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. 

Value Streams 

Unlike value chain, an organization has many value streams. Each value stream represents an end-to-end view of activities with the following characteristics:

• flows between activities across functional boundaries;
• triggered from event external to these activities, but may be internal to the organization itself;
• with aim on fulfilment of the triggered event. i.e. delivery of value - an anticipated outcome perceived as valuable - to the triggering entity. 

In other words, value streams focus on how values are generated across the organization and delivered to the customers who consume these generated values.

Value stream is commonly used in the defining of end-to-end flow of activities across organization's functional groups, identifying dependency between these activities, the information flow, and also identifying the more granular supporting capabilities.

Here are some common examples of value stream, each serve to deliver specific value to the "consumers" of the generated value. 

Customer Order to Cash	Complaint to Resolution
Source to Pay / Procure to Pay	Claim to Disbursement
Hire to Onboard	Lead / Prospect to Customer
Acquire to Disposal	Finance Closing to Reporting
Incident to Response	Forecast to Budget

Below is an example of a value stream diagram for Source to Pay, which is used to identify the end-to-end process of procurement from sourcing of supplier to the very end of paying the supplier's invoice. I

Figure 2: Value Stream

Note that the sourcing stage, in some organizations, is not explicitly shown. Hence naming the value stream as Procure to Pay.

Wait!

Value Chain Diagram (VCD) on the modelling platform? 

Unfortunately in almost all modelling tools and platforms, the diagram type used for Value Stream is often referred to as Value Chain Diagram or VCD. So you are creating a VCD type for your Value Streams model, which is not a value chain of the business. Hmm ... Very confusing 😕 indeed. 

My suggestion is, if possible, request your platform administrator to rename the diagram type on the platform to Value Stream Diagram or E2E Process Overview Diagram. Remember NOT Value Stream Mapping, which is again a different story.

Value Stream Mapping?

Figure 3: Lean's Value Stream Mapping

Value Stream Mapping, a.k.a. material-flow and information-flow mapping, is a method used in Lean practice, to identify and remove different types of waste. The diagram below is an example  of a value stream mapping.

When to Use Which Diagram / Method?

In business architecture practice and high level strategic planning, where you are identifying business capabilities, you are looking at the single Value Chain of the organization.

In enterprise process architecture practice, if you are looking into identifying end-to-end business processes across your organization's functional groups, you are referring to the Value Streams, such as Source to Pay. 

You could use the term "end-to-end enterprise process" or "cross functions business process" to avoid confusion, when engaging with the business in your discussion. This helps to focus on the enterprise-wide and cross functional boundaries activities. The term Value Stream can be introduced at a later stage, when needed, and only use within the process architecture or business architecture context.

However, if you are looking into groupings and classification of low level processes, then you are likely looking at the Value Chain approach, grouping the organization's processes into different specialized groups, similar to the business capabilities.

Lastly fi you want to use the Lean method to identify and reduce waste in a process, you are looking at the Value Stream Mapping.