July 18, 2024
Author: Lance Knight
In today’s dynamic landscape, business leaders strive to enhance organizational agility through the expanded use of Lean and Agile methodologies. As this trend continues, the way teams measure progress must evolve.
To monitor advancement, teams must establish strategic objectives that can be accurately measured. Value Stream Management (VSM) and Objectives and Key Results (OKRs) are two practices that have a symbiotic relationship that allows them to deliver business value in agile environments. VSM is a set of practices that deliver the mix of visibility, alignment, and efficiency necessary to help teams improve operational efficiency and deliver exceptional customer experiences. OKRs are an approach to setting measurable goals.
The synergy between VSM and OKR practices aids organizations by helping teams:
- Concentrate on mission-critical endeavors
- Achieve overarching business outcomes
- Enhance agility and velocity
- Ensure value-driven predictability.
To understand the mutually beneficial relationship between VSM and OKRs and how they provide business value, we must first examine each practice’s objectives. Notably, VSM can influence the formulation of OKRs, while OKRs advance VSM objectives. Evident similarities between their objectives lay a strong foundation for mutual enhancement.
Fundamentals of Value Stream Management
Value Stream Management (VSM):
- Defines end customer value for each product/service
- Identifies value-generating steps while eliminating non-value-adding efforts
- Establishes optimizations that ensure smooth, value-centric product/service flow
- Derives value from upstream activities
- Iteratively enhances and optimizes value creation until groups establish waste-free value delivery
The Basics of OKRs
Objectives and Key Results (OKRs):
- Set clear, value-related objectives within specific contexts or themes
- Quantify progress or completion via measurable, variable, and credible key results
- Achieve milestones, advancing objectives in ways beneficial to overarching goals
- Cascade objectives into departments or functions, fostering ownership and improved outcomes
- Instigate organizational change by introducing quarterly OKRs to align actions with customer value
OKRs and VSM: A Path to Business Value
Encompassing lean and value stream KPIs, VSM metrics furnish leaders with comprehensive business intelligence. Insights can inform headcount changes, process and tooling adjustments, development cadence, and an array of metrics that influence efficiency, such as process time, cycle time, lead time, and throughput.
This data-driven analysis from VSM aids organizations in charting their software and digital transformation journey. This journey maps the current state and guides progress toward advanced development and delivery levels. Teams employ lean budgeting, which is centered on early customer satisfaction indicators. Lean budgeting diverges from traditional models by treating a business as a stable ensemble of products or services, which are enabled by cross-functional groups and continuous value streams.
In organizations with mature Lean-Agile disciplines, OKRs empower teams to set, communicate, and monitor goals methodically. By aligning organizational and team objectives with measurable outcomes, OKRs enable companies to pivot swiftly and effectively allocate resources. This strategic alignment across value streams, Agile release trains (ARTs), and teams ensures funds are channeled to high-impact areas that best address market demands.
How to Implement OKRs and VSM: Strategies for Success
The symbiotic relationship between OKRs and VSM is especially powerful in organizations that are Lean and Agile. In these types of companies, you can define, link, and leverage OKRs at every level and build organizational coherence from them. OKRs help create context and, at the same time, they need context to be implemented.
Out of the several types of OKRs, three stand out:
- Outcome-based or portfolio OKRs
- Output-based or feature OKRs
- Program-based or OKRs used by ARTs
Understanding the difference between the three is necessary, as they are to be implemented effectively alongside VSM. A common mistake is to follow only a top-down approach with OKRs. There is no one-size-fits-all approach to OKRs. You have a template and knowledge of how OKRs can benefit you. As mentioned in an earlier blog post on VSM and metrics integration, starting small would be ideal.
Another mistake is to look at activities rather than key results to achieve objectives. The beauty of OKRs is that you can start anywhere in your software development or delivery setup, if you decide the intent or the context. For example, you need to determine whether your OKRs are outcomes, output, or program based.
Outcome-based or portfolio OKRs
Largely, outcomes would be a measurable change in users’ behavior. Crystallize your strategic themes and investment objectives around OKRs and embed OKRs in every portfolio epic. OKRs owned by the portfolio should demonstrate how epics contribute to desired outcomes and will help you with making investment decisions.
Output-based or feature OKRs
This type of OKR is targeted toward delivering a certain feature that makes an impact on the user’s behavior. Establishing OKRs for each feature provides great discipline, helping ensure teams articulate outcomes rather than solutions.
Program-based or ART-driven OKRs
ARTs sometimes set OKRs for high-priority initiatives, which provide laser focus to product management.
Some OKRs will be about value in the form of measurable customer impact. Other OKRs will be about improving flow by reducing lead time, reducing batch size, eliminating obstacles, or changing the organizational structure to make it easier to get work done. Finally, other OKRs will be about sustainable elements, such as people/team satisfaction, managing costs, reducing silos across different autonomous value streams, and so on.
Overcoming Common Implementation Challenges
When implemented effectively, OKRs are transparent, with measurable key results and tangible milestones. OKRs allow everyone in the organization to see each other’s goals, from the CEO to the newest intern, enabling an entire company to align work around the same overall goals.
Like any other new management practice, OKRs can be misunderstood, misused, and abused. Here’s a brief look at what OKRs are, and what they aren’t.
What OKRs are:
- An ambitious aspiration
- An alignment tool
- A mix of contexts for different organizational functions
- A strategy that cultivates the discipline to focus on strategic efforts and say “no” or “not yet” to low-priority efforts
- A simple-to-understand and sound strategy that can guide success but sets ambitious targets that won’t be met every time
What OKRs aren’t:
- A target
- A measurement tool
- Just a top-down approach
- An annual task (OKRs should be planned quarterly)
- The same as key performance indicators (KPIs) and management by objectives (MBOs)
Achieving Business Value with OKRs and VSM
Ultimately, harmonizing VSM and OKRs steers organizations towards holistic coherence and performance enhancement. This powerful combination enables organizations to achieve unparalleled agility, optimize value delivery, enhance customer value, and ensure effective resource allocation.
Learn more about our VSM platform, ValueOps by Broadcom, and how it can provide the critical metrics integration your teams need. Be sure to contact the Broadcom ValueOps team today.