Value streams and value stream networks

Rather than producing features with the lowest cost per unit, the focus shifts to producing features with the lowest learning cycle cost. Organising delivery teams into value streams is a fundamental shift from ‘economies of scale’ to ‘economies of flow’.

Value streams represent the entire process of value delivery to the customer, from business strategy and ideation, all the way to measuring usage and adoption. Value flows from customer need to customer delivery. Value streams allow organisations to arrange delivery processes into product-focused streams that deliver tangible customer and business value.

Value streams in software product development also have some fundamental differences from their original inception in manufacturing. Value streams in software product development are not like linear manufacturing processes that focus on building products from a completed design.

They are complex collaboration networks aligned to products that incorporate both design and implementation, as it is impossible to separate design from implementation in software as it is in manufacturing.

When design and implementation occur together, it introduces the possibility of work and information following a broader and less predictable set of paths on the way to the customer.

A value stream encompasses the most likely flow of value from idea to the customer, whilst acknowledging that decisions and activities may occur outside the value stream for some work items that follow less predictable paths before they reach the customer.

Value streams require a specific set of cross-functional skills at any point in time aligned to the product's lifecycle. Based on the most probable flow of work and information centred on a product, value streams try to encompass all the people, practices and tools involved in delivering value across the entire software development lifecycle.

By measuring flow, it becomes possible to adjust the composition of teams and skill sets as the product matures and responds to persistent delays within the value stream or broader network.

Historically, a distinction has been made between operational and development value streams. Operational value streams involve the day-to-day processes of delivering products and services to customers, for example, a bank loan application process.

Development value streams focus on creating new products or services, such as a customer relationship system that supports part of the loan application process.

This distinction is typically driven by the constraints of underlying heritage systems where deep specialisation prevents shared ownership and contribution by different teams.

Modern architectural patterns can free organisations from these constraints allowing a more flexible composition of skills and reducing the need to distinguish operational and development value stream types over the long term.

What is a 'value stream network'?

This illustration shows a value stream network extends connections from the value stream into the broader organisations to enable the flow of value to customers.

As customers pull valuable features that delight them, it is possible to trace back through the organisation to understand all the nodes through which work flowed for each of those features. The flow is not linear. It’s not a batch process and features don’t always follow the same path.

Value flows across a complex, interconnected, dynamic network. You can’t even predict all the nodes a feature may touch in advance. For example, an internal security expert might randomly sample features and determine that one needs remediation before being released to customers.

In Project to Product, Mik Kersten introduces the concept of the ‘value stream network’ to describe this interconnected network within an organisation and how nodes must work together to deliver end-to-end value to customers. The value stream network is a socio-technical network of interactions, handoffs and dependencies between individuals, teams and technology in the organisation. Value flows through the interactions.

Understanding and optimising value stream networks is the management paradigm of the digital age, requiring leaders to think differently about how to organise teams, measure performance and optimise the system as a whole.

Whether your organisation has generally organised around value streams or not, the concept is particularly important in the context of new product development. New products can be delivered through value stream networks centred around a new product value stream.

Whilst the value stream will try to encompass all the skills to go from concept to cash within the stream, dependencies will always exist back into the broader organisation through the value stream network. Dependencies may be on other teams to undertake work such as changes to a heritage system or they may be on policies established by centralised functions or departments within the organisation.

There are many examples of policies in the value stream network that can affect the flow of value including data protection and privacy, access control, incident response, compliance with industry standards, vendor selection and management, performance evaluation and career development frameworks, open source software usage, release management and deployment procedures, intellectual property protection and licensing agreements etc…

The shape of the value stream network changes over time as dependent nodes appear and disappear as the product matures and as policies are applied or changed. A one-time policy check may apply early in product development, such as a security audit on a specific technology and then disappear from the value stream network.

Other nodes may be present over the long term, such as access control configuration. Some nodes only light up for a fraction of the work that flows through the value stream network, others light up for almost all work.

Untangling your organisation

As Kotter outlines in Accelerate, organisations move from network structures towards hierarchies the larger and more successful they become. This tendency towards hierarchies is driven by the perception that hierarchies are more efficient for managing day-to-day operations at scale and providing clear lines of authority and control.

People are generally more familiar with hierarchical structures, making them easier to default to for their stability and reliability. Whilst hierarchies have benefits, they tend to become the dominant structure, leading to inefficiencies where they are less suitable.

As hierarchies take over, Kotter argues that organisations often become slower, less agile and less innovative. The network structure that may have driven initial success gets suppressed or replaced.

Tracing work from concept to cash through a hierarchy is often a tangled, unpredictable path full of delays and impediments, the flow of which is nearly invisible to the teams that contribute towards product evolution.

Work flows through hierarchies serving many different internal needs, locally optimised for departments within the hierarchy. Whilst this structure has grown to support your existing business, it will not support the innovation your future organisation needs.

Hierarchical structures are slow and inflexible in handling rapid change and stifle innovation and agility. Hierarchies will not allow the flow required for your new bet to succeed. Your current organisational structure is optimised for mature products, not for introducing new ones.

Reintroducing a network over an established hierarchy needs to be undertaken deliberately and with care. Established hierarchies tend to resist change, further entrenching themselves and making it harder for network-like structures to coexist.

Kotter proposes a dual operating system where the traditional hierarchy coexists with a more agile, network-like structure. Value streams offer a way to reintroduce network structures that help establish flow and optimise the delivery of new products early in the product lifecycle.

Focusing on new products initially minimises the impact on existing hierarchies, allowing the value stream to form successfully around the new product. The value stream becomes a container in which new technology, ways of working and behaviours can emerge, making it possible for both network and hierarchical structures to coexist.

Value streams can power business model innovation by introducing flow as you deliver new products and helping maintain flow as the product evolves.

If you’d like to book a free 30-minute chat about value stream networks and how they might be applied in your organisation, book a time with me here. Or you can email me here. We’d love to speak to you/hear from you.