The Clear Star view on Lean Portfolio Management

If you’re managing?a portfolio of products or services, rather than a portfolio of projects and programmes, then you’ll need a new approach to portfolio management. We call this Lean Portfolio Management as it’s an evolution of Lean Portfolio Management from the Scaled Agile Framework and a term that seems to be getting a little traction across our clients, although we’ve got a nagging feeling there’s likely to be a better name.

Firstly, this is still portfolio management, so if that’s your bag there are lots of elements you might recognise. For example, the aim is still to align strategy to delivery, allocate funding and staffing, manage demand and prioritise work, and successfully deliver a set of strategic outcomes whilst keeping a close eye on delivery performance.

However, some significant differences come with the switch to focusing on products and services:

• The portfolio now covers innovation, change and run, i.e. the entire breadth, scope and lifecycle of what the organisation does, and therefore requires enduring measures of success in addition to transient objectives. This means as well as the usual portfolio of change, we’re now?also?managing a portfolio of long-lived products and services, plus the innovation that is shaping the future.
• However, we only directly govern?significant?change and innovation, i.e. those that are big enough or important enough to be of interest at the portfolio level. All other change and innovation is delegated down to the product and service organisations (who then also manage their portfolios using Lean Portfolio Management).
• We’re now primarily funding and staffing long-lived products and services, which means that we’re?funding capacity?in the organisations that deliver these, and not temporary, pre-defined, packages of scope (projects or programmes). This allows us to create enduring high-performing organisations that can grow and shrink over time based on demand, take long-term responsibility for the performance and cost of the product or service, develop people with deep expertise, and create sovereign ownership of capabilities.
• Because of this we can create?capacity-based long-term?roadmaps with funding and staffing plans that allow us to move to a rolling annual planning and funding cycle (with interim reviews and adjustments) that can use past performance to unlock future funding.
• We?delegate local decision-making?to the product and service organisations within the portfolio, including a delegated authority to spend. This enables us to focus on the big strategic decisions that sit at the top of the portfolio. But this isn’t unconstrained; we use tools like guardrails to create approval boundaries, meaning approval and governance is only required by exception where these guardrails would be breached.

Portfolio scope

When we’re managing a portfolio of change the scope of the portfolio and the primary measure of success will both be defined by our strategic portfolio outcomes. However, when we switch to managing a portfolio of products and services, we need a new definition for the scope of the portfolio (which then bounds the scope of the products and services it contains) and have the opportunity to create new enduring measures of success (in addition to the successful delivery of strategic portfolio outcomes). At a high level, we want to think about both of these through a customer and value lens.

For the scope of a portfolio we’d start with the customer segment and their needs; which customers are we serving, and what need do they have that we’re addressing. This roots us in the why rather than the how and enables us to decompose this scope when thinking about the scope of each of the services and products within the portfolio.

And for enduring measures of success, we’d always start with a measure of value and a measure of cost – incentivising the portfolio to deliver value for money. Commercial organisations will often use revenue as a proxy for customer value meaning their overall measure of success becomes profit (revenue over cost), although there are significant downsides to focusing on money as a short-term measure over a longer-term measure of customer value. For non-commercial organisations, this is often less obvious, varies based on the context, and will evolve over time. To supplement these, we’d recommend you consider some performance measures to understand how effectively and efficiently you’re delivering, and where there may be opportunities for improvement.

Strategic Planning, Funding & People

A portfolio of products and services should be funded and staffed to enable it to maximise its measures of success and deliver a set of agreed outcomes through an agreed long-term roadmap. And because these products and services are enduring, we can review, adjust and agree on all of these with its stakeholders and customers on a rolling (annual) basis, providing the ability to react to the changing environment and context, whilst still giving the portfolio (some) predictability of what changes are coming, allowing time to ramp up or down and prepare.

But to truly allow the portfolio to be reactive to changing events, it needs to have some delegated authority to make rapid changes whenever required – either to veer and haul money and people between different products or services, or to make changes to priorities or the short-term roadmap. This should be enabled through the agreement of guardrails. These create a space within which the portfolio is free to move, with the agreement that any required breach of these guardrails will be discussed and reviewed with stakeholders and customers (even in-year).

The portfolio will need to determine how to flow funding and staffing down to the products and services within it, and how to align their objectives and roadmap to the overall portfolio objectives and roadmap. However because the products and services within it should also be using Lean Portfolio Management to maintain their long-term strategy, roadmap, objectives, and associated required funding and staffing, this becomes an alignment exercise up and down the portfolio stack.

Product & Service Delivery Organisations

In the introduction, we said we were primarily funding and staffing products and services, which means that we’re funding capacity in the organisations that deliver these.

This means the portfolio needs to understand how it is organising its delivery capacity to most effectively deliver its portfolio of products and services across innovation, change and run. This might involve a single delivery organisation delivering multiple products and services where there is significant capability or technology overlap for example. This will then allow it to understand how to bring its various funding streams together to fund delivery capacity.

In some cases, there may be direct funding allocated to significant change initiatives (or innovation) being managed at the portfolio level. In this case, the portfolio will need to understand how these are likely to be delivered. This could be by (one or more) existing product or service delivery organisations, or if it’s change or innovation that doesn’t align with any existing products or services, by new dedicated outcome or innovation teams (which may then ultimately result in new products or services being established).

Innovation

Although innovation and change relating to existing products and services should be delegated to them, the portfolio is likely to need to manage and govern innovation that either spans multiple products or services or that doesn’t align with any of them.

The aim of this innovation work must be to identify appropriate solutions for new opportunities or customer needs, and to establish, scope, size and de-risk the change to deliver this, producing evidence based decisions from experimentation and testing. The portfolio should be comfortable supporting a range of different innovation ideas, using innovation governance and incremental funding to whittle these down through survival of the fittest. Success here is measured on knowledge gained against a suitable innovation lifecycle. Once a change initiative has been fully scoped, it is the portfolio’s responsibility to ensure value for money and optimal fit, for example through the production of a lightweight business case reviewed internally by the portfolio.

Ultimately, the portfolio is responsible for the pull-through of innovation into delivery, ensuring that innovation is being driven by future needs, and is focused on shaping the future roadmap of change delivery.

Change

Under a Lean Portfolio Management approach, delivery is planned and executed quarterly, with delivery organisations making local decisions (in collaboration with the portfolio) on the most valuable work that they can deliver in the next quarter, at the lowest possible cost.

To support this, the portfolio can support delivery teams by communicating the relative priority of different change initiatives and then engaging and supporting their planning process. This prioritisation must be done each quarter based on the remaining value and time/cost for the change initiative, which means that part-completed work may suddenly no longer be a priority if the majority of the value has already been delivered, or a pivot is required to respond to emergent new priorities. It also means that the portfolio can’t dictate (push) when work on change initiatives is started or stopped – this emerges from the result of local planning processes (pull).

Run

Rather than run / operations being delivered by a separate siloed organisation, under a Lean Portfolio Management approach this falls under the purview of the portfolio. This primarily means product or service organisations are accountable for the full lifecycle of (innovation), change and run (deprecation) of their products and services, and at the portfolio-level there is overall responsibility for governing operations performance and ensuring good practices.

Governance

To operate effectively, the portfolio needs to be able to make good timely decisions. This requires a cross-functional leadership team that has all the representatives and experience required to trade-off between competing tensions and discharge the governance and decision-making responsibilities delegated to the portfolio.

This leadership team would usually be supported by a lean portfolio management office, responsible for facilitating effective portfolio management, facilitating the coordination of the work by the product or service delivery teams, and tracking and driving continuous improvement to the performance of both internal teams and suppliers.

Closing

We believe Lean Portfolio Management is the missing part of the jigsaw for many organisations – a re-envisaging of the way organisations operate to focus on the cost-effective delivery of customer value with the ability to react and pivot to a changing environment whilst still maintaining strong and critical rigour.

If you’d like to learn more or to have a conversation about how Lean Portfolio Management might transform your organisation, then please reach out to us.