can then be identified, since faster and more accurate feedback will be available to each work cell. As these opportunities are exploited, these value streams can becomes a highly efficient end-to-end systems for the dimension of interest, but they must be able to scout out and qualify opportunities across unfamiliar terrain. In The Brain of the Firm, Stanford Beer suggests a deliberate, rather than random, approach:
In general, a binary classifier (the 0, 1 receptor) halves the uncertainty with which it is dealing - if it is efficiently used. All problems, whether they are regarded as problems of recognition, or classification, or indeed decisions, are problems about uncertainty. High situations are hard to handle just because the measure of their variety is the measure of their uncertainty... However big the problem, its variety can in principle be halved by one decision element.
Take another example. You are looking for one person in a dance hall where five hundred couples are present. This represents a problem of variety one thousand; that is an uncertainty factor of 1:1000, or a probability of .001 of making a correct selection at random. That is the scale of the problem. But if you can find out whether the person you are seeking is a man or a woman the problem is halved forthwith.
The distinction between yes and no, between 0 and 1, is the element of decision. Managers may evade responsibility by giving equivocal or bogus decisions, if they wish, or by making qualified utterances, but when the crunch comes the answer is binary. And in fact managers do use the process of dichotomous classification (which has just been described) though rather informally. A managerial problem may have hundreds of possible solution and the manager may refuse to do more than say that he thinks the answer will be towards one end of a scale rather than the other. This sounds extremely vague but in fact he is dividing the possibilities into two groups which may not be of equal size, and leaving the threshold between the two. His people will go along with this for some time, performing actions which tend to push the situation in that one direction rather than the other, and trying to avoid the doubtful zone. But sooner or later they reach a point where they cannot decide what to do, and the manager is presented with a narrowed-down uncertainty.
And so the process goes on, effectively splitting the universe possibilities into two parts, until one day the manager is faced with saying yes or no to some final proposition. It can be shown mathematically that the most effective way of going through a sequential set of decisions of this kind is to divide the possibilities exactly in half each time, but it does not matter much if the division is not in fact equal. One may have to use an extra receptor (which entails taking an extra decision) beyond the number which is strictly necessary but the general procedure holds.
Organizations and individuals often tend to unfortunately view the majority of value available in any situation as originating from the steps performed within the area where their primary mission or historical contribution lies. Despite this, these same stakeholders may each have different perspectives, and may also adopt different time horizons as they consider various alternatives in this processing over time. For example, some stakeholders may prefer short-term gains over longer-term sustainability, and others may prefer risky but potentially higher payoff approaches in contrast to making slow but steady progress.
Each of the dimensions that are pursued within a value stream are likely to favor the perspectives and influence of some shareholders over others, coordination across the many diverse perspectives in a value stream is not for the light-hearted. Paul Samuelson describes a natural tendency which organizations have to add layers of oversight as they attempt to optimize some aspect of performance within a value stream:
Every passing day confirms Parkinson’s relevance. Successful bureaucrats, he said, are driven by two guiding forces: 1) “to multiply subordinates, not rivals”; and 2) “to make work for each other.” Every official who feels overworked appoints subordinates, who (feeling overworked) do likewise. Bureaucracies left to themselves—that is, left to create make-work—ultimately self-destruct. They become immobilized and can’t adapt to change. Witness the collapse of the Soviet Union and (a lesser example) the turmoil at General Motors.
Too often, workers are provided only high-level narrative descriptions of what is expected of them, without establishing meaningful direction that would achieve those outcomes. This dysfunction often occurs because of an organizational mandate to document all processes, when the overwhelming majority of activities are well understood and performed acceptably. McKinsey research recommends that companies should refrain from trying to standardize all of their processes in this way. Complete standardization is cost-prohibitive, since it spreads the available resources too thinly to accomplish the business objectives which merge from these sources of value.
Instead, in order for value to actually be realized within these chosen dimensions, a set of standards for performance need to be established, and used to guide both how and where to apply light weight processes. These processes can then be quickly used determine what and how to apply changes that are appropriate to each emerging business situation. Clear responsibilities, responsive accountability, and recognized authority typically need to be defined to disambiguate job requirements, solve systemic problems, isolate and tear down barriers, allocate constrained resources, and appropriately channel business information to where it is needed.
Organizations are also likely to perceive value within the context of the architecture of the organization itself. The nature of the work that the organization performs tends to manifest and be reinforced by these organizational structures, biasing perceptions of opportunities for value within those lenses. If an organization performs product design, then novelty, technology utilization, product integrity, and the performance of products are likely to be most apparent in the structure of the organization. If an organization is instead primarily focused on operations, then throughput, capacity management, integration, and supply chain management will likely dominate the organization's structure. If the organization instead primarily provides services to customers, then customer intimacy, service level management, issue resolution, and co-located support provisions are more likely to get top billing in value considerations. Finally, when the voice of the business is loudest, then financial forecasting, planning, status reporting, and accounts management will dominate discussions.
Yet to be successful in the long run, all of these factors are likely to be important at some level, and their interactions must be kept in proper balance for the environment the organization finds itself. Value stream thinking requires consideration of how different sources of value can be woven together and synthesized into candidate solutions over time. Adopting a common reference model for value stream assessment can be helpful in this consideration, by provide a more systematic set of perspectives for decision makers to operate within. This reference model can also provide a unified set of views for describing and understanding value within a particular system's architecture over time. Value propositions typically fit into a limited number of possible business strategies, including:
- Increasing utility to stakeholders
- Reducing time from ordering until solutions or services can be placed into service
- Improving efficiency in designing, building, delivering, or supporting a product or service
- Increasing the performance of existing products or services
- Making better utilization of assets
- Increased adaptability in response to change (‘agility’)
- Creating products that are more robust or more durable
These dimensions for value stream thinking can provide a series of lenses through which behavioral patterns can be analyzed and understood. These perspectives can also help organize and focus the resource allocations and the attention of the organization's leadership. Each value proposition needs to be seen from the perspectives of the organization's paying customers and end users. It is they who will be responsible for incorporating any proposed solution into their work. Yet until producers and consumers of value are aligned, it will become increasingly difficult to secure or sustain investments to pursue it, even when the need for that value seems obvious to many.
How can the ingredients necessary to unlock this value be discovered? Simply put, organizations must synthesize, rationalize, and exploit patterns in their work to:
- Link functions such as planning, estimating, scheduling, and project control using available operational parameters of the system.
- Integrate production processes with supply chains, distribution channels and information flows
- Provide a basis for strategic focus and planning
When operations are viewed within the context of value streams, capabilities enable specific outcomes which are needed by the business; programs, rather than projects, are often the mechanisms necessary to realize such value at the scale needed. Once these capabilities are available, they offer the potential to be translated into business value, but that value itself may not be accessible unless other conditions are in place concurrently. Solutions typically cannot create benefits by themselves; they must provide capabilities that can then be applied within a business and operational context.
Constraints often stand in the way of realizing such value propositions, such as:
- Physical and technical barriers
- Social or cultural barriers
- Contextual barriers
- Physical limits in how long it takes to perform work once it is actionable
Under the pressures of these constraints, and innate human desires to position themselves as successful, thought leaders often present opportunities in the most favorable light. They may even sometimes go to the extreme of trying to position their organization as a mirror of their customer. This idea has rational underpinnings, since the architecture of a product often matches the structure of the organization which produces it; adopting similar structures can reduce the gyrations that otherwise may need to be performed in order to avail themselves of the organization's products and services.
Value can only be achieved after these constraints are confronted and eliminated, so that access to the leverage achievable from investments can be unlocked; until then, value often remains but a fleeting hope that continues to be beyond our reach, however well intended..