A value stream is a visual depiction of how an organization achieves value for a given stakeholder or stakeholders within the context of a given set of business activities [BIZBOK®]. It consists of value stages that are performed within the organization in order to create customer value.
If you are experienced in business process management, this definition sounds like the definition of a business process. And this is correct. A value stream is a business process that focuses on maximizing value for the customer. Value Stream Mapping (VSM) is a technique used in process methodologies such as ‘Six Sigma’ in order to understand how customer value flows through a process and how to identify waste in processes. When modeling value streams, organizations view themselves from an ‘outside-in’ perspective rather than the ‘inside-out’ perspective that were common in the ‘business process re-engineering’ projects of the last two decades.
Value streams are cross-mapped to capabilities, to show how a company orchestrates capabilities in order to create customer value.
Some examples of value streams are: ‘open account’, ‘buy stocks’, ‘order bank card’.
Why is it important to manage value streams?
- While capabilities define what a company needs to do, value streams provide a common understanding of how a company delivers customer value.
- Modeling value streams challenges business capabilities. Capabilities that do not participate in creating customer value can be dismissed.
- Value streams indicate which business capabilities are required to create customer value.
- Assigning IT-applications to stages of the value stream is a powerful way to discover process-cracks of insufficient IT-application coverage.