Advisor

Ingredients for Enterprise Agility, Part VII: How Value Streams Create Enterprise Agility

Posted August 19, 2021 | Leadership |
Ingredients for Enterprise Agility, Part VII: How Value Streams Create Enterprise Agility

In this Advisor series, I have been sharing practical lessons from leading Agile transformations as a coach. Enterprise coaching combines in-depth knowledge of contextual Agile with cultural change techniques. Here in Part VII, I look at the importance of value streams in creating enterprise agility.

Systems Theory

Fundamentally, you should recognize that your organization is a system. Its parts interact in ways that create your products or services and portray your brand image. Systems theory states that we must look at the whole and not focus on the components. Take, for example, the human body. The essence of the body is that it has life. An organ taken from a body doesn’t have life; the brain cannot think outside the body. It is only when the body is whole that thought and creativity can happen. It is the same with an organization; it comprises parts, sales order processing, marketing, design, warehousing, distribution, and information technology. The way these components combine breathes life into your organization. These combined components are called a value stream.

There are three types of value streams:

  1. Operational value streams provide your products or services; in a commercial organization, these value streams generate cash.

  2. Support value streams enable your organization to function (e.g., financial accounting and recruitment). These value streams do not generate cash but support the operation so that it can.

  3. Development value streams create capabilities for the operational and support functions (e.g., they may create new products or services or provide new software applications).

All value streams start and end with a customer. In the case of the operational value stream, this is the paying customer. In the support value stream, the customer may be the shareholders, regulators, or employees. Finally, the customer of a development value stream is the individual or group that requested the development.

How Value Streams Create Enterprise Agility

All value streams have specific characteristics; they have limited capacity, involve people, processes, and technology, and create something somebody wants — the value.

All systems have a capacity constraint, a fact many organizations ignore. Why? Because most organizations are orientated around functional disciplines. Typically, perhaps except for an IT department, value streams flow between these functions. In most firms, it is the function that has the budget, has objectives and key results, and gets measured. Consequently, we micromanage the crap out of a function while the systems that deliver the value are ignored mainly.

Order processing time, customer experience, and organizational reputation depend on how the systems – the value stream – operate. If an organization piles too much work in any value stream, it slows down. For example, when analyzing IT portfolio management at a UK life insurance company, I found that it had planned 280 projects for the following year. In the first days of January, all 280 activities went live, with over 70% of them remaining in a dormant state after the first quarter! The company may have started all activities according to the portfolio management system, but it had insufficient capacity in the form of people to start creating the value! If the UK insurer had looked at the whole value stream instead of just the portfolio management element, it might have realized the fallacy of the improvements they were making.

Enterprise agility is created by looking at value streams and optimizing them end to end for the purposes for which they were created. We have long been taught that the definition of quality is fitness for purpose, and so it is with value streams. For example, in my current assignment, data shows that some customers get exhausted trying to place an order. As a result, the net promoter score is extremely low. The organization has mapped out the customer journey end to end and is now focused on improving the whole. The organization will do this in stages because it still has to service new customers as it improves.

Enterprise agility is created by having the inbuilt ability to alter value streams quickly. Initially, this requires the organization to identify and analyze its critical value streams. In my client’s case, the organization studied the customer journey and decided how to improve it. The improvements have placed requests for software changes in development value streams.

Value Stream Analysis: A New Way

Realizing that value stream mapping and analysis as practiced in Lean can take a long time, the new Disciplined Agile Value Stream Consultant (DAVSC) program from the Project Management Institute (PMI) creates a new way to improve value streams rapidly. From studying many organizations, PMI realized that fundamentally firms in the same market sector operate the same at a high level. It calls this the “idealized value stream.” For example, for an online retailer, the sales value stream could read:

Create item on the portal ⇒ customer buys ⇒ item picked in the warehouse ⇒ item shipped ⇒ customer asked to review item

The “customer buys” part could be expanded if the organization was selling alcohol; for example, there may be an age verification step. In addition, if the item is to be purchased on credit, then a creditworthiness check would be needed.

Creating an idealized value stream is a quick way of looking at the end-to-end workflow, which can be modified as further discovery occurs. In addition, the value stream can be scrutinized from the view of strategic objectives. For example, if operating costs were too high, the value stream scrutiny could be from a cost-reduction perspective. Similarly, if customers complain that deliveries are too slow, the scrutiny could look at waiting time.


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Using a workshop approach, stakeholders can evaluate the value stream to identify where improvements can be made. At my client, we have created a Kanban board using Jira. The columns on the board reflect the steps in the value stream. We have created work items on the Kanban. Then, as work flows through the value stream, we update Jira, and we can then use the control charts to identify where delays occur. As we refine the value stream, we have the benchmark data created by Jira to measure the impact of the changes we are making.

Metrics & Measures

If our goal is to reduce the costs of servicing a customer order, we can calculate a cost per transaction based on departmental budgets and the workflow data from Jira. To keep the analysis fast and straightforward, range of magnitude data can be accurate enough. It is not as if this is an activity-based costing exercise! All we need is to know where the big-ticket cost parts of the value stream lie to attack them. Similarly, we can look for areas where significant delays occur if we want to reduce order-processing time.

As each improvement concludes, the latest process and measurements improve the value stream map. Therefore, the value stream map becomes less idealized and more actual as time passes and improvements are made.

Suppose sudden change is needed, and value streams must be altered in response to market conditions or opportunities. In that case, the idealized value stream approach can be employed to create agility. Furthermore, using the value stream approach aligns the organizational parts with responding to the threat or opportunity.

Reverting to the “body as a system” analogy, value stream analysis is like adrenalin in the human body. In humans, adrenaline triggers the fight-or-flight response. Adrenaline works on the whole system causing noticeable increases in strength and performance and heightened awareness in stressful times. The use of value stream analysis creates a similar whole system response in organizations.

Conclusion

This Advisor outlined how value streams are used to create enterprise agility. The first step is to understand the what and the why of the value stream. Second, we must understand how customer value is created. Finally, the analysis aims to identify what is getting in the way of customer value creation. Appropriate metrics and measures help identify constraints of capacity or quality that inhibit customer value flow. Using value stream analysis enables enterprise agility by allowing the organization to adjust to threats or opportunities rapidly. In the next Advisor in this series, I will outline how progression metrics are utilized in creating enterprise agility.

[Read Part VIII now.]


Series Recap: In Part I, I outlined the transformational change necessary to create enterprise agility, while Part II discussed using a plan to create structure and alignment for the transition. In Part III, I outlined the leadership team’s role in transformation, and in Part IV, I suggested how to create and maintain transformational momentum. Part V described the role of the Agile coach in supporting and enabling enterprise agility, and Part VI examined Agile certifications and whether they add more value to the organization seeking agility or the certifying body itself.

 

About The Author
Jon Ward
Jon Ward is Senior Consultant with Cutter Consortium and a member of Arthur D. Little's AMP open consulting network. As CEO for Beneficial Consulting, he focuses on the cultural and transformational aspects of implementing Agile. Mr. Ward currently acts as an Agile catalyst, producing significant bottom-line results for software and business change initiatives. Using Lean-Agile techniques, he redesigns target operating models for efficiency and… Read More