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Business transformation

Portfolio management

In this article you will find perspectives from Holley Holland’s experiences helping a large Global Bank’s Portfolio management function to rediscover new ways of working. The article brings insights from practices and lessons learnt in a number of areas including outcome orientation thinking and planning, value based prioritisation, balanced value stream based MVP funding models, and the ability to measure portfolio flow efficiency. The intention of this series is to bring different perspectives, points of view and considerations that will help Businesses be more responsive and remain relevant.

So far in the speed boat series:

Data Centric Agility Approaches

Product Thinking – Product vs Project

Leadership Agility and Red Teaming

This fourth article in the speed boat series is based on our experiences from helping organisations with portfolio agility.

Mr Charlie, who is the Head of a Business said, ‘I am really busy, I have to deliver a roadmap and plan for my entire portfolio, for all of next year by the end of this month. I need to push hard to get my projects!’ Sound familiar? I am sure that some of us know Charlie very well. I am not against planning, but creating plans for a year in advance does not make sense. It is clear that prioritising initiatives, and ring fencing funds and resources for a year in advance in a VUCA world does not allow a business to be agile. If you listen carefully into the conversations of a traditional Portfolio Management governance meeting, I bet that you will hear the following patterns.

Order-taker mentality
“You build what we tell you to build”

Maximise utilisation
“The busier we are, the more we finish”

Control through milestones
“If we still can’t tell where we are, we will ask for more detailed information”

We can plan a full year of projects
“If only we planned in more detail, we could really get it right this year”

Just get it done
“This is the plan ‘we’ agreed to; now just execute it”

It should come as no surprise that agile teams are being held accountable using legacy waterfall practices for budgeting and governance based on traditional methods of Portfolio Management. Why do we do this again and again? Why are we not doing something about it? We just keep blaming the system. It is time to retrospect and realign the purpose of the Portfolio Management function.

Contexts have changed

In today’s digital age, execution is not just about delivering software. Executives need to implement business strategy with customer-facing technology that integrates with other internal systems and data. Even if your organisation already has a strong software delivery capability, you might be building the wrong products, or at best, less valuable products for the customers. An effective Portfolio Management process needs to focus on critical investment decisions that deliver the highest value, rather than focusing on heavy artefacts and outdated processes that can have a major negative impact on the effectiveness of the digital transformation.

Fund and measure outcomes, not outputs

Goal to build ABC Platform -> Goal to capture customer segment XYZ

The first major shift required for the organisation to deliver more value to the business and customers is to focus on the outcomes. For example, the goal may be to build a new platform to consolidate systems and cut costs, or it may be to attract a new customer segment. Instead of funding and tracking how much of a platform has been built, it makes more sense to fund and track how much has been saved from consolidating systems so far, or how many new customers have been successfully acquired. If the investments are not providing the value required, the work should be stopped.

Value-Based Prioritisation

How do Portfolio managers know if project X deserves to be funded over project Y? Traditionally, Portfolio managers have relied on the projections made in project business cases. Projects that promise the greatest benefit (or threaten the consequences of not being funded) usually win after a round of scrutiny. Of course, every once in a while, a project is automatically deemed eligible for funding because someone powerful thinks so. Having a shared understanding of ‘Business value’ is hard! Value measures are harder to describe than cost, but that is not a reason to abandon value measures.

‍In a value-driven prioritisation process, for example, you may:

  • Have different value dimensions for different segments of the portfolio
  • Use a relative ranking for initiatives

New business initiatives might be ‘valued’ in customer interest, whereas a compliance/regulatory related initiative’s value is to protect the ‘license to be in the business’ , versus a legacy system upgrade that might be valued on cost savings or reducing technical debt. For a large Global Bank, we recently rolled out principles behind business value and a customisable business value calculator which considers key factors that influence business outcomes. This helped the leadership obtain a shared understanding of key ‘Business value’ dimensions. One of the big positive changes that happened in the Bank was moving beyond ‘Steer-Cos’ and constituting a monthly cross business area Product Council to prioritise initiatives based on ‘business value’. A typical Product Council is represented by Product management, client service, business operations, sales and IT.

Balanced Funding Model

One of the key functions of Portfolio Management is that of allocating funds to a set of projects that compete for funding. Funding decisions in enterprises are rarely based on the actual performance of the projects. They are usually based on the projected benefits (at the start), or on the progress of scope-delivery (in the middle). By and large, traditional enterprises have been more worried about delivering to a plan and less about validating benefits. How often are these funding decisions made? At the highest level, they are usually made once a year in tandem with the budgeting cycle. For some pet/special projects, additional top-up funding decisions are made when they run out of funds earlier than planned. This legacy upfront funding model is one of the biggest impediments to business agility.

Two key principles that we tried with one large Bank were:

  • ‘Fund value stream and benefits not scope’
  • Avoid Single-Stage Funding

Value Stream Funding

We started an experiment with a business line to understand the key value streams which deliver one or more of their business outcomes. The first step of a new lean budgeting process is to give each value stream a budget along with a set of ‘guardrails’ to support these budgets by defining the spending policies, guidelines, and practices. Guardrails, like any good governance, facilitate increasing autonomy to the value streams.

Avoid Single-Stage Funding

Single-stage funding is sometimes a side-effect of a tedious approval process. Business cases are commonly written to secure 100% funding in one submission, avoiding cycling through the approval process multiple times. But why are approvals so tedious? It may be because of a big project failure in the past or the conviction that a strong approval process will increase the chances of success. Whichever, it has the makings of a vicious cycle. The approach we tried to avoid single-stage funding in this example was to introduce Minimum Viable Product (MVP) based funding. The value stream teams broke the prioritised initiatives in to a set of MVPs via a very light business case. The outcomes of the MVPs were then reflected and validated in the Product Council before further rounds of funding were granted. One key lesson that we learnt was about the need to apply an intentional balance of funding across business goals and horizons. For example, in each value stream, apply MVP funding limits for technical debt, spikes/experiments, client related change, legacy/regularity changes etc.

Stop starting and start finishing!

It is far easier to commit to starting new work than it is to complete or stop an ongoing project. Organisations often have far too many ‘in flight’ projects and do not realise the extent of the impact that all the context-switching, multi-tasking and multiple dependencies have on dragging their delivery speed down to a snail’s pace. One of our clients that we helped on their journey towards business agility and new ways of working had 674 ongoing projects for a business line with approximately 1000 people, and they wondered why nothing ever got finished! This same client also considered an 18-month delivery to be a “fast” project. Here is what we did to change their approach.

To start with we did two things:

  • We mapped the projects to different value stream outcomes. Unbelievably, 40% of projects were not required by the business owners of the value stream!
  • We brought the visibility of Portfolio ‘Flow efficiency’ – that is the flow distribution, cycle time, lead time, wait time etc.

As a low hanging fruit, we established a lightweight portfolio management process that allowed teams to adapt and move quickly by regularly (re)prioritising small batches of work. This mode of operating is far more flexible and efficient than maintaining a highly complex scheduled sequence of projects. This gave the business a new sense of approach to ‘let us start finishing’ and a common understanding of the need to ‘limit the work in progress’.

Do we really need Portfolio Management?

Portfolio management can be overused. If you do not have to make any hard prioritisation decisions where there are winners and losers, your world may be simple enough that Portfolio Management doesn’t help. For example, if you are a Business with a single Product and only a few variants, Portfolio Management may add an unnecessary overhead. In smaller shops, trade-offs are typically focused on one line of business, so conflict is not painful enough to require Portfolio Management. If you can function well without Portfolio Management, embrace your simplicity.

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