The Elements of a VSM Program

Value Stream Management (VSM) is not Product Development but, rather, a core set of practices that aim to improve the economics of product development.

1. VSM  is an economically principled, evidence-based approach to improving information flow and workflow across the systems where people develop products.  
2. It is a strategic competency that needs to involve top leaders in decision-making to identify the most promising improvement opportunities and how best to allocate limited resources to them and do so on an ongoing basis so that improvements can align best with the company's strategic imperatives. VSM allows for clear attribution of ROI to close the loop between investments and outcomes.
3. While Value Stream Management needs clear strategic guidance and support from leaders, bottom-up improvements remain a major improvement engine. The most effective way to identify improvement opportunities is by listening to people on the ground doing the work and supporting them. Value Stream Management can facilitate better communication from top-to-bottom and back, with a shared, evidence-based approach for identifying and making improvements. 
4. A Value Stream Management program provides formal channels for amplifying improvement opportunities identified across the organization, making them visible when teams cannot improve without additional support from leaders. 

What are the essential elements of an effective Value Stream Management program? 

1. An economic decision-making framework.
2. An enumerated set of value streams, with “value” defined in terms of the parameters of the economic framework, and a system for making the flow of work in the value streams visible. 
3. A map of the value chain that supports these value streams. 
4. A system for making value chain dependencies visible within and across the value streams: the value stream network. 
5. A visible strategy and measurement framework that shows how improvement efforts impact economic outcomes. 

Figure 1 shows the broad relationships between these, but let's discuss them briefly.

1. An Economic Decision Framework

We need a common framework to compare our choices to make decisions consistently. Aligning our decision framework with the business model for the company makes it simpler to align the outcomes of decentralized decisions with the company's objective. 

At the company level, in for-profit companies,  this is typically the lifecycle profits of the product portfolio, but deciding on a standard set of objective functions is a critical first step in a Value Stream Management program. 

For instance, the economic framework for a company that provides outsourced product development services will be very different from that of a company that sells a B2B SaaS product. What one company considers an improvement may not be one for another. We are primarily interested in identifying those improvements to the flow of work that show significant benefits under the economic framework.

The economic frameworks are company-specific, but minimally, we want to connect revenue, cost, and risk drivers to value streams and analyze the impact of improvements in the flow of work in and across value streams on economic outcomes. 

There is no one-size-fits-all approach to doing this; you must build this from the ground up, considering the company's specific economic and strategic objectives. 

However, well-understood economic principles exist for managing the flow of work in product development systems, for example, in Don Rienertsen's work [1]. Applying such principles to build a decision framework for your company is one of the heavier lifts you must undertake before embarking on a full-scale Value Stream Management program.  

2. Value Streams 

Value represents a product's specific customer benefits: why a company attracts and retains customers. Value streams are the mechanisms by which a company fulfills those value propositions, and value stream maps visually represent these fulfillment workflows. Values streams can be nested, and these relationships between value streams can shed light on the contributions of component value streams to an overall value stream and, transitively, on economic outcomes.

3. The Value Chain

The value chain comprises the macro competencies, people, processes, technologies, and assets the company leverages to create customer value. Custom software assets, including the codebase representing the company's differentiated IP, are critical value chain components for companies making software products.

4. The Value Stream Network

The value stream network represents information flow across a value chain within and between value streams. An ideal model is a time-varying network representation that captures the dependencies between value streams, the value chain,  and the workflow at varying granularity levels across this network. 

But, for many decisions, it is sufficient to model and analyze lower-fidelity models using various mapping methods. 

Either way, you must make decisions with a clear picture of the network in mind.  Indeed, most value stream improvements are, in fact, improvements to the value stream network. 

5. Strategy, Alignment and Measurement

The goal of Value Stream Management is to invest in those workflow improvements that will maximally impact economic outcomes, given the constraints imposed by the value chain and value stream network and the budget available to make improvements.

Thus, it is critical to align improvement strategies with business strategies. 

A transparent and visible measurement framework that collects trustworthy data and connects improvements in the workflow to economic outcomes is critical to making this happen. 

The measurement framework is very context-specific - no one-size-fits-all set of measurements is appropriate for all Value Stream Management programs. 

Careful design of the measurement framework is critical to setting up a value stream management program for success. 

The Perils and Pitfalls of VSM Adoption Today

It would be surprising if the scope of what we have called Value Stream Management above does not scare most readers away. 

Indeed, one of the biggest pitfalls of acquiring this capability is trying to do it top-down with heavy-weight, one-size-fits-all frameworks and tools. Many challenges with VSM adoption come from trying to approach it this way. 

VSM adoption can work very well as a bottom-up process, provided you choose to pilot a VSM initiative on an economically significant cross-functional value stream for the company. 

By paying careful attention to all the elements above to make the connections between the economics of the value stream and analyze the flow of work through the value stream network and its dependencies, you can bring clarity to the constraints that limit the efficacy and efficiency of the way the value stream fulfills its value proposition. 

The key is to look at this as a cross-functional improvement initiative, first and foremost, with a limited blast radius within the organization, but to do this from a value stream management lens by considering all the elements above during the pilot. 

The most significant barrier to adopting Value Stream Management is difficulty changing behaviors. You need to understand the barriers to change in the small to ensure these efforts will succeed in the large.  Therefore, an essential requirement from a successful VSM pilot is to demonstrate a measurable improvement attributable to organizational changes identified in the value stream analysis. 

Low-fidelity visual representations and models, augmented as needed with real-time visibility and data from in-place measurement tools like those provided in modern engineering management platforms like AllStacks, can do most of the heavy lifting needed to understand and validate the value provided by adopting a VSM program without requiring substantial up-front investments in process changes or infrastructure. 

In their upcoming book, “Flow Engineering,” [2] Steve Pereria and Andrew Davis introduce a lighter-weight approach to value stream improvement.  The practices and techniques of Flow Engineering provide an easy on-ramp for companies wishing to start adopting VSM “in the small” before gearing up for adopting a full-fledged VSM program. 

From my perspective, the critical difference in focus in progressing from Flow Engineering to VSM, besides the overall scale of the problem, is the explicit consideration of the economic model in decision-making. 

While economic concerns can be abstracted when considering single value streams or improvements in local segments of a value stream, a VSM program can only work across value streams with a transparent economic model with high-level buy-in governing it.

Therefore, once you have proven the effectiveness of VSM on a small number of value streams, it is essential to map out the value stream network as a whole, clearly map out the economic model for the value streams, and articulate the value stream improvement strategy in terms of the impact on this model. Senior leaders must drive this activity, a prerequisite for larger-scale VSM adoption. 

Once this governance structure is in place, consider building or buying tooling to manage the VSM program. However, we must emphasize that VSM as a discipline is still in its infancy in the software industry, and we are still learning how to do this effectively. Many of the existing VSM Platforms in the market solve relatively small subsets of the requirements for a robust VSM program, so evaluate them with this in mind.

In many cases, you can get far with relatively lightweight methods to gain experience and understand what leverage a commercial VSM platform will bring to your program before prematurely locking yourself into an overly prescriptive tool. 

In general, though, the principles needed to manage a VSM program are clear, and the know-how to apply them and the technologies required to support larger-scale implementations continue to evolve rapidly, so it is worth revisiting the options here frequently. 

Ultimately, VSM is vital because organizations that acquire this strategic capability will have a significant competitive advantage in the coming years, and it is more important to learn how to exercise the organizational muscle movements you’ll need to master before you can get good at it. 

References

[1] The Principles of Product Development Flow, Donald Reinertsen. 

https://www.amazon.com/Principles-Product-Development-Flow-Generation/dp/1935401009

[2] Flow Engineering, Steve Pereira and Andrew Davis, 

https://itrevolution.com/product/flow-engineering/