The use of KPIs is meant to improve and transform the organizational performance.

―Pearl Zhu, Performance Master [1]

Value Stream KPIs

Definition: Value Stream Key Performance Indicators (KPIs) are the quantifiable measures used to evaluate how a value stream performs against its business objectives.

Development Value Stream KPIs help close the feedback loop from:

Details

Principle #9 – Decentralize decision-making is a critical mindset for operating a SAFe portfolio. Applying this principle rewards the business and its employees greatly. However, it challenges many aspects of traditional governance and operations. For example, the SAFe Lean Budgeting approach simplifies financial management, empowers decentralized decision-making, and increases the flow of value from the Enterprise to its customers.

But how does the enterprise know if those decisions were optimal? One solution is creating clear targets for expected outcomes rather than identifying and managing the projects (or tasks) needed to achieve the results. Each development value stream defines a set of quantifiable measurements or Key Performance Indicators (KPIs) that evaluate their ongoing investment.

Strategic Themes Inform Value Stream KPIs

Each portfolio has a set of Strategic Themes that connect the enterprise strategy to the Portfolio Vision. They reflect the intended business outcomes of strategy, investment, and portfolio vision. As the strategic themes article describes, formulating themes as Objective and Key Results (OKR) is the preferred approach for defining the primary high-level business outcomes. The entire set of results reflects the overall business intent of that portfolio.

Therefore, OKRs are delivered or supported by the portfolio’s development value streams, individually or together. Consequently, OKRs are likely related directly or indirectly to KPIs, as Figure 1 illustrates.

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

Figure 2 shows an example of a strategic theme, ‘increase annual recurring revenue,’ expressed as an OKR for the Autonomous Solutions portfolio. It has three key results to measure this objective:

  • Increase account renewals from 75% to 90%
  • Increase lead conversion from 20 to 40%
  • Optimize customer acquisition process

Some key results are measured by one value stream KPI, like the example in Figure 2. For instance, the key result, ‘increase account renewals from 75% to 90%,’ is measured by the ‘value stream KPI for the number of account renewals.’ Sometimes, key results require multiple KPIs to measure them. However, other relationships are less clear. They may cross values streams, summarize results of value stream coordination, or influence outcomes in some other way that does not directly drive a specific KPI.

Figure 2. Value stream KPIs can help measure the key results for an OKR
Figure 2. Value stream KPIs can help measure the key results for an OKR

Local Context Informs Development Value Stream KPIs

In addition, as Figure 1 illustrates, while OKRs are indeed significant concerns of the portfolio, each development value stream has a local context. This local context means some value stream KPIs are derived from a specific value stream’s business objectives. As a result, they may not trace directly to a strategic theme’s key result.

SAFe’s development value streams enable the Operational Value Streams (OVS) to achieve targeted business outcomes. Therefore, the operational value streams may inform the KPIs for the local development value stream. These KPIs may differ from one value stream to another within the same portfolio. For example:

  • Some development value streams support revenue generation directly, making revenue a likely KPI. Other metrics—such as operating profit margin, market share, or solution usage—may provide additional insights.
  • Other development value streams are developing emerging offerings. Although the return on investment (ROI) would seem to be an obvious KPI, ROI is a lagging economic indicator and may not help measure early-stage investment. Instead, Innovation Accounting, non-financial 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:
    • Customer and Business Owner satisfaction
    • Absolute costs and ratios for new development versus maintenance
    • Net promoter score
    • Output measures like Feature cycle time

Tips for Establishing KPIs

Since KPIs are specific to the type of development value stream, SAFe can only offer general guidance. However, the following tips and examples provide universal recommendations for establishing KPIs:

  • Good KPIs focus on objective, quantifiable, and measurable business outcomes
  • Some development value stream KPIs should focus on process measures such as speed, quality, flow, and self-assessments (see Measure and Grow for more).
  • Trending data allows you to predict better what will happen based on history.
  • Ratio data enables comparison. A sudden spike or a long-term trend becomes visible if you compare a daily metric to the same one over a month.
  • Limit the number of KPIs tracked for each value stream. Typically, four to seven provides a good set of metrics.

Often, the most meaningful metrics to assess the development value stream’s business outcomes are associated with their operational value streams. For example, Figure 3 highlights some KPIs appropriate for various operational value streams. These metrics tell the story of how well the development value stream produces business results.

Figure 3. Example KPIs for different types of value streams
Figure 3. Example KPIs for different types of value streams

Closing the Loop on Lean Budgeting

Development value stream KPIs play a critical role in aligning strategy and execution. While Agile Teams are empowered and responsible for implementing the work, investment strategy rests with those responsible for ensuring sufficient capital is available to run the business.

Funding is also needed to pay Suppliers, general and administrative costs, and all the costs associated with a portfolio of investments. That includes an obligation to provide an appropriate economic return to stakeholders. Strategy formulation and allocation of the enterprise’s capital is a critical financial responsibility. Moreover, it’s an ethical and moral obligation that cannot be left to chance or delegated beyond the appropriate level of responsibility and accountability.

Therefore, portfolio investments must be planned, allocated, and tracked, regardless of the business type or size. That is the role of Lean Portfolio Management (LPM), which benefits significantly from value stream KPIs.

 

Learn More

[1] Zhu, Pearl. Performance Master: Take a Holistic Approach to Unlock Digital Performance. Lulu.com, 2017.

Doerr, John. Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs. Portfolio, 2018.

 

Last updated: 22 September 2023