December 11, 2024
Value stream management (VSM) is a set of business practices used across the business to streamline the flow of value from ideation to delivery, reduce waste, accelerate innovation, and create exceptional customer experiences. When companies invest in a VSM solution, they need to consider its potential return on investment (ROI). How will a VSM platform, not only pay for itself, but add business value?
To calculate ROI for VSM practices, organizations need to use a VSM platform to identify and track key metrics for measuring the business value of VSM throughout the product lifecycle, including those for quantifying efficiency, productivity, and profitability.
Key Metrics for Measuring ROI in VSM
When companies invest in VSM solutions, they can focus on processes and projects that deliver the highest level of value to the company and the customer. A VSM platform enables teams to measure and report on the progress of their priorities, as well as the benefits gained from better alignment of priorities.
Some benefits of VSM may be unquantifiable, such as improved resource allocation, increased goal alignment, and exposure to new skills. However, key metrics can be used to measure the ROI created by some VSM benefits.
Time to Value
Time to value is a key metric for measuring the benefits of VSM. The faster a product can get to market the more quickly it can begin to generate customer value. When products get to the market more quickly, companies can gather information on how they have been received by the customer. This feedback can be used to optimize production processes so that they add value in future iterations.
VSM practices can reduce the time it takes for a product or service to move from conception to customer delivery. VSM platforms, such as ValueOps® by Broadcom, can track the time it takes for a process to achieve value so that production steps can be adapted to expedite delivery without sacrificing quality.
Cost Savings
By increasing visibility, a VSM platform reduces the amount of time and effort wasted during a project. Eliminating waste generates cost savings. With VSM solutions, all the team’s resources can be mapped back to individual value streams to identify projects and steps in processes that fail to contribute value. Greater visibility helps identify and eliminate bottlenecks, as well as enhance collaboration between teams.
Projects that overlap or use more resources than can be justified by the value they deliver can be eliminated. Instead, funds can be invested in projects that deliver the most value.
Efficiency Gains
Metrics can track the costs of human resource allocation and show how improving team efficiency reduces costs. When teams rely on a single source of truth for data and common software tools, they can communicate more quickly and easily. When data is available, team members spend less time preparing for meetings to discuss progress. Collaboration tools in a VSM platform enable teams to send messages, make updates, and discuss the progress of a project so they can be more productive.
Cycle time and lead time are metrics that can be used to measure how VSM increases efficiency. Lead time is the time it takes to deliver a product to the consumer, while cycle time is the time an individual production process takes. Value stream mapping can reduce cycle and lead times by showing the current state of the value stream and identifying inefficiencies and waste that can be eliminated to accelerate value delivery.
Customer Value Enhancement
Metrics tied to customer satisfaction can be used to measure the ROI of VSM practices. Net promoter scores (NPSs) measure customer loyalty and satisfaction by calculating the likelihood that customers will recommend a company’s products and services to others. NPS can be used to predict company growth and future profitability.
Customer retention rate is one way to gauge customer satisfaction by measuring the percentage of customers that stay with a company over a set time. By looking at customer retention rates over the period after VSM platform adoption, companies can calculate how successful VSM practices have been at delivering customer value.
Methods to Calculate VSM ROI
Key metrics related to VSM implementation and practices can be used to calculate ROI in different ways.
Forrester Total Economic Impact Model
Forrester uses an industry-accepted ROI evaluation model in its Total Economic Impact (TEI) reports. When Forrester conducted research for The Total Economic Impact of ValueOps by Broadcom report, the analyst group looked at metrics that reflected the benefits, costs, flexibility, and risks of investing in a VSM platform. ROI was calculated by dividing net benefits by costs. Adjustments were made based on risk.
The economic benefits of VSM need to be weighed against the cost of the solution, implementation, and management to determine the payback period, or how long the solution takes to pay for itself. After companies have achieved a breakeven point, they will start to realize ROI.
Baseline and Post-VSM Comparison
To measure the ROI of a VSM platform, companies can set a pre-implementation baseline for key metrics and compare them to metrics achieved after a set period of investing in and deploying VSM practices.
Real-Time Tracking with ValueOps®
The VSM platform can be used to track key performance indicators (KPIs) to assess ongoing ROI. For example, ValueOps by Broadcom enables real-time tracking of the progress of projects against KPIs through AI algorithms.
How Data-Driven VSM Improves Customer Value
Ultimately, understanding the quantifiable benefits of VSM comes down to how it enhances customer value. In today’s companies, technology needs to be evaluated by the same metrics as the business, because that leads to improvements in customer value.
VSM uses data to enhance the customer value of products and services. Real-time insights into the flow of value streams help teams make data-driven decisions that promote continuous improvement of processes that directly impact customer satisfaction.
Metrics can connect customer value to business outcomes. For example, higher customer retention rates and increased customer referrals are tangible business results that come from delivering customer value
How to Realize Return on Your VSM Investment
Without VSM, companies have difficulty communicating problems and tracking their progress. After investing in VSM platforms and practices, organizations see quantifiable benefits from focusing on projects that deliver the most value. Better measurement and reporting of progress, elimination of waste, and productivity gains all contribute to VSM’s ROI.
The Forrester Total Economic Impact of ValueOps by Broadcom shows that adopting a VSM platform generates significant ROI for companies that want to increase customer value. Forrester found that an organization that invested in ValueOps saw 471% ROI. Key findings that contributed to this ROI included a 20% to 50% increase in IT team productivity. The company achieved payback in just 9 months.
To find out more about how VSM practices generate ROI and how to measure this ROI, explore our website which showcases all the resources and expert advice your organization needs.
About ValueOps by Broadcom
ValueOps® by Broadcom is the industry’s most complete Value Stream Management (VSM) solution. Combining robust business planning, agile delivery management, and value stream integration in one solution, ValueOps uniquely accelerates digital transformation by improving visibility, alignment, and efficiency at every stage of value creation.
With ValueOps, the seamless convergence of Clarity™, Rally®, ValueOps ConnectALL®, and ValueOps Insights in one solution empowers leaders at every level to plan, fund, manage, track, and optimize their work efforts using a common data model and value orientation. With the widest range of VSM features in the category, ValueOps has capabilities and insights to meet the needs of everyone in a value stream – effortlessly synchronizing them to align strategy, investments, people, and work across the enterprise.
About Broadcom
Broadcom Inc. (NASDAQ: AVGO) is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. Broadcom’s category-leading product portfolio serves critical markets, including data center, networking, enterprise software, broadband, wireless, storage, and industrial. Our solutions include data center networking and storage, enterprise, mainframe, and cybersecurity software focused on automation, monitoring and security, smartphone components, telecoms, and factory automation. For more information, go to www.broadcom.com.
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Learn how to find the right tools for overcoming VSM obstacles by reading the 2024 Buyer's Guide for Value Stream Management. Access your copy here.