Value Chain Analysis, Value Stream Mapping, and Business Process Mapping — What is the difference?
By: Niloy Sengupta
Tags: Value Creation, Framework, Strategy, Management Consulting, Business

As a management consultant who specializes in Technology Transformation strategy and Business Architecture, clients often ask me about the difference in the above terms, as we use these in our presentations and work products. I have noticed that sometimes these terms are used interchangeably and are often misplaced, and that may be quite confusing. Through this write-up, I seek to add clarity to these terms and attempt to provide a guideline on when to use what.

Let’s acknowledge that there is a significant amount of conceptual overlap in the framing of Value Chains, Value Streams and Business Processes, and hence there is a proclivity for practitioners to use these terms interchangeably. However, there are some important distinctions too, which I attempt to highlight below. And to dig out these differences, I would rely on the etymological origins of these frameworks. (Etymology: The origin of a word and the historical development of its meaning).

VALUE CHAIN:

Michael Porter, in his 1985 book, “Competitive Advantage: Creating and Sustaining Superior Performance”, first introduced the concept of Value Chain framework. Porter posited that an organization creates value for its customer through a set of strategically relevant activities, those of which when seen from left to right (below) looks like a chain where value-addition to the organization and its stakeholders increases from left to right. According to Porter, a firm derives its competitive advantage from strategic choices it makes in one or more of its value chain activities.

From Porter’s framework, we can make three important observations

1. Value Chain Analysis is a decision support tool for an organization level (or aggregate level) strategy making. It is not meant for granular business process analysis. For example, if a practitioner is attempting to analyze the Know Your Customer (KYC) processes of a bank, then Value Chain is not the right tool for consideration.

2. Value chain is a special category of a left-to-right process model, usually described through a set of chevrons, where each chevron represents a rolled-up set of activities that an organization does. Value (to the organization) cumulates from left to right as it passes through the chain, and each chevron is dependent on its preceding one to its left but is relatively independent of the succeeding one to its right.

3. Value Chain is a linear model, always from left to right, so it is not the appropriate decision support tool to use to describe a process flow where there can be forks and loops. Further, given that, all the rolled-up activities that the chevrons represent in a Value Chain model are operational at the same time to create cumulative value for an organization; this framework should preferably not be used to describe phased activities.

VALUE STREAMS:

While the origin of Value Streams cannot be traced to a particular book or author, the concept came from Lean Manufacturing and has been popularized by Scaled Agile practitioners. The famed engineer, C.E. Knoeppel, in his 1918 book, Installing Efficiency Methods, described manufacturing activities in a workflow that can be assumed to be Value Streams, but he did not use the term. The Toyota way of manufacturing, that focusses on efficiency, lean, waste reduction and continuous improvement, also references Value Streams without using the terminology.

A Value Stream is a visual process tool that describes a set of activities within the organization that adds value. It is a chronological flow of goods or services or information that adds value cumulative. While conceptually it sounds similar to a Value Chain, there are important differences as well, as below.

1. A Value Chain is an organizational decision support tool, while a Value Stream can refer to a smaller set of activities within the organization that adds value. To tie it to the picture above, there could be one or more value streams within the “Inbound Logistics” chevron in the above diagram. So, Value Streams are the right tool to analyze more granular activities within an organization than Value Chains.

2. Value Streams are left to right models, so like Value Chains; they should not be used to describe business or systems processes that have forks and loops. However, unlike Value Chains, there is no usually no rigidity on how Value Streams should be depicted, chevrons are not necessary.

3. Often Time and Quality parameters are overlaid on Value Streams, esp. for Process Improvement or Process Automation analysis, but they are not done so on Value Chains (see below).

4. Since Time dimension can easily be overlaid onto a Value Stream, it is a good tool to describe phases of work, unlike Value Chains.

Illustrative Software Development Value Stream (courtesy Plutora.com)

BUSINESS PROCESS:

With Value Chains and Value Streams out of the way, it is easy to describe Business Process. It can be defined as a set of linked activities or tasks, which when accomplished leads to an organizational goal or result. Note that a Business process is unchained from the burden of creating value or describing the unit of analysis (rolled-up versus granular). It means a business process is a series of sequenced tasks, and it doesn’t matter whether that process creates any value of significance to the organization or not. Process mapping is also the most flexible visual tool to describe any process.

While it is not known who coined the term Business Process, references to such process descriptions can be traced back as early as 1776 to Adam Smith’s seminal work, “The Wealth of Nations”.

1. There are many ways business processes can be depicted, flow-charts being the most common. Further, there are special categories of modeling approaches, such as :

— BPMN (Business Process Modeling Notation) which is a popular approach to model business processes in an organization;

— UML (Unified Modeling Language) that’s very useful in software development;

— Fish-bone (Ishikawa) diagrams, useful to analyze cause-and-effect in a process;

and many many more.

2. Business processes need not be left-to-right models, although it’s easier to draw them that way. There can be loops and forks in this model, as is usually common in organizations or systems

3. Activities in a business process can be short-termed or longer. A typical process flow is independent of time and quality parameters, unless you chose to overlay those on the flow to give it additional meaning

4. Process flows are great to describe phases or projects when time-dimension is added to it.