Reshaping The Enterprise with Lean Portfolio Management
The enterprise is evolving. Consumer behavior and market trends are changing at an ever-increasing pace, and technology is becoming more and more disruptive. In order to stay ahead of the curve, enterprises must continually adapt and innovate.
Innovation has always been a key differentiator for successful enterprises, but in today’s rapidly changing environment, it is more important than ever. Enterprises that can’t keep up with the pace of change will quickly become obsolete.
Lean portfolio management (LPM) is a powerful tool that can help enterprises adapt and innovate in today’s environment. It is a set of principles and practices for managing portfolios of products, projects, and services in a lean and agile way.
The goals of Lean Portfolio Management are to:
- Prevent silos: utilize the portfolio budget to balance out the spending for capacity with the most valuable opportunities.
- Maximize the value-flow: Manage the queue of investments to discover the most valuable possibilities, and actively manage work-in-progress across teams in order to increase the supply of value into the market.
- Drive effective servant leadership: Remove roadblocks to ensure that delivery cycles are as short as possible. This allows for course correction and improvement at a much faster pace.
What is Lean Portfolio Management?
Lean Portfolio Management is a system that optimizes strategy and execution by applying lean thinking to areas like investment funding, agile portfolio operations, and governance. This system is one of the seven core competencies of a Lean Enterprise, all of which are necessary for achieving business agility. With this system in place, enterprises can assess their proficiency level and take advantage of recommended improvements.
A Lean portfolio management framework, such as SAFe, may be used to structure and assess an organization’s Value Streams across various business domains. Each value stream offers one or more solutions that aid the company in reaching its corporate strategy. Value streams are created to enhance sales, marketing, finance, supply chain management, and general operations.
The goal of LPM is to synchronize agile development with business strategy, focusing on providing value to customers through the production of goods and solutions. As a result, enterprises are able to achieve greater business agility.
LPM vs. Waterfall Portfolio Management
LPM is a more customer-centric and agile approach to portfolio management than the traditional waterfall method, and accelerates business agility. Waterfall portfolio management is focused on maximizing shareholder value by carefully planned and controlled steps that are executed in a linear fashion. The waterfall portfolio management approach does not lend itself well to today’s rapidly changing environment.
LPM, on the other hand, is focused on delivering value to customers as quickly as possible. It is a more iterative and agile approach that allows for course correction along the way. LPM aims to:
- Focus on outcomes, not outputs: LPM is focused on delivering value to customers, not just on producing deliverables
- Reviewing decisions and learning from them: LPM is based on the principle of continuous improvement. Decisions are reviewed regularly and adjustments are made based on what was learned.
- Frequent budgeting and funding: LPM utilizes a rolling wave budgeting approach that funds projects based on their value, not on their position in the development cycle.
- Defining and measuring value: LPM uses multiple methods to define and measure value, including customer feedback, business outcomes, and financial metrics
Therefore, LPM is a more customer-centric and agile approach that is better suited to today’s rapidly changing environment.
Why Reshape Enterprise With Lean Portfolio Management?
Enterprises that focus on defining projects that span more than a year often get stuck in a situation where they are not able to deliver value to their customers in a timely manner. LPM can help organizations break free from this by enabling them to focus on smaller, more manageable projects that can be delivered quickly and incrementally. Lean portfolio management methods help organizations:
- Shift the emphasis to delivering incremental value at shorter timeframes for bigger projects
- Establish a lean product management function that is customer-centric and focused on delivering business value.
- Adopt a continuous delivery pipeline that is driven by agile development teams and supported by DevOps practices
- Utilize lean portfolio planning to identify and invest in the right initiatives that will deliver the most value to the business.
Let’s look at some key pain points that LPM can help to address:
Pain point #1: Long cycle times on large initiatives.
Organizations often find themselves bogged down by slow cycle times on large initiatives. This can be due to a number of factors, including handoffs and dependencies that add friction and delays to the delivery process. Another issue is when organizations have a poor definition of customer value, which leads to communication breakdowns and a lack of clear direction. Finally, when organizations emphasize a planning and execution model that yields continuous value flow, they are more likely to put value in customers’ hands in a timely manner.
LPM helps to address these pain points by:
- Focusing on shorter delivery cycles that allow for faster feedback and course correction
- Establishing a clear definition of customer value so that everyone is aligned on what needs to be delivered
- Adopting a continuous delivery pipeline that allows value to flow continuously from development through to production.
Pain point #2: Work gets done, but the key needles don’t move.
One of the challenges organizations face is that they may complete a lot of work, but fail to see any significant changes in their key performance indicators (KPIs). This can be due to a number of factors, including setting goals that are not focused on business outcomes. Another issue is when organizations only evaluate outputs in long feedback loops, which prevents them from making quick adjustments to their plans. Finally, when organizations set objectives that are not based on desired business outcomes, they may have difficulty achieving their goals.
LPM helps to address these pain points by:
- Focusing on business outcomes so that work is aligned with what needs to be delivered
- Utilizing short feedback loops so that adjustments can be made quickly
- Setting objectives that are based on desired business outcomes.
Pain point #3: Budgets are difficult to change based on new information.
Uncertainty in the marketplace can often lead to organizations having difficulty changing their budgets based on new information. This can be due to a number of factors, including a lack of transparency around how decisions are made, inflexible budgeting processes, and a lack of agility in the organization.
LPM helps to address these pain points by:
- Increasing transparency around decision-making so that everyone is aware of the rationale behind decisions
- Applying a lean start-up mindset to “think in bets” so that organizations can explore the solution space in a cost-effective way
- Funding team-of-teams through agile budgeting, which gives them the flexibility to build plans that align with strategic goals.
Implementing and Operationalizing LPM In Your Enterprise
Once you have decided to implement LPM in your enterprise, there are a few key considerations to keep in mind:
- Define the scope of your LPM initiative
The first step is to define the scope of your LPM initiative. What parts of the organization will be included? What portfolios will be managed under the LPM framework? Once you have answers to these questions, you can begin to form a portfolio leadership team and develop an LPM Roadmap.
- Form a portfolio leadership team and identify key roles and responsibilities
A portfolio leadership team (PLT) is a group of leaders who are responsible for managing a portfolio of projects. The PLT is responsible for making decisions about which projects to invest in, how to prioritize and sequence the delivery of value, and how to adapt the portfolio in response to changes in the market or business environment.
- Gain alignment on LPM objectives, principles, and processes
Before beginning to implement LPM, it is important to gain alignment on the objectives, principles, and processes of the framework. The LPM Objectives specify what the portfolio should achieve, the LPM Principles provide guidance on how to operate the portfolio, and the LPM Processes describe how decisions will be made about which projects to invest in and how those projects will be delivered.
- Create a portfolio management value stream map
A portfolio management value stream map is a visualization of the steps involved in managing a portfolio of projects from idea generation to delivery. The VSM can be used to identify areas of waste and opportunity for improvement within the portfolio management process.
- Develop and implement an LPM Roadmap
Once the scope, objectives, principles, and processes of LPM have been defined and alignment has been achieved, you can begin to develop a roadmap for implementation. The LPM Roadmap should be tailored to the specific needs of your organization and should take into account the current state of the portfolio, the desired future state, and the steps required to get from one to the other.
- Establish feedback loops to ensure continuous improvement
Feedback loops are an important part of any LPM implementation. They allow for input from all stakeholders and help to ensure that the portfolio is continuously evolving to meet the ever-changing needs of the business.
In today’s rapidly changing business environment, organizations must be able to adapt quickly to survive and thrive. Lean portfolio management (LPM) is a framework that can help organizations to do just that by increasing transparency, business agility, and flexibility.
Are you ready to reshape your enterprise with Lean Portfolio Management? Get in touch with us at talkagile@agileseventeen.com to learn more about how our expert team can help you get started.