The lean-agile portfolio: A primer

by Colin O'Neill

Lean-agile portfolios differ from traditional IT portfolios in several ways. They allow an agile enterprise to balance supply, demand, and cost in an effort to optimize IT output. There are several key characteristics of lean-agile portfolios that I have identified in my 30+ years of business and IT consulting experience which I will share below. I'll also explain why they are better suited and more cost-effective for agile organizations than traditional portfolios.

A portfolio contains a set of discrete initiatives the organization would like to accomplish. While traditional portfolios hold a list of projects that are selected and funded annually, a lean-agile portfolio is fundamentally structured differently and can be better understood in terms of four key attributes:

  • Demand
  • Capabilities
  • Capacity
  • Pull and continuous flow

Lean-agile portfolio overview

Consider that a lean-agile portfolio is essentially a “demand queue.” Each item in that queue has an associated cost in resources that your team can estimate. An optimized lean-agile portfolio balances desired business capabilities with allocated funding and the capacity that funding makes available to the organization (see figure below).

Product-driven development is standard practice in agile enterprises, but it’s important to note that products and services delivered on technology platforms are actually implementations of business capabilities. When executive leadership ties corporate strategies to the business capabilities needed to implement those strategies, direct links to products and services can be inferred. In this way, an organization’s demand is sourced from the need for business capabilities and the technical capabilities that enable them.

An organization’s ability to satisfy demand is ultimately constrained by the supply available to meet that demand—this is an immutable tenet of economics. In our case, the supply is represented by all the IT assets that directly or indirectly support product and service development and delivery. This supply has a specific capacity that can be mathematically determined; it also has an associated cost.

The ability of an IT organization to meet business demand can be quantified in terms of funding and budget allocation (see figure above). If an enterprise has more demand than supply, it simply “buys” more capacity by increasing available funds. This approach allows IT’s capacity to shrink and expand over time as business demands change. But for this approach to be effective, work from the demand queue must be “pulled” as capacity becomes available.

In a traditional “push” model, IT’s capacity is often overloaded by accepting too much work. The interrelationships between demand, cost, and supply that are metered in the pull-based continuous flow system of a lean-agile portfolio allow agile organizations to operate, deliver, and forecast at an optimal level.

Here's a look at these factors in a bit more detail.

Demand

When viewed as a pull-based demand queue, a lean-agile portfolio takes on new meaning. Its purpose is to serve as a collection of priority-based technical initiatives that enable specific business capabilities. And each business capability that is enhanced by an IT initiative directly supports the implementation of one or more business strategies established by executive leadership. The traceability of portfolio initiatives to business strategies is one of the key strengths of a lean-agile portfolio—every bit of technical effort can be linked directly to published strategies. In this way, we ensure that all technical resources are focused on strategy implementation and not squandered on unnecessary work.

The Scaled Agile Framework (SAFe) is a good example of how to implement a lean-agile portfolio. A SAFe portfolio manages the prioritization and sequencing of initiatives by exposing them to a series of rigorous tests to determine whether they are worthy of implementation. SAFe’s six-stage Kanban portfolio system is the mechanism by which initiatives are identified, understood, analyzed, funded, queued, and completed. SAFe uses strategic themes as the context with which to determine how well initiatives meet enterprise goals. For many of my clients, this association is too loose, so tracing initiatives to corporate strategies through business capabilities is a more precise way to achieve an optimized portfolio.

Capabilities

A lean-agile portfolio is concerned with two types of capabilities: business and technical. Lean enterprises are fully cognizant of their business capabilities by which they deliver products and services to customers, but many companies are not. Even if business capabilities are well-understood by the business, we in IT typically are not aware of the business capabilities we’re supporting.  This is a critical gap, because IT’s primary purpose is to deliver technical capabilities, which in turn support the delivery of business capabilities—I call this disparity the “missing link.” Without a good understanding of the business capabilities needed to realize corporate strategies, IT cannot be sure its resources are being used in the most effective manner possible.

Well-implemented lean-agile portfolios maintain a comprehensive catalog of business capabilities and the technical capabilities necessary to support them. As the world becomes more digitized and product and service delivery depends on ever-increasing proportions of technology, it is paramount that all portfolio initiatives are vetted and linked to the specific technical capabilities needed by the enterprise, and upwards to strategies. And as DevOps and its continuous deployment pipeline continue to blur the line between traditional features and microservices, the traceability of technical competencies up the stack becomes even more critical to confirm that IT outcomes are fit for service (see figure below).

Capacity

Too much work in progress (WIP) is the bane of most IT organizations. Traditional portfolio models use a “push” system, which does not consider the organization's capacity, leading to overloaded resources that get stuck in an endless cycle of context switching and churn, unable to complete and deliver useful results due to too much WIP. A key attribute of a good lean-agile portfolio is its ability to flow to capacity, meaning that as soon as IT resources become available, the next portfolio initiative in the prioritized queue is moved into the WIP state. This approach ensures that IT is never overloaded because work in process is precisely metered by the capacity of the organization.

Consider the physical limits of any mechanism. If we go beyond the capacity of an automobile engine by asking it to deliver more RPMs than it can produce, the engine will destroy itself. If we ask humans to lift more weight than they are capable, they will injure themselves. Every system has a finite capacity, and it makes sense to know what that limit is. Exceeding a mechanism’s capacity is almost always disastrous, and that is immutable.

How is it then, that most IT organizations cannot quantify their capacity to do work? The answer is that traditional portfolios are managed on the premise that work is pushed into the IT organization until it bleeds and begs for mercy. This approach is not sustainable and is simply an ineffective use of highly skilled technical resources. When establishing a lean-agile portfolio, determining its capacity using mathematical models is the first order of business. Details on how to do this is a topic for a future article in this series.

Pull and continuous flow

We’ve discussed the disadvantages of a push model: It doesn’t take into account the capacity of an IT organization, and therefore the amount of work the portfolio can accomplish cannot be effectively predicted. On the other hand, a pull model that flows to available capacity can accurately forecast how much work a given IT organization can complete and deliver within a specific time frame. This competence is invaluable to executive leadership and senior management because from this forecast they can determine whether to invest in more capacity or scale back their portfolio demand. It also gives them a better way to prioritize initiatives based on how well they contribute to corporate strategies.

Continuous flow-to-capacity is how an IT organization runs at a sustained optimal speed. The pull system is designed to keep a fresh, prioritized queue of initiatives in direct line of sight so that as one initiative is finished and delivered, the next one is pulled from the queue. This approach eliminates the overhead of forming new teams that must attempt to understand the requirements before any real code is developed. A lean-agile portfolio relies on long-lived teams that are dedicated for specific areas of business and that have previously been given visibility into the next initiative they’ll pull.

What you can do

The relationship between the four key elements of an effective lean-agile portfolio is key: demand, capabilities, capacity, and pull and continuous flow. Understand the nature of these elements and how they balance supply, demand, and cost to create an effective lean-agile IT organization and you will help the enterprise make better decisions as it operates in an increasingly digital world.

Is your organization facing some of the challenges presented here? If so, it may be time to talk to executive leadership and senior management about the benefits of a lean-agile portfolio and seek an experienced adviser to help to implement it.

Additional resources

Experimenting with the implementation of your own lean-agile portfolio is the next step after this introductory article. But deeper introductions on this topic are also available on the scaled agile framework website and in video form.