Value Stream Management: Let’s get real

As the father of eXtreme Programming and one of the key authors of the Agile Manifesto, Kent Beck has been one the most influential thought leaders in transforming how we build software.

In a recent interview with Dave Farley, reflecting on 25 years of agile software development transformation, he declared, “The things that haven’t changed that are really significant are the power structures around software development, and until those change, the test-driven developments of the world and the continuous integrations of the world are shadows cast by the power structure. And you can’t change the shadow without changing the reality.”

In many ways, the intent of Value Stream Management has been about transforming how the business and delivery teams integrate into a cross-functional Value Stream to accelerate the delivery of value. But Beck clearly implies that this change may not be happening. So, where are we in this transformation journey?

VSM is not about flow

Ask ChatGPT, and it will give you a definition of Value Stream Management (VSM) as “an approach or discipline that focuses on optimizing and managing the end-to-end flow of value within an organization. It involves analyzing, mapping, and improving the processes and activities involved in delivering products, services, or software to customers.”

For most, the term “value stream” refers to the sequence of steps and activities required to create and deliver value to customers, starting from the initial idea or requirement to the delivery of a product or service. And VSM is a business management approach to identify and eliminate waste within this value stream.

Using this definition, VSM is closely mirroring lean manufacturing process optimization. It sounds great on paper. And truth is, there is quite a bit of waste that this approach can remove, whether it is wait time, defects and rework, process time, ineffective communication, etc. But why is it that even companies with a strong culture of lean manufacturing are still struggling with software innovation? Case in point, Volkswagen software (CARIAD) just changed its CEO for the second time in the last twelve months.

Because, VSM is not about process or flow, it is about creating autonomy and accountability to enable the entire organization to pivot and optimize the delivery of value. It is in fact about dramatically increasing the effectiveness of the organization, not its efficiency.

It starts with value streams

If value streams are not the process of “a sequence of steps and activities required to create and deliver value to customers”, what are they?

Twenty-five years ago, Kent Beck and the 16 signatories of the Agile Manifesto wrote:

• Individuals and interactions over processes and tools
• Working software over comprehensive documentation
• Customer collaboration over contract negotiation
• Responding to change over following a plan

What they understood is that value gets created by teams of individuals centered around the delivery of customer value, through collaboration. It is time we recognize that the only way we change the “reality” Beck talks about, is by creating value streams which are a persistent collection of teams working together to deliver a product or service to a customer.

These value streams must span different functional areas within an organization, including but not limited to business, development, testing, operations, marketing, sales, and customer support. And to foster collaboration, they need to be carefully designed to create the right level of trust. This also means that there needs to be a key focus on right-sizing value streams in such a way that individuals know each other on a first-name basis.

Ultimately, defining value streams as a collection of teams has numerous benefits:

1. Value streams can operate semi-autonomously. Once funded, they can align and pivot based on the learnings from what they deliver to customers. “Respond to change” is one of the key values written in the agile manifesto. But it is oftentimes misunderstood: It is less about being able to respond to change, and more about embracing change to continuously improve and maximize customer value.

2. Accountability. In a traditional enterprise IT model, teams often work on “projects” based on negotiated requirements with the business. These projects are ephemeral. Engineers come and go. Fifty percent of engineering capacity may be coming from subcontractors. It is virtually impossible to create accountability in this kind of environment, or accountability reverts to some old-fashioned metrics such as Dora.

3. Capacity planning is a thing of the past. When value streams are defined as a process, organizations are left with the challenge of dealing with what Beck calls “power structures”. In simple terms, who gets funding for what? Ultimately, the mentality consists in bringing people to work, instead of bringing work to people. The latter is way easier.

Value stream anti-patterns

We engage with many organizations across the world who are at various stages of their VSM transformation. Many have been misled by flow bigots or the appeal of efficiency metrics. To be clear, they are getting benefits from re-thinking the way they are operating, but in many ways, they are stuck in only getting marginal benefits.

For the most part, we see these organizations continue to operate in silos, and consistently fall into one of two categories:

1. We like a contract-based approach

One of the largest European banks I recently met is engaged on their VSM transformation and struggling with capacity planning. In their case, value streams are defined as a product or service led by a business stakeholder, and the collection of technical services supporting it. These technical services are shared among many value streams and engineering is operating in its own silo independently from the business. During one of our conversations, the engineering leader claimed that he wants “engineering to be a black box, with a backlog as an input, software as the output”. And his commitment to the business is Dora performance metrics.

Every three months, the bank undergoes a global prioritization exercise across thousands of projects being proposed by these value stream business stakeholders, who compete for resources from the engineering delivery teams. Capacity planning is such a problem that the bank has built internal tools and processes to facilitate planning.

Instead of a collaborative model, this approach continues to follow a traditional contract-based model. The shadow doesn’t care about the reality, to use Beck’s metaphor. This is very much an artifact of an engineering-centric culture.

2. Just give me the money

When it comes to defining value and arguing for investment, business leaders tend to be loud. They often exhibit an arrogant certainty. This comes from a culture where we expect those in leadership and management positions to “know” where we are going and prioritize work. Many studies have proven that the loudest are oftentimes driving the bulk of the work that gets prioritized but little correlation exists between loud voices and value creation or optimization.

A few months ago, I met an organization that exhibits these traits. In their case, their value streams are very much aligned with departments whose IT budgets are roughly $1B, including thousands of developers.

The name of the game consists of justifying investment at the C-level based on corporate objective targets. Interestingly, these value streams adopt a lot of good practices in terms of driving visibility across the organization, creating greater alignment to drive velocity.

But oftentimes, they are still very much focused on driving efficiency at the practitioner level. In this case, the organization is primarily focused on increasing the number of lines of code produced by each developer per month?!?! But what about value?

Value remains very much something that is measured at the macro level based on corporate business objectives, and little connective tissue exists between output (what is delivered) and outcomes (value realized).

Go beyond efficiency, focus on effectiveness

What is common across all organizations adopting VSM is a keen focus on velocity and accelerating output delivery. In some ways, it is easier: One can easily instrument a process and measure lead cycle, cycle time, mean time to repair, or change failure rate. It is an easy conversation to be had at the leadership level using fancy dashboards.

But there is a missed opportunity. Without putting the customer at the center of the value stream and building trusted teams that operate under the now 25-year-old Agile Manifesto mindset, one can only improve efficiency, not the effectiveness of investments. In our experience, the ROI is one or two orders of magnitude more important when organizations focus on effectiveness.

Measuring effectiveness is challenging. It requires organizations to carefully plan experiments to learn and adapt. Oftentimes, this feedback loop may not be as quick as one would hope. But walk into any born-digital company or any startup—they only care about flow metrics to the extent it gives them a measure of how quickly they can learn from delivering something to their customers. It is about winning, not driving some vanity metric.

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