Organize around Value Streams
Lean Organization – Value Streams
Let’s talk about perhaps the most important change you will have to do in your Lean Transformation towards a Lean Organization. To organize around Value Streams.
When companies get started there are 5 guys working directly with the customers. Doing everything.
As companies grow the tendency is to split by specialization, creating departments. So, value needs to find its way within an intricate labyrinth of departments until it finally reaches the customer.
Obviously, everything gets slower, costs increase and quality, employee engagement and customer satisfaction suffer.
For some reason that escapes to my understanding, humans tend to believe that batching and division by functional specialization is the right approach to scale product development.
Well, it is not! You scale product development by identifying value from the customer standpoint, organizing around value streams to fulfil that value, establishing flow and implementing pull.
There is no such thing as Scaling Agile
What we have to do is easy, we have to grow and scale by applying the same principle that got us here in the first place. When you were just 5 people in a garage.
There is no such thing as scaling agile. That’s the solution to the wrong problem. There is one thing though: descaling your organization.
Anything you build on top of a batch-minded and siloed organization is not going to provide much improvement, it will only create frustration and ultimately the original structure and mindset will win.
Scaling agile is not putting some lean and agile practices on top of a batch-siloed bureaucracy. First you need to descale the organization.
And you do that, by three key actions which require strong leadership:
- Organizing around value streams
- Delayering your hierarchy
- Having value stream leaders reporting directly to the CEO
Organizing around value streams
Let’s take as an example a typical eCommerce.
Many eCommerces start by organizing themselves by technology components: FRONTEND, BACKEND, CMS, TRANSACTIONAL, …
The next step many take is to organize by departments: PRICING, ORDER MANAGEMENT, PAYMENTS, …
When the Agile wave arrives, and following the advice of Agile Consultants, many take another step and organize into customer journey steps: Acquisition/Inspiration, Exploration & Search, Transaction, Post-purchase, …
But, think about it from a customer perspective. A customer doesn’t get value from these touchpoints, he or she gets value from the whole stream. The problem is that most companies don’t understand value.
The key to organizing by Value Stream is to understand value. You need to understand what type of customers you have and what they value from your service. That could be different market segments, buyer personas, products, product lines or services.
I am not an expert in human behavior, but I can tell that women and men don’t buy in the same way.
These are the real value streams. Actually, when fashion companies report results they report by product line (men, women, kid, large size, home, …). When you go to the bricks & mortar shop you have woman, man, home and kids separately.
These are like mini-businesses on their own. And, for every mini-business you have a business owner. Which connects to our next point.
The Value Stream Organization
The value-stream is the organization of your value-adding activities.
Your traditional structure at the top (e.g., vice presidents of sales, marketing, engineering, human resources, operations, finance, and information technology) can largely stay the same.
Below this level, however, you should flatten out the organization so that the new Value Stream Managers or Value Stream Owners report to the CEO.
All companies have clearly identifiable value streams (product families) that can be grouped together and headed by a team leader.
The team leaders for product families or value streams are critical positions in a Lean organization. The value stream’s team leader will have everything required to take an idea to the market. They are ultimately responsible for the success of the product.
In effect, every team leader is running a reasonable-sized business. This requires people with broad capabilities and should attract high-potential individuals.