Value Chain vs Value Streams

Value Chain or Value Stream or Value Stream Mapping?

There is a common misconception between the concepts of Value Chain and Value Stream, where the two terms are used interchangeably and causing confusing among the stakeholders, including senior management sponsoring key transformation programs and projects. Like many other concepts, it is vital to get everyone in the organization to have the same understanding, so that the programs and projects are built on the same page. 

Value Chain

Value chain represents a decomposition of an organization based on its business capabilities – a description of “what specialization” are required for the organization to function. 

In most cases it aligns closely to an organization chart that is based on functional groups built on specialized skill sets to perform specific functions. Most importantly an organization is represented in ONE and only one value chain. 

The diagram below is an example of a generic value chain, consisting of two stacks of activities - primary and secondary activities. The horizontal stack consisting of the core activities of the organization that are critical in delivery of products and/or services to the end customers. Hence also known as the primary activities. The vertical stack representing the supporting or secondary activities in an organization, They only play supporting roles, and are not directly involved in delivery of products and/or services to the end customers.

Figure 1: Value Chain

In business architecture practice, the value chain diagram is a commonly used approach, but not the only approach, for identifying high-level "business capabilities". In short, a value stream helps in showing the "what" capabilities an organization to function smoothly. 

The term has also evolved to cover a wider meaning, including cross-industry value chains, cross-border value chains and global value chains.