The Invisible Money Pit
1 min read

The Invisible Money Pit

When does a $17 dollar hammer cost $117? When does a $600k product cost $1.8M? When does a quick shift of opinion cost 8x more than the actual change? When we don't understand how the value stream actually looks.

Value streams aren't new. They've been around the manufacturing world for decades. They've even been around the software development landscape for quite a while. Despite this, many organizations I work with don't understand what THEIR value stream looks like. Why is this?

There are plenty of reasons why this may be the case, but the one I'm compelled to discuss today has to deal with horizontal vs vertical visibility. Most business units have a pretty good understanding of themselves. Stack multiple business units next to each other, you might assume we have a good picture of the end-to-end value stream. In my experience, this isn't true.

We're good at optimizing locally, but as soon as the value stream crosses from one silo to the next, there's potential for a significant hidden cost. The example I started with, the $17 vs $117 hammer, is from a case study conducted by the CEB. For a maintenance team to purchase a $17 hammer, they had to incur an additional ONE HUNDRED DOLLARS in acquisition costs due to approvals, time of delay, procurement processes, etc. To anybody working in a corporate environment, we know that buying stuff is challenging but to pay an extra hundred bucks for something that costs less than twenty dollars feels absurd.

And it is. It's the hidden money pit. It doesn't have to be hidden, though! We can map out the process, the end-to-end journey of buying that dang hammer, and we can apply time and dollars to it. It's not a novel concept, but it's also not being done frequently. Instead, we optimize for our slice. In this world, we streamline procurement as best as we can within the boundaries of "procurement," but we don't have a great understanding of how it impacts the step before or the step after.

Eliminating, or at least minimizing, the hidden money pits inside our organizations is tough work, but fortunately, there's a very easy starting point: Make the hidden visible.

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