[what is needed is] “a principle of management that will give full scope to individual strength and responsibility and at the same time give common direction of vision and effort, establish teamwork and harmonize the goals of the individual with the commonweal.”

—Peter Drucker (as excerpted from Measure What Matters [1], by John Doerr)

Value Stream KPIs

Value Stream Key Performance Indicators (KPIs) are the quantifiable measures used to evaluate how a value stream is performing against its forecasted business outcomes.

Value Stream KPIs close the feedback loop that travels from:

  • Strategic Themes through the lean budgeting process funding the value streams
  • Through the Portfolio Kanban that establishes key portfolio initiatives
  • Forward to measuring the business outcomes the investments were intended to create

Details

Principle #9 – Decentralize decision-making is a critical mindset for operating a SAFe enterprise. Applying this principle greatly rewards the business and its employees; however, it also challenges many traditional aspects of governance and operations. For example, the SAFe approach to Lean Budgeting simplifies financial management, empowers decentralized decision-making, and increases the flow of value through the enterprise to its customers. But how does the enterprise know those decisions are appropriately informed?

The answer is to create clear targets regarding what outcomes are expected, rather than to identify and manage the projects or tasks people need to perform to achieve them. To that end, each Value Stream defines a set of quantifiable measurement criteria, or Key Performance Indicators (KPIs) that can evaluate the ongoing investment for that value stream.

Strategic Themes Inform Value Stream KPIs

Each portfolio has a set of strategic themes that connect the Enterprise strategy to a specific Portfolio Vision. As such, they reflect the intended business outcomes the strategy, investment, and portfolio vision. As described in that article, strategic themes are best formulated as Objective and Key Results (OKR). This means that those key results define the primary, high-level business outcomes. The full set of outcomes reflects the overall business intent of that portfolio.

Given that, the key results must be delivered or supported by the portfolio development value streams, individually or in concert. Which means that key results are likely to appear directly or indirectly as value stream KPIs, as Figure 1 illustrates.

Figure 1. Value stream KPIs are derived from strategic themes and local concerns

Some relationships from key results to KPIs are one-to-one. In other words, a specific value stream key result drives a specific KPI. Some are one to many, meaning that they directly drive or influence multiple, specific KPIs. Other relationships, however, are more amorphous; they may cross values streams, aggregate results of value stream coordination, or influence outcomes in some other way that does not directly drive a specific KPI.

Local Context Informs Value Stream KPIs

In addition, as Figure 1 illustrates, while OKRs are indeed significant concerns of the portfolio, each value stream also has its own local context. This means that some value stream KPIs are derived locally and are instead specific to the business objectives of that value stream. As a result, they will not trace directly to a strategic theme key result.

While SAFe’s primary focus is development value streams, these value streams serve one purpose: enabling the enterprise’s operational value streams to achieve targeted business outcomes. Therefore, the operational value streams inform some of the local context KPIs associated with development value streams. These are typically different from value stream to value stream within a portfolio. For example:

  • Some development value streams support revenue generation directly, making revenue a likely KPI. Other metrics—such as operating margin, market share, or solution usage—may provide additional insights.
  • Other development value streams are emerging offerings. In this case, although return on investment would seem to be an obvious KPI choice, ROI is a lagging economic measure and not be useful for measuring early-stage investment. Instead, non-financial, Innovation Accounting KPIs offer faster feedback.
  • Some development value streams are primarily cost centers, serving internal operational value streams. In this case, other measures may be more relevant, including:
    • User and business owner satisfaction
    • Absolute costs and ratios for new development versus sustainment
    • Net promoter score
    • Output measures like feature cycle, rather than outcome measures

Measuring What Matters: Tips and Examples

As we’ve indicated, KPIs are specific to the type of value stream, so only fairly general guidance can be provided. The following tips provide some aids for establishing value stream KPIs:

  • Good KPIs focus on objective, quantitative, and measurable desired business outcomes
  • Strategic theme OKRs and operational value KPIs are primary sources of development value stream KPIs
  • Don’t bury yourself in data: 4-7 KPI’s per value stream is typically sufficient
  • Avoid mixing KPIs with value stream performance metrics. The latter is needed to continuously improve value stream performance (assessments, activities, throughputs), but they are generally not elevated to the level of KPIs
  • Beware of ‘vanity metrics’, which measure internal or external activities, but do not correlate to desired business results
  • Trends and ratios often provide more information than absolute numbers

As a further aid, Table 1 highlights KPIs for some common value streams types.

A web service attracting and retaining users AARRR (also known as ‘pirate metrics’): acquisition rate, activation rate, revenue, retention rate, referrals
Product or service support value stream First response time, mean time to resolution, net promoter score (NPS), customer experience score, cost per ticket
Product value stream Units sold, revenue, gross margin, market share, quality metrics, customer satisfaction, trends on all
Software or hardware development value stream Cost vs. budget, predictability, internal NPS, feature cycle time, quality, release frequency, horizon investments, capacity allocation (growth vs. sustaining), leading indicators
On-line membership value stream Total members, revenue per member, active members, feature usage, churn, NPS, trends
Professional services delivery value stream Revenue, margin, customer retention, NPS, referrals, personnel utilization

Table 1. Example KPIs for different types of value streams

Closing the Loop on Lean Budgeting

Value stream KPIs play a critical role in syncing strategy formulation with execution in SAFe. While development teams are empowered and responsible for implementing the work, investment strategy rests with the executives responsible for assuring that sufficient capital is available to pay the salaries and wages of all the people doing the work.

Money must also be available to pay suppliers, general and administrative costs, and, indeed, all the costs associated with a portfolio of investments. That includes an obligation to provide an appropriate return to economic stakeholders. Strategy formulation and allocation of the enterprise’s treasury is a critical, financial responsibility. Moreover, it’s an ethical and moral one that cannot be left to chance or group decision-making.

Therefore, Portfolio investments must be planned, allocated, and tracked, no matter the type or size of the business. That is the role of Lean Portfolio Management (LPM), which benefits greatly from value stream KPIs.


Learn More

[1] Doerr, John. Measure What Matters (p. 24). Penguin Publishing Group. Kindle Edition.

Last updated: 30 June 2020

 

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