“Innovation is saying no to 1,000 things”
– Steve Jobs
Portfolio Management is the highest level planning process within an enterprise and includes the definition, refinement, prioritization and funding of business strategy initiatives. These initiatives are referred to as epics in SAFe, and once approved at the portfolio level, are translated into implementable features that can be realized by delivery teams. Portfolio management refers to the definition, prioritization and management of business initiatives (epics) that require work at the program and team levels. This is accomplished via a sequence of interconnected Kanbans that operate continuously, and supply delivery teams with a steady flow of ready work.
Before we start, here are the basic definitions used in the SAFe organizational framework:
- An Enterprise has one or more Portfolios of revenue-generating products or services.
- Each portfolio is guided by a strategy, or set of Strategic Themes, and supported by the people and processes required to carry out that strategy.
- Portfolio-level artifacts include: Strategic Themes, Epics (Business & Enabler Epics,) Portfolio Kanban, and Portfolio Backlog.
- A Portfolio comprises one or more Value Streams:
- Value Streams represent products or services that generate revenue for the business, and are built and supported by one or more ARTs (Agile Release Trains).
- An Agile Release Train (ART) is consists of 5 – 10 cross-functional delivery teams.
There are a number of specific steps in the Portfolio Management framework:
- External & Internal Assessment. Strategic planning usually begins with an assessment of both external and internal factors that may determine the limits of what a company can accomplish. External factors include the competitive environment in which the company operates, including opportunities and threats that the company must contend with. Internal factors include the company’s strengths and weaknesses, including its financial and technological resources.
- Strategy Development. Development of a strategic fit between the organization’s capabilities and the needs of the marketplace. This step involves selection of strategies to be employed to maximize the success of the portfolio. For example, using Porter’s9 generic competitive strategies:
- Cost Leadership: Compete on price by using low-cost internal structures. Operational costs can be reduced by digitization and automation of key business processes.
- Differentiation: Differentiate products or services by offering superior quality or valuable product features. Defend core products from competitive attack by enhancing their capabilities.
- Focus: Develop a competitive advantage by targeting specific market segments or niches.
- Business Initiatives (Epics). Strategic themes are elaborated into specific initiatives (represented as epics) needed to realize the strategy. Each epic is expressed with a concise statement of value (elevator pitch), and a feature summary that captures the scope of what is needed.
- Epic Analysis & Refinement. Epics are analyzed, refined and prioritized to the point that a Go/No-Go decision can be made, and that they can be consumed by program teams for PI Planning purposes. The epic refinement process is managed via the Portfolio Kanban. Analysis will include assigning relative business value and also an estimate of the relative effort to deliver the epic.
- Epic Approval. Make a go/no-go decision on individual epics. Those that are approved are added to the portfolio backlog. Decide investment and funding priorities between the various initiatives based on results of epic analysis. Decide which business initiatives make the biggest contributions to strategy and fund accordingly. The Portfolio Backlog is a Unified backlog of business and technology initiatives, objectively ranked using WSJF, and in a state of readiness for processing by program teams. Objective ranking implies a funding approach based on economics. SAFe promotes funding of value streams as opposed to projects or departmental silos.
The primary output of this set of steps is a Portfolio Backlog, that is, a ranked list of business initiatives (epics), sufficiently defined that they can be translated into product features by program teams. This flow is not intended to run as a single batch for all epics. This process should run continuously, with different epics at different stages within the process.
The term ‘Epic’ can be a source of confusion. Generically, epics are simply large User Stories, too big to fit in a single sprint. SAFe has adopted the requirements hierarchy: Epic → Feature → User Story, where stories fit within single sprints and features are sized to fit within a single Program Increment (PI). In SAFe, epics are the business initiatives needed to implement business strategy within a specific portfolio. Epics are artifacts of the problem space, whereas features and stories are artifacts of the solution space. Features and Stories are how we implement Epics. Epics are defined using a value proposition statement, sometimes based on Geoffrey Moore’s ‘elevator pitch’ format.
Strategic Themes and the Product Portfolio
A product portfolio is the collection of all products or services offered by a company. Ultimately, the goal of the portfolio management level in SAFe is to maximize the financial performance of the portfolio. All major corporations perform some sort of portfolio analysis. SAFe brings agility to portfolio management via the Portfolio Kanban, which introduces lean principles of Transparency, WIP limits, Pull and Flow. Additionally epic priority setting is done objectively using WSJF.
SAFe uses the term Strategic Themes to describe the strategy associated with a portfolio. Large, multi-business, organizations may have multiple product portfolios, and each portfolio may have its own strategic themes. There is no standard way of structuring portfolios and themes, and organizations should adopt what works best for them. If we take Microsoft as an example, the major elements of their product portfolio might be listed as follows:
- MS Windows – Microsoft’s bread and butter
- Office Applications – Word, Excel, PowerPoint, etc.
- Outlook Exchange – Corporate Email Platform
- SharePoint – Enterprise information sharing System
- SQL Server – Microsoft’s database System
- Visual Studio – Software development platform
- Xbox – Gaming System
- Bing – Search Engine
- Azure – Microsoft’s cloud solution
Continuing with the Microsoft example, and singling out Windows as one Value Stream within the portfolio, the breakdown from Portfolio to Epics to Product Features might look something like the diagram below. Remember that Epics (like the Edge Browser for example) are things that may require multiple PI’s to deliver to the market, whereas features are things that are produced in a single PI time-box. The only hard and fast rule in SAFe is that features are things that are produced in a single PI, anything bigger than that is by definition, an epic.
Portfolio Analysis to Determine Investment Strategy
Each product or program in a portfolio serves some strategic objective (Strategic Theme in SAFe), and generates revenue for the company. Organizations conduct analysis of their portfolios to determine priorities and investment levels. Microsoft spends about 14% of its revenue in R&D (approx. $14B in 2017). The question is how to allocate those funds among the items in its broad product portfolio. No specific analysis methodology is prescribed by SAFe, though the McKinsey Investment Horizon Model is referenced on their website – this describes how investment decisions are made based on where a product is in its lifecycle. Another popular portfolio analysis technique is the BCG Growth/Share Matrix. This is a framework for allocation of resources on the basis of the attractiveness of their market and their own level of competitiveness. It is designed to bring discipline to the determination of investment levels in a portfolio of businesses, and help decide which businesses to grow, run for cash, fix or sell. The Growth/Share Matrix can be applied to a portfolio of businesses or a portfolio of products with in a business:
In a world where markets are increasingly unpredictable and subject to sudden disruption, companies need to be able to quickly shift resources among business units and products.
However, recent commentary suggest replacing the horizontal market share axis with other measures of competitive performance. See: The Growth/Share Matrix Revisited.
For Microsoft, Windows might be considered a Cash Cow, but a very large one ($20B per year) that should be defended at all costs via an appropriate level of investment and continued innovation. Azure might be considered either a Star or a Question Mark, as it is currently number 2 behind Amazon’s AWS in the in the growing cloud solutions market. Whatever the correct positioning of these products within the portfolio, deciding appropriate funding and investment levels is a crucial step to in the creation and ranking of an epic backlog.
Epic Refinement via the Portfolio Kanban
Product strategy and portfolio analysis are nothing new, and certainly not unique to SAFe. What SAFe does offer is an agile method for defining business epics and a way to refine them to the point where they can be consumed by program teams. This is accomplished using a Portfolio Kanban to visualize the work, make status explicit, limit work in progress (WIP), and continuously improve the process. Different levels of epic refinement are reflected in a series of workflow states, each representing more detail than the previous one, until the final state contains those epics that are considered approved for investment and ready for consumption by program teams. Kanban is a very simple process with only 3 basic rules:
- Visualize the Workflow.
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- Define a set of workflow states for your Portfolio Kanban. Give each state a clear definition of done (aka state transition policies in Kanban jargon).
- Place a card representing each epic into one of these states.
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- Limit Work In Progress.
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- Assign limits on the number of epics that can be in each workflow state. This is designed to encourage getting the work needed to move an epic into the next state done versus starting new work.
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- Continuously Improve Lead Time.
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- Measure the time for epics to move from ‘To Do’ to ‘Done’
- Improve lead-time by identifying and removing sources of waste and delay.
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In SAFe, epics are business and technology initiatives that have a lifetime beyond a single program increment, or PI. Again, using our Microsoft example, Windows, the Edge Browser, OneDrive and the Defender Security Suite could each be considered as epics. The recommended template for an epic includes:
- An epic hypothesis or value statement (elevator-pitch style vision statement) – describing what are we building, who is it for, and why do they need it – See Geoffrey Moore’s Crossing The Chasm for details and examples.
- A set of core features, or scope definition. Its also helpful spell out what’s not in scope.
- A Minimum Viable Product (MVP) definition,
- A list of any architectural or technology enablers required to support the required features.
- A lightweight business case – some basic knowledge of revenues vs, required investment levels.
- A ranking level vs. other epics in the portfolio using WSJF (Weighted Shortest Job First) – See Donald Reinertsen’s Principles of Product Development Flow for more on WSJF.
Epics that have achieved the above level of refinement are added to the portfolio backlog.
A portfolio Kanban system is an effective way to manage this process and track progress. The portfolio management team (epic owners and the enterprise architect) drives this process via regular portfolio management (or portfolio backlog refinement) meetings. Typical governance tasks include:
- Create/Review epic definitions
- Review epic business cases
- Identify architectural enablers
- Determine priorities, estimates and epic rankings (e.g. using WSJF)
- Update the Kanban board
The portfolio Kanban has the following states:
- Funnel – initial state for all new ideas/proposals pending review and analysis
- Review – Epic defined in terms of epic value statement (elevator pitch-style vision statement) and in-scope, out-of-scope items defined.
- Analysis – One -page business case, solution alternatives, enablers, relative ranking (WSJF), and Go/No-Go decision on moving to the Portfolio Backlog. Tools like the BCG Growth/Share Matrix might be used to support the analysis.
- Portfolio Backlog (Approved Epics)
All workflow states except Funnel are WIP-limited. WIP limits should be set to encourage completing one workflow step before starting new work for that state, that is, to optimize the flow of epics across the Kanban board. WSJF is continuously refined across all Kanban states as more details are discovered. Like any other agile governance event, the Kanban review process operates on a regular cadence to ensure a steady flow of progress.
Portfolio Management Checklist and Summary
- Portfolio Kanban system setup to facilitate the analysis and refinement of portfolio epics. PPM team uses lean governance principles – transparency, WIP limits, and flow.
- PPM (Program Portfolio Management) team in place to steer the transformation of business strategy into tangible artifacts (epics) that can be consumed by program teams for implementation.
- Cadence established for portfolio management processes.
- Epics are defined in terms of value statements and scope.
- Epics are ranked objectively using WSJF or equivalent technique.
Once we have a properly defined and prioritized portfolio backlog, program teams can engage to elaborate epics into product features, and from there feed the PI planning process.
SAFe uses the term Value Stream to describe all of the people, processes and flow of information from concept to cash for any individual item in the portfolio. In our Microsoft example, we might refer to the Windows Value Stream, or the Azure Value Stream.
Portfolio Review
We have mainly been discussing Portfolio Planning – how the epic intake process works from the proposal/idea funnel to the Portfolio Backlog. Once implementation has begun on an epic, ongoing review is required in order to decide whether to continue development, modify or potentially terminate further development. During Portfolio Planning we conducted a basic business analysis and also ranked epics using WSJF. As epics are developed and deployed, factors affecting WSJF rankings will change, and at some point WSJF should provide guidance on whether continued development makes business sense. Therefore a regular (cadenced) portfolio review is needed to monitor updated epic WSJF rankings, and other appropriate data such as OKRs, and to make decisions on whether to continue or pivot on epic development.
References
- Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael E. Porter, The Free Press.
- Crossing The Chasm. Geoffrey Moore, Harper-Collins.