12

Building Your Portfolio

Traditional approaches to portfolio management were not designed for a global economy impacted by digital disruption. Enterprises now need to work under a higher degree of uncertainty and be able to deliver innovative solutions much faster with constrained resources. And yet, many enterprises try to impose a traditional portfolio approach to govern in this new age:

The problem is not with our organizations realizing that they need to transform; the problem is that organizations are using managerial frameworks and infrastructure models from past revolutions to manage their business in this one.

– Mik Kersten, Project to Product [6]

For many years, SAFe® Organizations didn’t begin implementing Lean Portfolio Management (LPM) until several Agile Release Trains (ARTs) had been launched. Better business results achieved by Agile Teams and Trains put pressure on the senior leaders to explore applying Lean-Agile practices at the portfolio level. There’s a significant change in this pattern. However, today’s prevailing trend is to launch LPM from the beginning of the transformation in parallel with the activities needed to launch the first ART. This is why the course badge for LPM appears in two places on the SAFe® Implementation Roadmap; above Train Executives, Managers, and Leaders, and above Enhance the Portfolio (see Figure 12.1).

Figure 12.1 – SAFe® Implementation Roadmap (© Scaled Agile, Inc.)

Furthermore, the guidance for building the portfolio has matured through practice and there are now more resources to support you in getting started with adopting and implementing LPM within your enterprise.

Pro tip

If you are a member of the Scaled Agile, Inc. community, there are many resources with SAFe® Studio to help to build your portfolio.

In this chapter, we will be covering the following topics:

• How to align key Stakeholders in preparation for launching LPM
• Guidance for defining your portfolio
• The critical task of identifying your Value Streams

Starting with Education for the Leaders

By encouraging people and teams to perform at their best, Lean-Agile Leaders drive, guide, and sustain organizational change. They do this through the following:

• Learning about the Lean-Agile mindset, values, principles, and practices (education)
• Modeling those behaviors every day (Leading by Example)
• Guiding the organization to a new way of working (Leading the Change)

As is the case with implementing SAFe® or launching an ART, when it comes to adopting LPM, education comes first so that the leaders entrusted with adopting LPM can learn about the mindset, values, principles, and practices of LPM.

Therefore, we encourage the appropriate people to attend a 2-day LPM class (more at https://scaledagile.com/training/lean-portfolio-management/).

Pro tip

In identifying the participants for a 2-day LPM course, consider who makes investment decisions and supports and facilitates the portfolio, and will implement LPM, foster new initiatives, and execute the portfolio strategy.

The shared experience of leaders and key influencers is vital. While we understand that getting senior leaders to commit 2 days of dedicated time to a training event is hard, evidence from hundreds of implementations demonstrates that education is critical to establishing a truly shared vision, the benefit of building a common vocabulary, and the understanding of what needs to happen.

However, that said, it can still be a challenge to persuade senior leaders to devote to a 2-day education event, so we need to ease them in gently; we have a couple of options:

• Within SAFe® Studio, there is a 7-minute introductory video to LPM
• You can also download and provide a half-day workshop, which is an introduction to LPM for executives

Both are intended to be a way to establish the groundwork for senior leadership to recognize the need and commit to further education and identify the portfolio roles and who the key Stakeholders are so that a 2-day LPM course can be scheduled – in essence, enough to persuade them to commit more time to education.

The LPM course is an advanced class that helps answer the following questions:

• How do I connect strategy to execution?
• How do I manage the flow and solve perpetual overload?
• How can I fund and govern dynamically?
• How does LPM fit into SAFe®?

Pro tip

As an SAFe® Practice Consultant (SPC), you have the privilege to be able to teach about a dozen SAFe® certified courses. But just because you can doesn’t mean that you should! We always advise Coaches to consider their strengths and weaker areas. For example, I have never been an Architect, so I would not consider teaching SAFe® for Architects. Similarly, if you have not operated at a portfolio level, then at least pair with someone who has when you teach LPM (or any other course where you lack expertise).

This is a 2-day interactive class that teaches the practical tools and techniques necessary to adopt LPM using a consistent simulation throughout the course – Terrific Transport Corporation (TTC). It is essential that for the 2-day class, you use the simulation and are not tempted to use real work; we want people to understand the theory and not get mired in how this relates to their real work. Later, through the Workshop and Implementation, we start to put the theory into practice.

There is a 1-day optional, third-day workshop available to help enterprise teams get started with LPM, and it’s our suggestion that you use this workshop to consider all the activities for building the portfolio, prioritize them, create an implementation roadmap, and take an iterative approach to advance LPM within your enterprise, keeping the urgency high.

Pro tip

LPM implementation is a journey that typically takes many months, but reaching self-sustenance can take longer. It requires Coaching and support to fully embed the Lean-Agile mindset.

With an educational foundation of LPM under our belts, the conversations about portfolios and strategies are easier to align.

Painting your Portfolio with Color

In Chapter 11, we talked about the importance of the Enterprise Strategy and now we need to connect the portfolio to the Enterprise Strategy with Strategic Themes.

Strategic Themes are differentiating business objectives that connect a portfolio to the strategy of the Enterprise; they influence the portfolio strategy and provide business context for portfolio decision-making. They help direct what is done and, conversely, what is not done across the portfolio.

Let’s go through a couple of pointers about Strategic Themes:

• They are differentiating; that means if you are a bank and you have a set of Strategic Themes and you walk across the road to another bank and they have the same Strategic Themes, then they are probably not differentiating! Common bad examples are “reduce costs” and “increase revenue.”
• They are relatively short-lived; we suggest that Strategic Themes have a shelf life of 12-18 months and should be reviewed at the quarterly Strategic Portfolio Review (more details in Chapter 13).

You will start to see increasing use of Objective Key Results (OKRs) within the framework, but they were first introduced here as the recommended way to document Strategic Themes:

• Objective, as in, a memorable description of what you want to achieve; short, inspirational, and challenging.
• Key Results are measurable success criteria that can be used to track progress.

Pro tip

For each portfolio, there should be four to six Strategic Themes; too many and you can’t see the forest through the trees, and they become less effective in influencing the portfolio strategy.

For each objective, there should be two to five key results.

If you want a good introduction to OKRs, then the blog article An Introduction to Objectives and Key Results (OKRs) [1] from Mark Richards is a good starting point.

A more detailed introduction is given in Measure what matters [2] by John Doerr.

Strategic Themes influence, among other things, the Portfolio Vision, which describes the future state of the Portfolio’s Values Streams and solutions.

In the same way that we want the Enterprise Vision to be engaging, we want the Portfolio Vision to be aspirational – it must be convincing and realistic enough to be feasible over a substantial period of time. To involve others in the journey—both customers and staff—it must be motivating.

There are many techniques for describing a vision. In Chapter 11, we gave you a link to the Live like a Bosch video. Another technique is Postcard from the Future (from Switch: How to Change Things When Change is Hard, by Heath and Heath) [3].

We then need to define the portfolio domain and the Value Streams for the portfolio, which we do with an adaptation of the Business Model Canvas developed by Alexander Osterwalder. The book [4] provides useful descriptions of the boxes and prompts to help you complete them and is a recommended companion to completing the canvas.

The Portfolio Canvas is a powerful way to represent the entire Portfolio on one page:

Figure 12.2 – Portfolio Canvas (© Scaled Agile Inc.)

The Portfolio Canvas has three main sections:

• Value Propositions: These describe the customers and the value delivered by the solutions of each Value Stream, as well as the customer segments and relationships, budgets, and KPIs/revenue.

Pro tip

Use a separate row for each Value Stream.

• Key Resources and Key Activities describe the important partners, activities, and other resources needed to achieve the value proposition.
• Cost Structure and Revenue Streams describe how the Portfolio’s costs are structured and define how revenue or value is achieved.

There are many tools and techniques to help us understand the opportunities for the future state. The one that we want to describe is the SWOT analysis and the TOWS Strategic Options Matrix.

SWOT is not something new and was accredited to four colleagues at the Harvard Graduate School of Business Administration in 1965 [5]. The name is an acronym for the four components that the technique examines:

• Strengths: Characteristics of the business or initiative that give it an advantage over others.
• Weaknesses: Characteristics that place the business or initiative at a disadvantage relative to others.
• Opportunities: Elements in the environment that the business or initiative could exploit to its advantage.
• Threats: Elements in the environment that could cause trouble for the business or initiative.

Now, the SWOT analysis is great but it doesn’t create an outcome. As Coaches, we are big fans of TOWS (which you might think is SWOT backward, and it is!).

Figure 12.3 – TOWS strategic options matrix (© Scaled Agile, Inc.)

Having identified your strengths, what can be done to exploit and maximize opportunities? How can you apply your strengths to overcome present and potential threats? How can your opportunities be leveraged to overcome weaknesses? And finally, how can you minimize weaknesses and threats? (See Figure 12.3.)

The key difference between SWOT and TOWS analysis is the outcomes they create. By conducting a TOWS analysis, organizations can gain valuable insights into their current situation and identify potential strategic options to pursue. Some specific actions that you can take with a TOWS analysis include the following:

• Strategy development: Use the insights gained from the TOWS analysis to develop a strategic plan that leverages your strengths and opportunities while addressing your weaknesses and mitigating your threats.
• People allocation: Allocate people to areas that will best position your organization to capitalize on opportunities and mitigate threats.
• Risk management: Use the insights from the TOWS analysis to identify and manage risks associated with external threats and internal weaknesses.
• Competitive positioning: Use the TOWS analysis to evaluate your organization’s competitive positioning relative to other players in your industry and identify potential opportunities to differentiate yourself.
• Decision-making: Use the TOWS analysis to inform decision-making across a wide range of areas, including product development, marketing, and organizational structure.

Overall, the TOWS analysis is a powerful tool that can help you gain a deep understanding of your organization’s internal and external environment and identify potential strategic options to pursue.

Value Stream Identification (VSI)

Identifying Value Streams is one of the most difficult things you will do as a Coach and, as a consequence, we often see this step missed. Yet it is critical if we are going to shift the enterprise from being project led to product led.

We are not going to explain in detail how to run a VSI workshop; you should have experienced that as a simulation in your Implementing SAFe® class. Plus, if you are an SPC in good standing, then you will have access to the VSI Workshop toolkit. If you are not an SPC or an SPC in good standing, then the article on the SAFe® Framework provides a good narrative [8].

What we want to do is give you practical advice on how to prepare and run the workshop and then implement ARTs that realize the Value Streams.

But first, a very quick refresher!

A Value Stream is the primary construct for understanding, organizing, and delivering value in SAFe®. Each Value Stream is a long-lived series of steps used to create value. These steps contain the flow of information and material and the people who develop solutions.

Within SAFe®, there are two types of Value Streams:

• Operational Value Streams (OVS): These contain the steps and the people who deliver end user value using the business solutions created by the Development Value Streams (© Scaled Agile, Inc.)
• Development Value Streams (DVS) – These contain the steps and the people who develop the business solutions used by OVS (© Scaled Agile, Inc.)

The DVSs are managed by a SAFe® Portfolio. Our only interest in identifying the OVS is the ability to allow us to determine the DVS that support them.

There are five steps for identifying DVS and ARTs:

1. Identifying an OVS.
2. Identifying the solutions the OVS use or provide to customers.
3. Identifying the people who develop and support the solutions.
4. Identifying the DVS that build the solutions.
5. Realizing DVS into ARTs.

Pro tip

A solution is a product, system, or service that provides value to internal or external customers.

Let’s dive into each of these steps in a little more detail.

Pre-Work and Preparation

Make sure that everyone that attends the VSI workshop has had some SAFe® education, ideally Leading SAFe®. Otherwise, you will spend most of the workshop trying to educate and shift people’s traditional mindsets rather than actually doing identification.

Do not go into a VSI workshop without preparation! Do your research and try to understand the products and services that the enterprise offers. These are easily researched from the enterprise website. These are great candidates for your OVS. Don’t declare them up front but have them in your back pocket because you want the organization to discover them first to get better buy-in.

Consider your attendees; clearly, you will need Architects and Development Managers because they know the systems and the people working on them. You also need to consider those folks that know the end-to-end flow, from sales and marketing to finance. Also, having these folks involved in the early days will help with advocating for the change.

The workshop will take longer than you think! Even for a similar enterprise that only had two OVS, it took me a day and a half. My advice would be to plan for 2 days. Having an overnight break is recommended for you to decompress and reflect and also so that attendees can consider their thoughts and maybe calm down – it can get quite heated.

Do not try and do the workshop on your own. You need at least two pairs of eyes, even for the simplest workshop. Where you have multiple OVS, then many Coaches might be required.

Step 1 – Identifying the OVS

There are typically four types of OVS: fulfillment, manufacturing, software products, and supporting. You will often find that the steps in these OVS will need minimal changes/updates from enterprise to enterprise.

The common example given in SAFe® and something I helped develop is the OVS of a customer wanting a consumer bank loan, as shown in Figure 12.4:

Figure 12.4 – Bank OVS (© Scaled Agile, Inc.)

Pro tip

When executing the first step, you may want to show the 4 different OVS and then solicit feedback from the group on which one matches your organization best. Once you have that general consensus, you can then make the necessary adjustments for your organization.

Also, try and limit the OVS to less than 12 steps and more than 5 steps; more than 12 and the steps are too fine-grained, less than 5 and the steps are too coarse-grained. We are looking for a significant hand-off between each step.

Step 2 – Identifying the Solutions the OVS use or provide to Customers

This is a key step that folks often have challenges with and discover that there are often many systems within the organization that are necessary to deliver value. Don’t let the word “solution” in the step confuse you or the participants in thinking you are identifying a Solution Train. In this step, we are trying to identify the underlying systems that support the OVS.

In Figure 12.5, there are 4 major systems that this bank uses: Channels, Loan Origination System, Credit Scoring System, and Core Banking.

In this step, you will also want to identify the customers of each step. This could be external customers or internal users. If you have personas already established in your organization, this is a great time to leverage them.

Figure 12.5 – The systems that support the OVS (© Scaled Agile, Inc.)

Pro tip

Make sure that you take each of the steps sequentially and try not to let the participants work ahead as this often complicates the activity.

Step 3 – Identify the People who Develop and Support the Solutions

In this step, we want to understand who and how many people are working on each system and their location. This is a critical step as it feeds into who will be on the ART and how many ARTs we will have.

Figure 12.6 – People who develop and support the solutions (© Scaled Agile, Inc.)

Pro tip

Depending on who is in the workshop, participants may not know who or how many or their locations. You may have to assign this as homework or consider breaking the workshop into several shorter days to allow time for participants to have time to identify these individuals or even get clarification on the systems from the previous step. And don’t forget to include 3rd Party Vendors.

Step 4 – Identify the DVS that Build the Solutions

In the next step, we identify the DVS whereby each individual DVS should be able to develop and release value independently without too many intra-Value Stream dependencies.

As the four OVS patterns serve very different purposes, it stands to reason that the design and outputs of each DVS are driven by the type of OVS it supports. While there is no obvious limit or constraint to the ways an organization can configure DVS, specific patterns have emerged – fulfilling a product, manufacturing a significant cyber-physical solution, developing a software product, and a supporting Value Stream.

The pattern in Figure 12.7 revisits the bank loan example. Patterns like this one are common in insurance, banking, financial services, and related industries that offer complex, digitally enabled products and services to consumers (B2C) and businesses (B2B). In this example, one DVS supports the frontend loan origination and credit scoring; another builds the core banking services.

Figure 12.7 – Fulfilment DVS pattern (© Scaled Agile, Inc.)

Pro tip

DVS should be able to develop and release value independently, so consider carefully and try and design your DVS without too many intra-Value Stream dependencies. I often see that people will try and design their DVS by the individual systems (vertical silo thinking) rather than considering the systems that need to be released together to create value (horizontal flow thinking). Try and switch their mindset from vertical to horizontal.

Step 5 – Realize DVS into ARTs

Finally, we realize DVS into ARTs, which can contain 50 to 125 people, are long-lived, and are focused on a holistic solution or a related set of products and services.

Depending on how many people do the work, there are three possible scenarios for the ART design:

• Multiple DVS can fit within a single ART – When several related products or solutions can be produced with a relatively small number of people, a single ART may deliver multiple Value Streams.
• A single DVS can fit within an ART – Often, a Value Stream can be realized with 100 or fewer practitioners. Many development groups are already organized into units of about that size, so this is a common case. In this case, the ART is roughly the same as the Value Stream, and everyone is in that ART.
• Multiple ARTs are required for large DVS – When a lot of people are involved, the DVS must be split into multiple ARTs, and form a Solution Train.

See an example of each scenario in Figure 12.8:

Figure 12.8 – Realizing DVS with Solution Trains and ARTs (© Scaled Agile, Inc.)

Then we need to consider organizing the ARTs with ART Topologies if we have a Solution Train. Remember the first rule of scaling is “don’t”, so if you don’t need a Solution Train then try and avoid it. There are three patterns:

• A Stream-Aligned ART, just like a stream-aligned team, will have the necessary personnel, skills, and authority to deliver value, whether it’s a full product, service, subsystem, or whatever portion of the solution they have been tasked with.
• Most large systems also include extensive subsystems. This means that Complicated Subsystem ARTs are common when building large-scale systems, again to reduce the cognitive load on the Stream-Aligned ARTs.
• Similarly, it’s common for a Solution Train to have Platform ARTs providing services that the Stream-Aligned ARTs extend and build on.

Continuing our banking example in Figure 12.9 we have a Large Solution with 3 ARTs (Channel support, Loan Origination, and Credit) and a single ART for Core Banking.

Figure 12.9 –Combination of ART Topologies in the consumer bank loan example (© Scaled Agile, Inc.)

At the end of the workshop, you might have several candidate ARTs and will need to pick one to start – do not try and launch all the ARTs at once. Start with one, run it for a PI, gather the learning, and then launch the next ART based on that learning. But which one to start with?

Story from the real world

Now, I used to be a bank Manager, and every 18 months to 2 years, I used to be promoted to another branch because I was doing well. The bank always offered a good branch, one that was performing well. I always turned it down! I insisted on a branch that was not performing well as my next move. Why? Because a poor-performing branch generally can’t get worse, so I was able to demonstrate improvements and then move on to my next promotion.

Identify the ART with the burning platform, where you can get a quick win.

Pro tip

I like to pick an area for my first ART that is under pressure so that I can quickly and empirically demonstrate after the first PI how we have turned the dial and made significant improvements. This becomes your mandate for continuing the change.

Caution

Make sure you understand the difference between Value Stream Identification and Value Stream Mapping; you will find that people will use the terms interchangeably but they are very different things.

The VSI workshop is a guided event to identify your Value Streams, as described earlier. It includes organizing your teams of Agile Teams or ARTs around Value Streams.

A Value Stream Mapping workshop helps measure the health of your current Value Streams, identifying the biggest bottlenecks and creating an actionable plan to optimize your Value Stream.

Summary

Many organizations now start by building the portfolio level before they launch any ARTs because they need to solve the problem of having more demand than capacity sooner rather than later.

If this is the case, then make sure your leaders are properly informed within the critical education steps and then incrementally build out your portfolio artifacts; Strategic Themes, the Portfolio Canvas, and SWOT/TOWS analysis.

One of the most difficult things you will do as a Coach is VSI so be sure to use the toolkit, have an experienced Coach support you, and do your preparation.

In Chapter 13, we will look at how we move from traditional Project-Cost Accounting to Lean-Agile Budgeting.

Further reading

1. An Introduction to Objectives and Key Results, by Mark Richard (http://www.agilenotanarchy.com/2017/03/an-introduction-to-objectives-and-key.html)
2. Doerr, John (2018). Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs. Penguin Publishing Group.
3. Dan Heath and Chip Heath (2011). Switch: How to Change Things when Change is Hard. Random House.
4. Alexander Osterwalder and Yves Pigneur (2013). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Wiley.
5. SWOT: https://en.wikipedia.org/wiki/Harvard_Graduate_School_of_Business_Administration and https://en.wikipedia.org/wiki/Kenneth_R._Andrews
6. Kersten, Mik (2018). Project to Product: How to Survive and Thrive in the Age of Digital Disruption with the Flow Framework. IT Revolution Press.
7. Lean Portfolio Management (LPM): https://scaledagileframework.com/lean-portfolio-management/
8. Organize Around Value: https://scaledagileframework.com/organize-around-value-2/