Unearthing the Roots of Value Stream Management Challenges

Authors:?Ravi Sawant,?Sharat Kunduru

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Overview

The journey of value creation for most Organizations is often hindered with multiple challenges. Any Organization that is trying to transform its value creation flow, a crucial step is to assess the current state of their value flow from the perspective of what challenges impede the flow today, where those challenges emanate from, and how they impact various Organizational dimensions. This deep-dive knowledge of their current state is extremely crucial in identifying the right set of initiatives to overcome those challenges and optimize the value flow.

In our last blog, we delved into the topic of identifying challenges in the value flow. We have seen the most commonly encountered challenges by Organizations and also reviewed them in the context of Organizational evolution models. We will continue our journey and will dive deeper into understanding where such challenges originate from.

The Significance of Identifying Challenges at Their Core

Why is it important to understand the source of a challenge before trying to address it? Let’s use an example to analyze this.

Assume a development value stream finds that team silos across stages (from Idea to delivery) is impacting value flow. They decide to deploy a VSM platform and use it to integrate all the systems in the flow from ideation to delivery. This can certainly provide temporary relief in the form of less manual effort and better data quality, and may be even less pain, but does it address the issue completely?

Let’s assume that each team in the value flow rolls up to different parts of the hierarchy in the organization and the teams have their own processes to follow and goals to achieve, which are mandated by their hierarchy.

The root cause of silos here is the way the organization is structured, and just integrating tools will not solve the problem.

Maybe, the value stream owners, in this case, would need to co-ordinate with different leaders (who own the teams) in the hierarchy and define processes that will lead to better collaboration in the value stream. This, coupled with integrating systems through a VSM platform, can remove the silos.

So, how do we find out the source of most challenges impacting value flow in VSM? The approach that we will take in this blog is to focus on the key building blocks or dimensions that exist in every organization. When you try to trace back any of these challenges, it should lead you to problems within one or more of these six building blocks.

We will examine in detail each building block and the root causes within each that gives rise to various challenges.

Deep dive of various sources of challenges

1. Organizational Structures

Hierarchies and structures are critical to successful execution of strategy for any organization.

Once the leadership defines the vision and strategic objectives for the Organization, it’s the Organizational hierarchy or structures and Product portfolios that determines how people, process, and technology would come together to drive the strategy forward and help realize the strategic objectives.

We know for a fact that very complex and rigid hierarchical org structures where there is complete lack of collaboration between different branches of the hierarchy, can lead to increased bureaucracy, reduced innovation and people at lower levels being far removed from organization strategy. This further leads to silos between teams or divisions and delayed decision making, eventually impacting value creation. For example, consider the below common hierarchical structure.

Imagine the R&D team is working on a new product and the sales and Marketing team have no clue about it; Or the Operations team was never sufficiently enabled on the new product. This can severely impact the time-to-market of the product and customer service.

But how did Organizations end up with such rigid hierarchical structures in the first place? And are there better alternative structures that drive more value for organizations? Let’s examine this in detail.

In smaller Organizations (Startup Operating System from our previous blog), creating and managing the portfolios and hierarchies is easier because such Organizations typically are centered around a single solution or a product. But as organizations expand their business and grow to have complex product portfolios spread across multiple regions, they need a much bigger, deeper, and complex organization structure to deliver on the strategy.

Traditionally, this resulted in a rigid hierarchical org structure like the one explained above. Of course, to overcome this, organizations have over the years adopted various concepts and methodologies to create and manage such complex hierarchies efficiently and below are some well-known examples:

A. Matrix Organizational Hierarchy (Swarm Structure)

The matrix organizational hierarchy represents a departure from the traditional top-down command structure. It introduces a dynamic approach where cross-functional teams converge to address the specific needs of a project or task. In a matrix organization, individuals often report to both a functional manager and a project manager, resulting in a dual reporting relationship. One key characteristic to remember is that teams in a matrix organization are typically short-lived, formed for specific projects or tasks and disbanded upon completion. This promotes adaptability and resource optimization, making it a popular choice in complex and rapidly changing environments.

Key Features and Benefits:

• Enhanced Collaboration: The matrix structure fosters enhanced collaboration among employees from different functional areas. It encourages information sharing and cross-pollination of ideas, leading to innovative solutions.
• Optimal Resource Utilization: By pooling resources from various departments, a matrix organization can allocate talent and expertise more efficiently. This means that the right people with the necessary skills are assigned to projects, promoting optimal resource utilization.
• Professional Growth and Skill Development: Matrix structures provide a platform for employees to grow and diversify their professional competencies. Working on cross-functional teams exposes individuals to different aspects of the business and helps them develop a broader skill set.
• Adaptability: This structure is particularly well-suited for dynamic environments where project requirements change frequently. It allows organizations to quickly adapt to shifting priorities and demands.

Applications:

Matrix organizational hierarchies are commonly found in IT departments of organizations across various industry domains. Additionally, professional services firms frequently adopt this structure. It enables IT departments to staff the right people for specific projects, ensuring that they have the necessary expertise while retaining the stability and efficiency of a traditional hierarchical structure.

To summarize, the matrix organizational hierarchy offers a more flexible and adaptable approach to managing projects and resources, making it an attractive choice for organizations aiming to balance the strengths of traditional hierarchies with the demands of modern, complex projects.

B. Flat Organizational Hierarchy (Streamlined Structure)

A flat organizational hierarchy represents a streamlined and decentralized structure. In this approach, there are few or no layers of middle management between the staff and the leadership. This results in a more direct line of communication and decision-making within the organization.

Key Features and Benefits:

• ?Streamlined Communication: In a flat hierarchy, communication flows more directly from the top to the bottom and vice versa. This streamlined communication process allows for quick decision-making and enhances transparency within the organization.
• Empowered Workforce: With fewer layers of management, employees often have a greater degree of autonomy and decision-making authority. This empowerment can lead to increased job satisfaction and a sense of ownership in their work.
• Rapid Decision-Making: Decisions are made more swiftly in a flat hierarchy since there are fewer levels of approval. This agility is especially beneficial in rapidly changing industries.
• Flexible and Agile: Flat hierarchies are inherently more adaptable to changes and can pivot quickly to meet evolving business needs. This makes them well-suited for startups and innovative organizations.

Applications:

Flat organizational hierarchies are often seen in startups, small businesses, and companies emphasizing creativity and innovation.

They provide an environment where ideas can be easily shared and implemented. Startups, in particular, favor this structure as it promotes a culture of innovation and allows for rapid growth without the constraints of a traditional hierarchy.

To summarize, a flat organizational hierarchy encourages direct communication, empowers employees, and enables quick decision-making. This structure is an excellent choice for organizations that value agility and innovation, making it a popular model in entrepreneurial and creative environments.

C. Divisional Organizational Hierarchy (Strategic Blocs Structure)

As organizations grow and expand, the need for a more complex organizational structure often arises. A divisional hierarchy addresses this challenge by splitting the executive level into multiple divisions, each of which may represent a geographical region or a specific portfolio.

Key Features and Benefits:

• ?Scalability and Reach: Divisional hierarchies facilitate organizational growth in terms of both scale and geographical reach. By dividing the organization into separate divisions, companies can effectively manage and serve diverse markets, customers, and product lines.
• Autonomy and Flexibility: Each division within the hierarchy gains a degree of autonomy. This autonomy allows them to tailor their strategies and allocate resources based on their specific needs. It can be particularly beneficial when dealing with unique regional or portfolio requirements.
• Efficient Resource Allocation: Divisional hierarchies enable more efficient allocation of resources, as each division can optimize its resource utilization based on local conditions and market demands.

Applications:

Divisional organizational hierarchies are typically adopted by large conglomerates and multinational corporations (MNCs) with complex portfolios and operations spread across multiple regions. This structure allows these organizations to effectively manage and serve diverse markets while providing the necessary flexibility for each division to adapt to local conditions.

To summarize, the divisional organizational hierarchy is a strategic approach that fosters scalability, autonomy, and efficient resource allocation within complex organizations. It is well-suited for large conglomerates and MNCs aiming to maintain a global presence while tailoring their strategies to regional and portfolio-specific needs.

D. Value Stream or Product (Value Flow Structure)

Traditional organizational structures often group people by region, expertise, or job function. However, a value stream or product organizational hierarchy takes a different approach by organizing teams based on the flow of work from conceptualization to delivering the final outcome. In this structure, each stage of the work process has its dedicated team, ensuring a seamless and efficient workflow.

?Key Features and Benefits:

• ?End-to-End Ownership: Each team within the value stream hierarchy takes ownership of a specific stage of the work process, from conception to delivery. This end-to-end responsibility reduces hand-offs, minimizes delays, and streamlines the overall workflow.
• Efficiency and Reduced Bottlenecks: By eliminating the need to hand off work across various teams or departments, the value stream hierarchy reduces bottlenecks and delays in the production or delivery of products or services. This leads to improved efficiency and faster time-to-market.
• Alignment with Customer Value: The structure is designed to align with customer needs and value creation. Each team focuses on a part of the value stream, ensuring that customer-centric goals are central to the organization's operations.

Applications:

The value stream or product organizational hierarchy is often adopted by organizations that prioritize efficiency, agility, and customer-centricity. It is commonly found in product development companies, software development, and manufacturing firms where a streamlined, end-to-end workflow is critical for success.

In summary, the value stream or product organizational hierarchy optimizes workflow efficiency, reduces bottlenecks, and enhances customer value by aligning teams with the entire process of creating and delivering products or services. This structure is an ideal choice for organizations seeking to remain agile and responsive to customer demands while maintaining a lean and efficient operation.

2. Leadership

Leadership at any Organization plays a vital role in not just creating the strategy but also communicating that effectively to various levels in the Organization and ensuring appropriate support in the form of resources is provided in executing the strategy.

Following are the ways in which poor leadership can lead to various challenges in value creation:

• Lack of Clarity in GoalsThis is where the leadership of an Organization may not have clear, well-defined objectives for their products and services. Without a clear sense of what they want to achieve, it's challenging to optimize value flow.
• Poor CommunicationYour leadership has defined the right goals but failed to effectively communicate it to all levels in the Organization. This often results in poor organizational alignment. The organization could run into the risk of various teams assuming their own priorities and investing their time and resources in initiatives that are not aligned with the organization's goals. Poor communication from leadership can also demotivate people as they don’t see where the organization is heading, and they might not want to invest or grow their careers in such an organization.
• Lack of Leadership SupportThe inability of leadership to create and drive an innovative work culture, define a clear vision, and provide necessary sponsorship to execute the vision can lead to challenges in value creation.

3. Process

Processes form the backbone of any successful organizational transformation. Inefficient or extremely complex organizational processes can lead to process bottlenecks or process silos and severely impact value flow. Note that process complexity does not equate to or result in process inefficiency, though. If Organizations invest adequately in process optimization, even a very complex process landscape should not result in challenges in value creation. The challenges come up when organizations fail to manage the growing process complexity. But why do organizations end up with process complexity? Let's look at some key reasons:

• Organization GrowthWhen an organization expands its product portfolio, it may need to develop new processes to support those products. Each product or service might have its own unique requirements, which can complicate the overall process landscape. Also, when Organizations grow across regions, each market segment could have its own unique needs, further leading to process complexity.
• Regulations & ComplianceMany organizations define new processes often to adhere to new regulations and compliance requirements. This necessitates the development of complex processes to ensure compliance and avoid legal issues.
• Mergers & AcquisitionsWhen organizations merge or acquire other companies, they often inherit their processes from each entity. Integrating these processes can be challenging and result in increased complexity.
• Resistance to ChangeSometimes, resistance to change within the organization can lead to the layering of new processes on top of existing ones, rather than revising or simplifying the old processes. This can result in a very complex process landscape.
• Improper Process GovernanceIf there is no proper change control and governance on processes, it could lead to very frequent and ad-hoc, often unapproved changes to processes, making them more complex than the original version.

4. Technology

How does Technology (or the lack of) influence or give rise to challenges in value creation? In our last blog, we have seen how legacy or outdated technology can be detrimental to value flow optimization. If it's so obvious, then why are so many Organizations still relying on legacy and outdated technologies to run their business and not investing in modernizing? Let's explore some key factors here:

• CostReplacing legacy systems can be quite expensive in terms of the actual software and migration. Organizations might not have the necessary budgets to make this transition. Note that when organization budgets are tight and if they are able to achieve the desired results (though not optimally) with the current legacy technology, there’s not much incentive to invest in modernization.
• CompatibilityHave you ever encountered a situation where you try to upgrade a single legacy enterprise system and you realize that there are 10 other systems that would get impacted and all of them need to be modernized? You would think to rather let it be instead of stirring up a hornet’s nest!!
• Technical DebtMany legacy systems would have accumulated a lot of technical debt over the years because multiple teams were involved in configuring or enhancing it, and now it's nearly impossible to upgrade or modernize it, without running into high risks and cost escalations.
• Change Management RiskModernizing technology is not just about the software or the hardware. Change management plays a very crucial role too. Some teams fail to get buy-in from all the stakeholders, and the risk of change management steers them away from modernizing efforts.
• Regulatory NeedsFinally, though not very common, organizations operating in strictly regulated industries will need to stick to legacy technology to meet the regulatory or compliance standards. This is often true in government organizations, who by the tend to rely most on legacy technology compared to their private sector peers.

5. People

An organization, let’s say, adopts the most optimal org structure, modernizes technology and processes, but a lack of investment in people transformation means the organization cannot attract the best talent, nor can it retain its existing talent. After all, it's people who deliver results for any organization and not just technology or processes.

Not investing in people leads to serious challenges in value flow. You see very little innovation happening in such organizations. The morale is usually low, and very soon highly skilled people start moving out of the organization. All of this could reduce the flow efficiency and value.

But people transformation is hard, even when organizations are ready to invest. The main reason for this is people’s resistance to change. This is so common in many organizations, and probably a lot of us can relate to it! As humans, we all love doing what we routinely do. Most of us are comfortable with our current way of working and are reluctant to embrace change, be it a new job role or a new process / technology or even learning a new skill. Such behavioral patterns are counterproductive to a successful adoption of VSM and can lead to several challenges impacting value creation. For example, it leads to reduced innovation and makes the value flow less efficient. VSM is all about continuously learning and improving.

6. Culture

Why is culture important in the success of VSM adoption or that of any major transformational change in an Organization?

Culture is the values and belief system of people in an organization. A good culture is one that enables open communication among employees at all levels, increases trust, motivates everyone to achieve company goals and also helps in creating a psychological safety net for employees.

A poor or toxic work culture can have detrimental effects on value flow and value creation. Lack of trust and transparency between employees and with the leadership can decrease flow efficiency and value. VSM is all about people from different teams (who form part of the flow) coming together to work efficiently and generate more value.

Moreover, when people don’t trust their peers, managers, and leaders, there is hardly any scope for innovation as such a culture doesn’t reward innovative ideas. On the contrary, it creates a fear of dire consequences for taking risks and being innovative. Most people would not be willing to work in such organizations.

Summary?

So far, we have explored the challenges organizations encounter during their journey of value creation and the organizational source of those challenges.

An organization that has decided to embrace VSM needs to first focus on deciphering the challenges plaguing its value flow as part of its current state analysis. A thorough understanding of the challenges enables the organization to:

1. Tailor the VSM adoption processes and practices to address specific issues directly. Such a tactic yields in far better results and adoption than trying to deploy a generic solution. For example, if an Organization is seeing reduced value flow due to legacy technology (the challenge), but you have determined that the organization is not in a position to upgrade to the latest technology due to budgetary concerns (the root cause of the challenge), there is no point in giving a generic recommendation to invest in new technology. Maybe, a more tailored and practical approach would involve optimizing the flow by just integrating existing legacy systems (to increase transparency & data quality) and not replacing them entirely.
2. Prioritize the critical challenges that are impacting the value flow the most or where there is a high feasibility of fixing the challenge. Not all changes impact the value flow equally. Based on the feasibility and criticality, a practical roadmap can be created that can demonstrate continuous improvement of the value flow. For example, changes that involve low risk, cost, or change impact but can provide decent results in the form of flow optimization can be prioritized first. There’s no point in prioritizing or investing time and effort into challenges that are highly impractical to solve.
3. And lastly, appropriate change management strategies can be devised when there is upfront knowledge about challenges impacting value flow and who are the teams, processes, and systems impacted by the challenge. This gives enough time to the stakeholders to anticipate and mitigate any resistance to change.

Stay tuned as we continue our journey to explore the world of Value Stream Management. In our next article, we will delve into a real-world case study of a customer who underwent the VSM journey!