With the 2014 Lean Accounting Summit and my own Value Stream Management Conference coming up next month, I am more and more bombarded with questions about managing by Value Streams – a hot topic at both events. Well, here ya go:

Silos-vs-VSMValue Stream Management (VSM) is replacing the functional silo based organization of the company with cross functional teams tasked with maximizing the value created for the customers of each Value Stream. Each Value Stream has all of the human and production resources needed to meet their profit contribution goals. As a result each has its own uniqe cost structure.

Each VSM team creates its own basic business processes – supply chain, quality management, product management and development, etc. – needed to optimize value for customers and resulting profits.

 

 

  • Aligned with strategic objectives
  • Focus & Simplicity
  • Faster, better decision making and problem resolution
  • Clearer understanding of costs
  • The end of ‘one-size-fits-all’ management processes

 

Why VSM has proven to be so powerful

For the same reasons Value Stream Mapping is the most potent tool in the lean tool box, Value Stream Management is the most effective approach to organizing the business. Taking a customer's need from inception to fulfillment requires a seamless, waste free transfer of material and information across the various functions within the business.

Value Stream Management is essentially doing a value stream mapping exercise that never ends. After all, why draw out the value stream map; identify all kinds of problems and opportunities for improvement, and then go back to the old structure that (1.) created all of those problems; and (2.) made it impossible to see them or to identify all of those juicy improvements without the Value Stream Mapping exercise?

VSM knocks down the barriers in a traditional organization, streamlines communications, aligns goals and focuses everyone on customer satisfaction and attainment of strategic objectives.

VSM simplifies the business. Much of the complexity of ERP systems, many of your meetings and quite a bit of your email traffic is waste when trying to tie the function silos together. All of that – as well as the usual inter-departmental conflict – disappears in a VSM organization. The team works together in a state of constant communication, quickly making decisions and resolving problems.

In short:

Simplicity, Focus & Speed

The case for VSM is really pretty easy to make - besides simply pointing to ATC, Nicholson Manufacturing, Wahl Clipper and so many other companies that manage by VSM, and point out how much more they sell and how much more profit they routinely book than they did before realigning into Value Streams and then compare that to any of their competition - it makes sense.

An easy way to make the case for VSM is to simply flip the question. Imagine a company managed by cross functional teams with customer specific business processes, all measured by their Value Stream's contribution to overall profits as well as the degree of customer value they create.

Then imagine some bright consultant came along and suggested an entirely different approach. What if he urged them to break up the teams and organize everyone by function, and then physically separate them so people couldn’t talk to the others within their process any more without picking up the phone or sending an email? What if he suggested emails and meetings instead of ongoing personal communications? What if he then suggests a massive ERP system to keep the old processes linked instead of the simple and effective kanban processes they had been using? What if he suggested that they stop measuring people by their contribution to profits and instead substituted a headcount, departmental budgets and standard cost variances rather than those
 real profits that the Value Streams had been calculating? Would any company in their right mind accept such advice? Would you?