Lean Portfolio Management (LPM) is a strategic approach used primarily in Lean and Agile organizations to align project work, budgeting, and business goals across the entire portfolio of projects. It applies Lean principles to help organizations adapt swiftly to market changes, focus on value creation, and optimize resource allocation. Let's break down Lean Portfolio Management in detail and apply it to an example scenario for better understanding.
1. Definition of Lean Portfolio Management
LPM is a way to manage an organization’s projects or product portfolios by ensuring that:
- Strategic objectives are prioritized and aligned with available resources.
- Value streams are created to deliver the most value to customers in the shortest time.
- Continuous feedback is leveraged to optimize portfolio planning.
The core components of Lean Portfolio Management typically include Strategy and Investment Funding, Agile Portfolio Operations, and Lean Governance.
2. Key Components of Lean Portfolio Management
A. Strategy and Investment Funding
- Purpose: Aligns portfolio investments with organizational goals and strategic priorities.
- Activities: Establishing a clear portfolio vision and roadmap. Funding value streams rather than individual projects, which enables more agility and reduces rigid funding cycles. Ongoing alignment of investments with changing priorities and customer needs.
- Example: A tech company allocates its budget across strategic themes like "Improving User Experience" or "Expanding Market Reach." Instead of funding each project separately, funds are pooled into these themes, enabling teams to draw from them based on prioritization.
B. Agile Portfolio Operations
- Purpose: Ensures smooth operations and effective collaboration across teams within the portfolio.
- Activities: Coordination of cross-functional teams, often through Program Increment (PI) planning sessions. Tracking of progress and dependencies through visual management tools like Kanban boards. Removing roadblocks to help teams meet their objectives efficiently.
- Example: In a financial services company, teams working on credit card products and mortgage solutions collaborate during PI planning to ensure dependencies are managed, shared components are optimized, and any potential conflicts in timelines are resolved early.
C. Lean Governance
- Purpose: Provides oversight of portfolio activities while fostering a culture of continuous improvement.
- Activities: Implementing lightweight metrics and reporting to assess performance without overburdening teams. Developing Lean budgets with regular reviews instead of inflexible annual budgets. Compliance and risk management, aligning with regulations but minimizing bureaucratic overhead.
- Example: A healthcare company uses monthly reviews to assess the progress of value streams, shifting funds if necessary to the most promising initiatives while maintaining compliance with healthcare regulations.
3. Lean Portfolio Management Process
The LPM process includes these essential stages:
A. Establish Portfolio Vision and Strategic Themes
- Define the overarching goals and direction for the portfolio.
- Create strategic themes that capture the high-level priorities of the organization.
Example: A retail company might set a strategic theme of "Digital Transformation" with a focus on enhancing e-commerce capabilities and improving the customer experience.
B. Define Value Streams
- Identify value streams that deliver end-to-end value for the customer.
- Each value stream should be aligned with one or more strategic themes.
Example: For the retail company, two value streams could be "Customer Acquisition" and "Online Sales Fulfillment."
C. Prioritize Initiatives within Value Streams
- Use prioritization methods, such as Weighted Shortest Job First (WSJF), to rank initiatives based on their potential business value and risk.
Example: The retail company may prioritize the "Mobile App Development" initiative over "Website UI Enhancements" if data shows that mobile conversions are increasing faster than desktop.
D. Allocate Budgets and Manage Lean Budgets
- Rather than rigid, project-specific budgets, allocate flexible budgets to value streams and themes.
- Review budgets regularly to adapt to changes, pivot to higher-priority initiatives, or address emerging market needs.
Example: The retail company assigns $1 million to the “Digital Transformation” theme, allowing funds to be shifted as customer feedback is gathered on various features or improvements.
E. Implement and Monitor Portfolio Operations
- Regularly conduct PI planning or other collaborative sessions to align teams and plan for upcoming increments.
- Use Kanban boards or similar tools to visualize workflow and identify bottlenecks.
Example: Teams working on mobile and web developments for the retail company sync up quarterly to ensure they are not duplicating work, that dependencies are tracked, and that they align on delivery timelines.
F. Continuous Feedback and Adaptation
- Gather feedback from end-users and stakeholders.
- Adjust initiatives, resources, or value streams as needed.
Example: After releasing a new e-commerce feature, the retail company collects customer feedback to inform the next sprint. If issues are flagged, they are prioritized in the backlog for immediate attention.
4. Lean Portfolio Management Example: A Retail Company Undergoing Digital Transformation
Scenario
- Company: RetailCo, a traditional retail chain transitioning into e-commerce.
- Objective: To shift its customer base to online shopping while enhancing the digital experience.
- Strategic Themes: Digital Transformation: Developing mobile and web e-commerce platforms. Customer Loyalty: Implementing a loyalty rewards program to boost retention.
Step-by-Step LPM Application at RetailCo
- Define Strategic Themes:
- Allocate Budgets to Themes:
- Identify Value Streams:
- Prioritize Initiatives in Each Value Stream:
- Plan and Monitor Execution:
- Continuous Feedback and Improvement:
5. Advantages of Lean Portfolio Management
- Enhanced Agility: RetailCo can adapt to changing market needs without being constrained by a rigid budget.
- Customer-Centric Focus: By frequently reviewing customer feedback, RetailCo ensures that its digital offerings continuously meet evolving customer needs.
- Improved Collaboration: Cross-functional teams collaborate effectively, minimizing silos and enhancing resource utilization.
- Greater Value Delivery: Prioritizing initiatives based on value ensures that resources are spent on features that offer the most impact.
Conclusion
Lean Portfolio Management allows organizations like RetailCo to dynamically manage their portfolios and align investments with strategic goals. By focusing on delivering customer value and continuously adapting to feedback, RetailCo positions itself for success in an increasingly digital market.
