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SPaMCAST 543 features our essay on value chains.  In this essay, we tackle the mixed up world of Value Chains, Values Streams and Process Maps. This isn’t a vocabulary test but mixing the words up can cause a mess. Let’s solve the problem.

As a reminder – I am doing a workshop on value chains at QAI Quest 2019 (May 13 – 19 in Chicago). Do you need a discount?  Register at www.qaiQuest2019 using the code Speaker10. Let me know and we will do a hangout with Jeremy and myself!

In the SPAMCAST 543, Gene Hughson’s returns with a new entry in his Form Follows Function column. Gene and I are beginning what turned out to be a three column set on solution architects. Today we begin by discussing just what the heck is a solution architect is and does! (more…)

Seeds grow flowers!

Taking a very binary view of why people expend the effort to create value chain, value streams, and/or process maps, there are two reasons for mapping. The first is to generate a cost advantage by increasing efficiency. The second is to generate product differentiation. Each reason requires information about customers, how raw materials are transformed, and how the product is delivered.  The analysis and decision based on the maps are very different. Seed questions are a useful gathering data in a repeatable manner. Here are some sample mapping seed questions: (more…)

You have to see the data to use the data!

Value chains, value streams, and process maps require data and knowledge to create.  Regardless of the level of granularity none of these maps magically leap onto a sheet of paper in a final consumable state. Getting the data requires planning and …work. (more…)

I recently presented a workshop on value chain mapping to the NE Ohio Scrum Users Group (note for those who say user groups are passe – this is one of seven heavily attend users group that I attend in multiple cities). Preparing for the workshop and then based on the reaction of the attendees, it became very apparent that three terms are often conflated or confused. The three concepts are value chain, value stream, and process map.  Each concept is a reflection of different level of analysis each are necessary to develop a solid understanding of how a piece of work is transformed into a shippable product and identifying the customer you are trying to serve. (more…)

 

Value is in the eye of the beholder.

When deciding which piece of work gets included in a product’s portfolio value is touted as the most important arbiter of priority.   Value is so important that the first of the twelve principles in the Agile Manifesto includes the concept of value.

“Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.”  

Clearly, the value is a core tenant in the Agile community.  But . . . the word has definition issues, does not have a single accepted unit of measure, and can relate to lots of different attributes; therefore, it can generate LOTS of different opinions.  In Value: Looking for Value in All of the Right Places, we provided a number of questions to prime the pump when mining for value.  The essay is a starting point, not an ending point.  Because there are many potentially different aspects contributing to value we need to recognize that sometimes the value is driven by perspective. (more…)

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There are those who believe that implementing a capability team is as easy as identifying a group of people, putting them together, and then doing a few team building exercises. Instant team! In the simplest terms possible – they are wrong.  There are four complicating factors that have to be addressed. (more…)

It is all about perspective

It is all about perspective

Developing a Value Chain Map can provide substantial value. It is a profile of how raw materials are transformed into a product and delivered to the organization’s customers. The structured process used to develop the map helps to identify bottlenecks that can be removed to increase efficiency, or at least areas for further investigation. Unfortunately developing a Value Chain Map represents an investment of time and effort and problems can occur on the path to development. I generally see three basic problem areas.

  • Approaching Value Chain Mapping as a single pass effort
    • Developing a Value Chain Map is generally done as an iterative process, much like peeling an onion.  While this might sound like a style issue, I have found that a more complete map is generated if the person or team developing the map gets through the entire process once and then goes back to debate and fill in the gaps. It is easy to get bogged down on a specific step or topic and then rush to generate an overall view.  The only step in the process described here that I would obsess over is setting and understanding the goals.
  • Pursuing the wrong perspective
    • The greatest potential error is that of perspective. The focus of a Value Chain Map needs to be on the creation and delivery of an external product. A service delivered to clients is equivalent to a development and development of a manufactured product. Focusing on an internal or intermediate product, for example on an internal data warehouse of client information, shifts the focus off improving and understanding the flow of the ultimate product. Therefore improvements may or may not improve the amount of delivered value. You often see this problem if a support process has been mistaken for a core process, or the goal of the Value Chain Mapping exercise is too restrictive (too narrowly focused) so that you can’t examine the whole process.
  • Complexity
    • The examples of Value Chain Maps in textbooks and articles are generally not overly complex. Explaining complexity is difficult, so the examples (like our publishing model) tend to be simple. Real life value chains tend to be more complex, because organizations tend to have more than one product causing parts of the Value Chain to intersect and interact. A comprehensive map needs to describe interacting and competing channels. You must take care to ensure that any simplifying assumptions do not simplify away the value of the exercise.  You need to validate all simplifying assumptions against the goals of the exercise.

Value Chain Mapping provides value by exposing the direct product flow, how indirect process support delivering value and bottlenecks. I am not sure it is an overstatement to say that the value that understanding your Value Chain is incalculable.  But only if done correctly. Approach the process iteratively, focus on real products and respect complexity and it will be difficult to miss the mark.

A Value Chain Map shows the path to deliver value.

A Value Chain Map shows the path to deliver value.

Value is generated through the transformation of raw materials into a new form, which is represented by a value chain. The value chain concept is generally applied to whole organizations, but can be applied to an individual business unit or can be extended to the whole supply chains and distribution networks.  As with many popular analysis techniques are there are myriad variations on a core set of steps. The steps I use are:

  1. Define the goals of the Value Chain Mapping exercise.
    Defining the goals serves several purposes.  First, it sets the goal posts for defining when the analysis is done.  Second, the definition identifies any modifications that are required in the process. The reason that variants on the core steps exist is address specific questions.  For example, if we are interested in the speed of the flow we will need to capture measurement data specific to step duration.
  2. Define the core process categories.
    Develop a list of the core processes from the entry of raw material through the final consumption of the end product.  For simple products the process should be represented in six or seven steps that are directly involved in the creation of the product.  Remember that the Value Chain Map is a high level view of the transformation process.  More complex scenarios that need to represent multiple products or multiple transformation channels will more steps.
  3. Map the main actors.
    Actors are the groups of people that are involved in the process.  In our ongoing example of publishing a book, the main actors might include authors, editors, proofreaders, printers, marketers, distribution personnel, sales people and consumers (not a complete list). I generally suggest creating a second, actors map that is presented either as an overlap or directly below the map of the processes (step 2).  I have also seen actors shown as swim lanes overlaying the process map.

    • Variant: A table could be developed showing a breakdown of the core processes into the specific activities for each of the classes of actors.
  4. Identify the products for each set of the core process.
    Identify the outputs of the process steps as they are transformed from raw materials, to intermediate materials and to final products. Integrate the outputs identified into the core flow. The goal is to refine the Value Chain Map to show how the product is handled, transformed and transported at each process stage.

    • Variant: Identify the information and knowledge capital flows that are generated and integrate those flows into the Value Chain Map. Information flows are often bi-directional.
  5. Optional: Map process measures and metrics.
    Information like step duration, product volumes, counts of actors (five editors) are often needed to address the goal of Value Chain Mapping exercise. The measures and metrics required will be a reflection of the goals identified in step one.
  6. Map the linkages between steps and actors.
    Map the linkages (how the steps and the actors are related) then classify the linkages (temporary, network or long term and influences). Show each type of relationship differently.
  7. Identify and map support activities.
    Add supporting steps to the core map.  In the publishing example, IT and HR would be examples of supporting activities.

    • Variant: Add influence from the environment surrounding the organization.  Examples might be industry associations, government departments or other organizations that exert an influence on how the product is transformed.
  8. Optional: Identify constraints for each step.
    All steps will have constraints. I generally present these in a matrix appended to the map.
  9. Develop a solution that satisfies the goal of the analysis.

Developing a Value Chain Map requires an investment of time and effort, however the formal process of generating the map provides a substantial amount of structure to identify bottlenecks and areas for further investigation.  The first step of process, defining the goal of the exercise, is critical, as it will help you determine how to craft the value chain so that you know when you are done and so that you ensure that there is value in the Value Chain Map that you document.

Value Chain Maps show how products go from raw materials to ready for the shopping cart.

Value Chain Maps show how products go from raw materials to ready for the shopping cart.

Value Chain Maps have two major categories of components: activities and linkages. In many cases the map reaches it maximum explanative power only after the user begins to add annotations such as flow measures, like duration, or the quantitative value that each step adds to the map.

Activities generally fall into three categories.  The first category represents direct activities.  Direct activities create value.  Returning to our publishing example from Monday, the activity that turns a manuscript galley into a book directly adds value (unless the book does not sell), therefore is a direct activity.  The second category represents indirect activities.  Indirect activities exist to help direct activities run smoothly. Information technology groups and human resources are classic examples of indirect activities. In our publishing example, the Human Resource Department would make sure there are proficient printers so that the book can be printed (printing is the direct and staffing function the indirect).  The third and final category of activity is quality assurance (QA). These activities ensure that the product meets the standards.  In our publishing example, the inspection of the printed books to ensure all the pages are included and that the printing is in register would be an example of a QA activity.

The second category of components is linkages.  Linkages represent relationships that can be categorized into three broad groups.  The first is temporary, also called on the spot or transactional relationships.  These types of relationships exist for the cycle of the specific transaction.  For example, a publisher that buys a specific manuscript from an author in a one-time transaction would fall into this category.  These transactions require different levels of interaction and support than a long-term contract. The long-term contract is a network relationship, which is deeper and more involved.  These types of relationships reflect high levels of trust and differing levels of support.  A publisher that has Steven King under contract would leverage different services, activities and levels of support to deliver his books to the distributors.  The first two types of linkages represent the conduits that the product moves through. The third type of relationships represents influences on value chain.  Influences can provide external control or enabling services.  Examples may include government censorship boards, occupational health and safety regulations and organizations that provide transportation infrastructure.

These two basic components are required to create a Value Chain Map.  Drawing the basic map is just the beginning understanding and analyzing the map.  Measures and metrics that provide additional information should be added.  For example, if our publishing example had three delivery channels to the consumer: direct consumer sales, distributors and direct bookstore sales, adding the percentage of product and the profit margin for each channel would be useful when deciding how to allocate support like IT.  The data that you add to the map provides the color commentary to the map’s play-by-play description.

 

Value Chain Mapping shows the big picture

Value Chain Mapping shows the big picture

What is the difference between a Value Chain Map and a Process Map? A Value Chain Map provides a high-level view of a company’s flow of goods or services from raw material to customer. It is a lean technique that has it origins in manufacturing. The raw material for an organization that ships software will be knowledge and effort with shiny DVD’s or software as a service (SAAS) as the final product. A Process Map, on the other hand, focuses on the sequence of a process, including the tasks, activities and parameters. The Process Map is generally constrained to a specific set of activities within a broader organization.  Therefore, a Value Chain Map generally differ from Process Maps in two areas:

  • Level of Focus or Granularity
  • Measures

The first difference between the two mapping methods is the level of focus.  Value Chains represent the big picture of an organization.  Models such as Porter’s Value Chain break the organization down into approximately ten components that represent all of the processes within the company. A rule of thumb that I use for whether I have the scope right for a Value Chain is whether the sub-group within the organization has its own profit and loss statement. However, this can sometime be a red herring, as organizations sometimes create mock P&L statements to get leaders to run their portion of the organization more entrepreneurially.  Process Maps are a deeper dive in to the organization. They detail tasks, activities and, most tellingly, decision points. A rule of thumb for Process Maps is that individual processes tend to include decision steps and generally do not have a P&L statement.

Measures represent a second area of distinction between Value Chain Maps and Process Maps. Value Chain metrics are focused on cycle times (e.g. time to market or order to delivery time), delivered defect rates, and wait times that effect delivery, headcount, inventory levels and P&L.  These measures are focused on the flow of work through the entire process.  For example, if an order was placed on June 1st and delivered on June 30th, the order-to-delivery measure would be 30 days even if the order sat in someone’s inbox for 29 days and was only acted on for a single day. Measures derived from Process Maps tend to focus on the effectiveness and efficiency of a step or group of steps (e.g. the effectiveness of software development).  These measures tend to focus on capturing and comparing the inputs and outputs of the step.

Stephen Parry, author of Sense and Respond and guest on SPaMCast 220, when asked, “What are the biggest misconceptions of Value Chain Maps?” tweeted the following: “what purports to be a Value Chain map is rarely a value stream, it’s usually a process map for a business unit, and it NEVER includes the customer’s consumption steam.” Stephen’s comment is an indication that most Value Chain Maps do not embrace the whole value chain. Remember, Value Chains represent how an organization transforms its raw material into value for their customers at a high level. Process Maps provide a representation of the inputs, outputs and decisions that occur at the task or activity level.  Both views are required because typically changing the effectiveness of the overall value stream will require understanding and making changes at the process level.