Understanding Strategic Portfolio Management

What is Strategic Portfolio Management?

Strategic Portfolio Management is a framework for planning, funding and overseeing all discretionary investments. It combines strategy execution management with business & enterprise architecture, helping organizations connect and align all execution with strategy. Strategic Portfolio Management provides a formal, structured approach to connect all parts of the enterprise, effectively driving business agility.

In fact, it’s the only way to manage every investment as part of your overall enterprise strategy. Strategic Portfolio Management provides a top-down approach to linking business strategies to business outcomes regardless of how those outcomes are achieved – multiple ways of working, including the tri-modal reality, and multiple investments types – projects, programs, products and capabilities.

What Do Industry Leaders Say?

A recent Gartner® Magic Quadrant™ report lays out how a strategic portfolio management approach drives greater business agility by effectively integrating:

Adaptive Project Management

These are the execution-level technologies focused on supporting an evolving set of detailed project and work execution approaches for continuous and reporting. It’s critical that Adaptive Project Management is tightly integrated with Strategy Execution and Business & Enterprise Architecture.

Strategy Execution Management

This ensures that the overall organizational investment approach drives all execution from strategy.  Effective strategy execution requires the ability to define and communicate clearly all strategies, the metrics used to measure performance, and the targets that are expected to be achieved.

Business & Enterprise Architecture

Identifies the points of intersection, or interdependencies, between elements across portfolios and “desired state” models, ensuring all strategy execution is optimally aligned with business strategy. Leveraging an effective business architecture model along with the right enterprise architecture components helps provide a complete understanding of the enterprise.

Why is Strategic Portfolio Management important?

Leaders need to “scale and harvest digital business investments” as well as leveraging key portfolio management capabilities to “pivot and adapt to changing strategic objectives”.  Strategic Portfolio Management provides organizations with the strategic focus that has often been missing from their early attempts at comprehensive portfolio management.  Without portfolio management, organizations struggle to align the strategic initiatives they do with the strategic goals, and fail to ensure investments and governance are driving the right types of behavior.  Traditional program and project management helps ensure effective execution of work. Strategic Portfolio Management ensures it’s the right work, delivered in the right way to achieve the required outcomes.

Strategic Portfolio Management vs. Adaptive Project Management

There’s a clear distinction between the strategic portfolio management process and adaptive project management.  Adaptive project management represents the execution side of project portfolio management and is the element that organizations have been focusing on for a long time – too long.  If organizations don’t have the strategic guidance and direction for all work that is derived from portfolio management, they are unable to ensure that the work being done remains optimally aligned with the strategic priorities.

Strategic portfolio management software provides the top-down focus to maintain alignment and enable business agility.  That in turn will allow for faster, more successful, and less disruptive pivots when new threats and opportunities emerge.

Effective Strategic Portfolio Management works in partnership with Adaptive Project Management to optimize organizational performance.  In addition to the three pillars – adaptive project management, strategy execution management and business/enterprise architecture – organizations also need to enable these key strategy execution management elements:

• Demand capture and intake
• Prioritization
• Planning
• Execution
• Closeout
• Reporting

Each of these strategy management elements are critical to performance against strategy, but they are not enough on their own.  They only address the delivery of work through various structures and delivery modalities, but still require the strategic framework and guidance that only comes from the effective integration of the right strategic portfolio management and adaptive portfolio solutions. In most organizations that means addressing a historic underinvestment in Strategic Portfolio Management capability.

Key Capabilities

• The ability to breakdown and communicate business strategies – connecting all work to strategic priorities and effectively communicating that connection.
• The establishment of a lean governance model to manage all work (agile + waterfall etc.) – if you can’t manage all work effectively without inhibiting the ability of teams to perform, you’ll never succeed.
• Moving from project to product / capability driven investment approach – shifting the focus of work planning from the traditional project-based bottom-up, to the more strategic top-down that starts with the strategy.
• Transitioning from annual to continuous planning – ensuring alignment is always maintained between business strategy and the work being done to deliver that strategy.
• Consolidating demand and maintaining near- and long-range roadmaps – ensuring all work is driven from one integrated set of strategies and that the evolution of those strategies is clear, communicated and understood.
• Mastering resource management and capacity planning – ensuring the right number of the right people are in the right place with the right skills at the right time.  All while ensuring the evolution of resource capacity and demand is being managed proactively.
• Gaining financial insight across all work – knowing where investment dollars are being allocated, how expenditure aligns with forecasts and ensuring funding is effective and efficient.
• Managing outcomes & benefits realization – ensuring value is being delivered through the effective leveraging of developed solutions, and aggressively managing all deltas. 
• Running portfolio what-if analysis to model impact of any change – ensuring all options are assessed and that decisions are taken based on the best possible information – every time.
• Standardizing and streamlining portfolio status reporting – integrated, value-based reporting that provides complete, timely and contextualized insight for all stakeholder groups and all investments.

Challenges

As noted above, most organizations overlook the second P of PPM – the portfolio aspect.  Instead, those organizations implement an execution-oriented solution that concentrates on improving project delivery, but does nothing to ensure alignment with organizational strategies.  This is by far the biggest challenge of Strategic Portfolio Management – the fact that it’s not only not implemented, but that its absence isn’t even recognized as a problem!  These organizations may do work right, but they don’t have any way of ensuring they are doing the right work!  This is a significant problem.  To deliver business agility organizations must take a top down, portfolio-driven approach.

Even when organizations do attempt to embrace this vision, they often run into a number of challenges that result from a failure to commit appropriately to the discipline.  These include:

• A focus on only some of the strategic imperatives, resulting in only partial success and difficulties in creating a single integrated approach.  Each of the imperatives supports the others, and organizations must address deficiencies in all areas to succeed.
• A failure to create a single, integrated technology environment that supports every aspect from definition of strategic objectives through benefits realization.  There must be effective and efficient tools for the definition, communication and management of strategy; the funding and governance approaches; the strategic planning and execution of work and the capturing of actual information on costs and benefits.  Further that capability must exist for all work structures and each of the tri-modal realities.
• The inability to align other business processes with Strategic Portfolio Management.  For example, one of the imperatives is the ability to maximize resource utilization.  That also requires alignment and integration with HR, learning and development and procurements business areas and processes.  If these aspects aren’t tightly integrated the ability to deliver will be severely compromised.
• Inconsistent application of strategic goals across business areas and functions.  Organizations have a single set of connected strategies that are delivered through aligned investments across all areas of the business, all work structures and each of the tri-modal realities.  Unless organizations view all of these investments as a strategic portfolio of assets as related there will be inconsistent delivery and a failure to optimize performance.