Identify value streams and business processes

Further building on the Lean principles, and now that you have good insights on how to determine Customer value, let us zoom in the second basic Lean principle; which is to identify value streams and business processes. Value Stream Map

Based on my experience, what is called ‘value stream’ according to Lean is quite the equivalent to a ‘value chain’ or to high-level business processes for the BPM-world. Hence, this blog is not only for organisations considering Lean, but also for those who intend to apply BPM.

As you know meanwhile, Lean has its roots in Manufacturing (more particularly originating from the Toyota Production System). However, Lean – either with or without Six Sigma – is nowadays quite commonly used in many service organisations as well, including non-for-profit and governmental ones. Even though service organisations, may rather apply a BPM-approach, the main goal aimed by both management disciplines, i.e. Lean and BPM, are quite the same: continuous process improvement so to achieve operational excellence.

The importance of value stream maps or process diagrams

Do you like driving a car in a dense fog? I guess not… Well, managing operational activities without clarity, thus not knowing how these activities are related, may seem quite the same. The blog 9 reasons to know and model your processes explains more in details why process diagrams are so important; these reasons are obviously valid for value streams as well.

However, do not forget that mapping and analysis are ‘waste’ (i.e. valueless) if they do not serve any (improvement) purpose; indeed, take care not to fall in the “analysis paralysis” trap. Maps and process diagrams are thus meant for use, not for decoration. And the way you will map, e.g. which characteristics or model objects you will use, depends – of course – on the purpose(s).

This blog focuses on the identification of an organisation’s main value streams and business processes at a high-level; say the big picture map. It does not describe in details the many characteristics which a value stream map or a process diagram may exhibit; this is for a future blog…

Manufacturing versus service environments

Let us first look at the main differences between products and services, as the nature of the final output – either a product or a service – has an important impact on what the value stream looks like and on how these may be related to others.

Manufacturing

One of the main differences between products and services is the intangibility: a product can be touched and sensed, while a service cannot, what makes it more difficult for the consumer to get a clear image of what s/he can expect; it makes it also more difficult to assess the quality and to assure high degrees of reproducibility and standardisation. Particularly when the service consumer also is part of – or participates in the execution of – the service; which is often the case.

The fact that a service cannot be stored (as it is delivered and consumed at the same time), makes services even more sensitive to demand fluctuation. Indeed, storage cannot help to ‘buffer’ the gaps between demand and supply capacity.

Value streams in manufacturing environments

Manufacturing environments have the advantage that streams are quite visible and tangible, as these flows are physical.

Identification of value streams in manufacturing typically starts with distinguishing product families, the so called product family analysis. This consists of breaking down the full product range into groups which are manufactured – i.e. being operated – more or less the same way. Indeed, products of a same family most often share a significant part of a value stream.

Let’s consider an example: Honda produces cars, motorcycles, lawn mowers, etc. These are typical product families. While cars like the Accord or the Civic may be manufactured on the same assembly line, it is unlikely that these cars would be produced on the same assembly line as Honda’s motorcycles, let alone the same line as its lawn mowers.

But the difference is not always as striking as the distinction between cars and lawn mowers. That’s why following practical method – called product family matrix – is quite effective to identify product families, and from there, value streams.

Put the products in one table dimension, e.g. vertically and the main process steps – say operations – in the other, e.g. horizontally.

Product family matrix

This way, it becomes clear which products belong to a same family, based on the operations they need to undergo. In the example, we see that products A, D and F belong to a same product family (cause sharing the same steps), while B, C and H belong to another, and E and G belong to a third family.

In more complex environments, say where lots of products are manufactured, distinguishing families only by the operational steps may be insufficient; and you may need to divide the product assortment even further in sub families. So, you may distinguish products A, D and F further according to other characteristics; for instance, based on the execution time of the steps, or on the overall process lead time, or still other characteristics.   

Business processes in service environments

Let’s first remark that service environments are not only present in service companies, non-for-profit, governmental or non-governmental organisations. But also in manufacturing companies; think among others about procurement, financial and accounting processes, HR activities, etc. Indeed, even in a manufacturing company these types of processes do not deliver a product as such. That’s why these are often called “supporting processes”, in contrary with the processes that do handle or deliver a product, which are called “primary processes”.

DematerialisationOf course, in a pure service organisation, even the primary processes are most often not dealing, let alone ending with a tangible product. Particularly in our digital era, where an important “dematerialisation” has taken place, but still further will increase. Think of how often you are getting cash from a manned bank counter these days; and how this will evolve with the increasing use of payments via smartphone. Even ATMs may become unemployed in the future…

But how do you start mapping business processes in an environment where these are anything but visible? In other words, how do you make business processes visible?

How to identify invisible business processes

Though below approaches are not the only ones to map the “big picture” – say the value chain -, they have proven succesful in practice.

Organisational context analysis

Analysing the context – as well outside as within the organisation – really helps to identify the high-level business processes.

External context

Find an answer to following questions:

  • Who are the customers and which are their needs? If these are not yet identified, see previous blog on Customer Value.
  • How are customer expectations, and quality requirements evolving (what are the trends)?
  • Which are other external stakeholders (e.g. suppliers, public authorities,…)?
  • What are
    • the mission (reason of existence) of the organisation?
    • the vision, e.g. what should it be within a few – say 5 – years?
    • the main objectives the organisation is aiming at?
    • its strategy to achieve these objectives and vision, and to fulfil its mission?
  • Which were the main changes in the organisational context, last year(s)?
  • How did the organisation deal with these changes?
  • Commercial companies should also apply Porter’s 5 forces model and identify (potential) new entrants, substitute products & services, the power of suppliers and customers, so to assess how these will evolve in the future. Indeed, these forces most probably tell something about (the nature of) your business processes.
Internal contextOrganogram

Consider the organisation chart and find out

  • What are the main organisational units and their respective responsibilities?
  • How do these units take their responsibilities? And hence, what main activities are there behind?
  • Which are the organisation’s core competences?

Have also a look at

  • the main technologies used within the organisation  
  • the IT-functional domains you can identify
  • existing business rules and procedures

List up and group all existing activities

A more “bottom-up” approach is to ask the personnel to list up all their regular activities, and then to group these (chrono)logically, i.e. according to their dependencies. The logical groups may then be considered as potential business processes.

Product-market-combination (PMC) to identify process variants

Notwithstanding this term is rather common in marketing and business strategy (where it is also known as Ansoff matrix), it is also valuable for the identification of business processes, more particularly to identify process variants.

Take for example a utility company, delivering energy like power (electricity) and gas to several markets: domestic customers, “SoHo (Small Office / Home Office) businesses and large industrial customers.

Product-market combination matrix

Though at a very high-level, the processes may seem the same – or may have the same names -, they are most often quite different. Think of sales and marketing processes which are very different for the domestic market than for industrial customers. But also all “time series” processes – from forecasting, through metering, to invoicing – are much different for these 3 market segments.

Also between the products, process variants can strongly differ. For example gas can be stored, while power – as such – cannot.

The use of this “product-market-combination” can even be applied in a derived form for non-for-profit organisations. In next blog, I will concretely illustrate how many processes and variants in a quite complex environment were identified, based on what Lind and Goldkuhl call a “Business process division matrix”, which is quite similar to the product-market combination matrix.

And you? Did you already identify value streams or business processes – from scratch – in the past? And how did you manage this? Please share your experience through below “Comments” box and get an e-book on value stream mapping (more than 140 pages) for free.

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