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Setting Strategy
The portfolio management context is responsible to running systems that enable strengthening the capabilities that execute the business strategy that chooses “How to Win” and “Where to Play”.
Capture Outlook
By this point, the Leadership team should have emerged, and the singular accountability for the responsibilities and decision authority should be accepted by this person (ideally it is one person, not a coalition). This person is the Portfolio Manager for the specific portfolio. The extended leadership team will include the various stakeholders, but the accountability for decisions and workflow and value delivery (i.e. initiative roadmaps) falls on the portfolio manager.
The leader of the portfolio management functional context receives a Budget to drive its responsibilities. Note that this budget is not the value of the investment portfolio, which remains the parent context’s budget. Instead, this budget is only what is needed to drive the portfolio management function, on behalf of the sponsoring business. It’s confusing because the output of this function is a set of investment recommendations for the business, so it feels like this context has the budget authority, but it does not.
The portfolio manager inherits a business strategy that clarifies where the business leadership wants to play (e.g. markets) and how they want to win (e.g. differentiation or cost leadership, etc.). Given this, they work with their stakeholders to review beliefs from the business context about those markets, those customers, and macro-economic environments. Then they capture Beliefs about the current state of the portfolio (e.g. whether it is sufficiently aligned, sufficiently consolidated or rationalized, and whether there is too much work in process, relative to available capacity).
As the business strategy gets translated into needed business capabilities, portfolio management will work with stakeholders to set preferences (to drive investment) for classic Tradeoffs that steer portfolio decisions toward bold positions and avoid “peanut-butter” allocations. While tradeoffs are business-specific, some examples for technology businesses include:
- Time-to-market vs. technical debt
- Deployment of new internal systems for efficiency vs. delivery of customer value
- Short-term needs of key enterprise customers vs. Long-term competitive strategy
Imagine Future(s)
Portfolio managers evaluate investment ideas for needed business capability improvements. The output is an investment roadmap and a funded portfolio that is aligned to the strategy. To arrive at these outputs, portfolio managers must take their active beliefs and positions on trade-offs and imagine the possible future Scenarios for the performance of business capabilities, given different scenarios of investment. What is known (and unknown) across the beliefs and these possible futures? Which possibilities are best for the business and/or most likely? Which scenario is preferred? Use Prompts from industry experts and thought leaders to drive the right set of questions for your current circumstance. Explore the amount of uncertainty by collecting Questions, ideating on investment ideas (to improve capabilities) as Possibilities, then evaluating the possibilities by asking across the stakeholders, “What would it take for this possibility to be true?”
6 Practices for Effective Portfolio Management
With this exploration of the uncertainty, balancing ideas for change against beliefs about the external environment, portfolio leaders can craft a Vision of a consolidated, rationalized set of investments (to drive change) that power the business’s ability to win. Making these choices amongst different scenarios won’t be easy. When multiple options appear, and the stakes are high, portfolio leaders will invite stakeholder into more collaborative and deliberative Decision making activities.
Lastly, once a preferred scenario is selected as the vision, the extended team can identify the Risks in their current situation, to both guide the creation of the portfolio, and to mitigate areas outside their direct control.
Set Direction
With a vision of the shape of the portfolio of investments in hand, portfolio leaders can document the active set of Assumptions they will carry (or are currently carrying) into the portfolio-building activity. These assumptions capture the leaders’ predictions for uncertainty, the uncertainty that was exposed as the scenarios were evaluated.
Next the portfolio leaders facilitate the goal-settings for capability enhancement with their business stakeholders. These goals will steer the creation of the portfolio. Start by reviewing the inputs. The business vision paints a picture of what success looks like (in a year or so) for a set of high-functioning business capabilities that are enabling the business to win. The portfolio manager then works with stakeholders to create performance goals for these business capabilities, to drive ideation for change (and investment). These quantified business Goals, with Desired Results for the needed, strategic capabilities, will drive the choices made for the portfolio.
These choices emerge as ideas for change, which we call Levers (to pull). We explore different Levers to find promising paths of action that can achieve the new goals for the the business capabilities. Levers are the “Strategic Themes” or “Investment Themes” that signal a path without describing the specific changes. Levers, and their course of action, are evaluated with tools like CDD and Opportunity Trees to help portfolio managers communicate how the idea could cause results that achieve the goals.
When multiple ideas surface (to chase the same goal) and all cannot be pursued, portfolio leaders can sponsor Decisions to drive a dialog to compare and contrast the options. The most promising levers will be refined into bounded investments for change, called Initiatives, that make up the portfolio.
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