Increase the effectiveness of your portfolio

Portfolio management is part of an organization’s most important decision making

A product or service organization can succeed with several different strategies. Portfolio management ensures the focusing of an organization’s financial and temporal investments on essential elements.

Portfolio decisions are among the organization’s most important decisions. In portfolios, we make decisions about future competitiveness, short-term effectiveness, and maximization of the value creation from an organization’s property: products, services, data, and other IPRs.

Portfolio management is often understood differently within different parts of the organization. The term can mean managing ideas, development projects, IT projects, or the portfolio of products on the market. However, we still only talk about portfolio management at a general level. Different understandings of portfolio management can explain an organization’s inability to increase its productivity optimally.

Portfolio management does not function in the same way in every case or for every person. An organization must clearly define the management of different portfolios. The whole organization will then know who shall decide what, where and when decisions are made, and the frequency of decision making.

In this white paper, we present the Three-portfolio model developed by Eficode. It will help you increase
the effectiveness of your organization’s portfolio management substantially. The Three-portfolio model divides portfolio management into Opportunity, Development, and Offering portfolios. Each portfolio has its own goals and procedures.

Long-term success in the market is always the measure of a product organization’s ultimate effectiveness.

Effectiveness is a complicated issue affected by the whole product organization from developers to sales, management to customer service.

We can model the success of a product, a release, or a feature as an investment curve describing the relationship between investment and profit to time.

Regarding portfolio management and the investment curve, we must understand that several different functions impact investment effectiveness at various timeline points. Success is the result of cooperation between multiple functions, and sound portfolio management throughout the investment lifecycle creates success. Every organization has several coinciding investments. We must manage them as an entity.

When talking about portfolio management, we must make sure that everyone understands the terms in the same way. They can mean entirely different things to different people.

In the product development world, portfolio management may mean the backlog of more significant cases or future ideas and analyzing them.

In business, portfolio management can mean current products and features, customer projects, or future opportunities.

In the IT world, the talk of portfolio management often concerns the organization’s property data, APIs or other assets with which value is created either internally or externally.

When we discuss portfolio management, we may be looking to the future, the present, or the already existing and its optimization.

Therefore, everyone in the organization must understand portfolio management in the same way.

Different portfolios are managed differently. Portfolio management development is easier when we understand this. We at Eficode have developed the Three-portfolio model for this purpose.

The investment curve shows us how different functions impact the success of products and services. In addition to strategy and portfolio decisions, an organization’s activities are also steered by the line organization, personal motives and views, bonus and compensation models, and a general understanding of its business model with its goals and challenges.

We should not build portfolio management to steer every activity. A model capable of controlling every little decision would be too slow to enable us to take advantage of the organization’s potential and capacities.

It is worthwhile to ensure that portfolio management will influence the line organization, resourcing, and the bonus and compensation models. Active communication and sharing information about portfolio management decisions are also important.

Feasibility studies, so-called business cases, are often seen as the most important part of portfolio management. It distorts the role of portfolio development in organizations. Business cases may be a part of the decision making process in the early investment stage, but they must not be the only portfolio analysis tool.

An organization has several requirements and levels for portfolio management. When we decide on potential value and revenue generation, we must base our methods on scenarios and experiments. It is impossible to predict the future, but with the help of scenarios and experiments we can augment the probability of success or minimize the risk of failure.

As we enhance a portfolio under development, the methods must center on facts about the development status. In order to increase insight on customer or market needs, optimize delivery capability through automation and smallest possible release cycles, and good release readiness.

The tools and methods are different for optimizing the return on current products, features, data, or other properties. Historical data helps us to define the guidelines for the future. The right tools allow us to find potential for improved value creation: e.g. changes in pricing, marketing or sales campaigns, or lifecycle changes.

But we should not only rely on history. We must also consider current products, features, data, and property for future suitability. It is related to changes in markets and competition, technical or other modernization debts, and suitability for future strategy. Portfolio management is part of an organization’s most important decision making. Therefore, we ascertain the proper allocation of time and focus. Good and appropriate tools, templates, and processes help us focus correctly.

The role of strategy presents a challenge to portfolio management. It is easy to say that all decisions should be aligned with strategy. But it is difficult to put this into effect.

The various strategy levels are seldom concrete enough to answer questions about prioritizing. Company strategy defines how to reach long-term goals. Portfolio management ensures that we can fulfill the goals regarding the offering.

Portfolio management is the most important tool in strategy implementation. Strategy should be the crucial driver in all portfolio management decisions.

Yet strategy has an active role in prioritization in only some organizations.

The size and structure of an organization affect the organization and levels of its portfolio management.

It is impossible to align all decisions in a large organization. Complicated value creation structures always overlap in some methods of direction.

The main thing is to ensure that as many decisions as possible are aligned. It enables us to take the decisions to their goals even though some priorities of the staff and teams may overlap.

It is worth considering whether portfolios should be managed on various levels. Almost every organization has needs for whole organization-wide portfolio management as well as minor unit-specific management. That is why we must approach shared portfolio management via the smallest common limiting resource.

The core of the Three-portfolio model is to understand the Opportunity, Development, and Offering portfolio value creation models, as well as their differences and decision making needs.

Opportunity portfolio focuses investments on crucial objectives regarding the organization’s strategy and future market situation.
Development portfolio creates efficiency in the organization, ensuring value creation on a business basis.
Offering portfolio ensures the maximum amount of value from an organization’s property by refining, marketing, branding, and fixing the products when required.

Development portfolio

The Development portfolio impacts the effectiveness of the product or service organization and the potential for success at release. Development portfolio management aims at the success of work-in-progress releases and projects. With value potential in Development portfolio, we make decisions on content, timetables, resources, and business models.

Ideas on all these exist already in Opportunity portfolio decision making, but awareness of both technology and the market always increases along the way. That is why we must make more precise decisions during development.

In the Development portfolio we make a major part of the decisions concerning the organization’s effectiveness and ensure value creation on the business basis.

Offering portfolio

Offering portfolio aims at maximizing value creation from existing features. Depending on the line of business and the goal, the Offering portfolio can include quite diverse items.

In the Offering portfolio we can optimize the profitability of products, utilization rates and relevance of features, or the utility of assets for value creation towards the customer. The Offering portfolio combines historical data with future scenarios. They enable us to maximize the attainable value from previously made investments with small additional investments.

In the Offering portfolio, we ensure optimal value creation and the lifecycle of current products and property.

Go-to-market activities

Go-to-market, launching the release to the market, is linked to every release’s success. GTM activities compete for the same resources with Development and Offering portfolio. We must prioritize them at the same level as portfolio decisions.

GTM is always teamwork between Sales, Marketing, Support, Production, and Product Development. Some organizations include GTM activities in Development portfolio management, others in Offering portfolio.

The most important thing is to manage the GTM activities and ensure that the release will get the best possible start for value creation. GTM activities come at different levels. They can be everything from small user notifications and release documents to major release events and marketing projects. They must be appropriately executed for each release to obtain maximum value from value potential.

Go-to-market activities must be decided on the portfolio level. They have a major impact on the chance of success.

Resourcing

Resourcing is a central part of portfolio management. Resourcing is essential when different value potentials require labor input from the same people or other resources to promote value creation. The Three-portfolio model will not directly solve resourcing because organizing it depends very much on the organization’s structure.

Resourcing can be solved either by a separate synchronized resourcing decision making or by introducing principles of virtual organizations and self-direction into the organization.

The first model makes decisions on allocating resources to value potentials. We trust that all resources involved will comply with the portfolio management decisions in the latter model.

Organizations must integrate this as part of their portfolio management. They must be given a chance to implement portfolio management decisions to ensure the alignment of resourcing and investment prioritization.

Functioning portfolio management ensures the alignment of resourcing decisions with portfolio decisions.

Each of the three portfolios has its own distinct goal.

The Opportunity portfolio focuses on recognizing future value; to discover market needs we can solve in a new way through technological or commercial innovations.

The Development portfolio ensures maximally profitable value creation from value potentials. It is essential to prioritize projects in relation to the whole Development portfolio.

The Offering portfolio maximizes the organization’s property: products, features, data, and other IPR profit potential. It is linked to decision making regarding marketing, sales, lifecycle, and further development needs.

Larger refinable items and small development needs rise from the Offering portfolio to the Opportunity portfolio. We must agree on their precise decision making methods in advance.

	Opportunity portfolio decision making	Development portfolio decision making	Offering portfolio decision making
Purpose	Value recognition	Value creation	Value creation
Goal	To ensure that decisions on future investments will be made with appropriate information and analysis tools. To decide on the products, features, technological enablers, experiments, or services to invest in according to strategy in the coming years. To encourage the discovery of new business opportunities.	To understand the status of cases under development and differences with earlier prognoses. To prioritize decisions on items under development. To enable releases to reach their post-release business goals from the perspective of technology, usability, and sales.	To optimize value creation from completed products, features, and IPR from a commercial and strategic perspective. To allocate resources for maximum value creation. Especially in sales, marketing, acquisitions, and customer services. To make decisions on lifecycle management regarding the existing property.
Participants	Organization or Unit Management, Business, Product Management, Architects, Product Development Management	Business, Product Management, Product Development, Sales, and Marketing Development personnel	Organization or Unit Management, Business, Product Management
Issues to be processed	Description of value potential from a business perspective with scenarios or calculations. Preliminary plan, projected schedule, and resources. Data development plan through experiments. Proposal’s relation to strategy.	Overall picture of development resourcing. Customer and/or market feedback on projects under development. Status of the technological capacity of all projects under development. Estimation and forecast of the progress status of technological and business development.	Historical data on productivity and use of products, services, or other property. Estimates of future applicability regarding market development and strategy compliance. How to maximize value creation potential from current products or property
Possible decisions	Does the opportunity contain enough potential to start investing in developing the suggestion? Despite several uncertainties, does the opportunity contain enough potential to make it worth looking into with experiments and evaluation? What is the proposal’s relation to other opportunities in priorities? Should the proposal be rejected for now?	What is the strategic importance of development projects regarding overlapping resources? Prioritization decisions concerning content: content restructuring, timetable changes, content reduction, or total discontinuation of projects	Where to focus the input from marketing, sales, or other external investments? Are there products, features, or other property in need of lifecycle decisions? Are there gaps in the Offering portfolio to be bridged with new opportunities?

All product or service organizations already have methods and ways to handle portfolio management. No one makes an entirely fresh start. We should start with an analysis, e.g. using Eficode’s representation of the Three-portfolio model, of what is already functioning well and where the most significant shortcomings lie. It helps us to understand where to focus on improving portfolio management. Portfolio management is long-term work. We should begin it rapidly. We must do some concepting and process planning, but in our experience, the most important thing is to start the work and adjust the process and methods as we go.

Management and other steering group participation in portfolio management

Portfolio management is part of an organization’s most important decision making; many people want to participate. We should bring together a group with maximum decision making powers and capabilities.

No additional way of directing investment priorities past portfolio management must exist. It erodes portfolio management motivation and credibility.

People’s time and attention levels are limited. It pays to ascertain what is the most crucial portfolio management for management’s attention.

We create the future in the Opportunity portfolio, efficiency in the Development portfolio, and short-term profits in the Offering portfolio.

Portfolio management is part of an organization’s most important decision making. We must find individuals with maximum decision making capabilities and powers to run it.

Management and other steering group participation in portfolio management

We have to consider, especially in larger organizations, the level at which we should take portfolio management and how multilevel it is worth making. There is no single correct answer to this.

It pays to examine this concerning the prioritization of critical resources. If a single product development, marketing, or sales group is responsible for all portfolio development and value creation, one portfolio management will also be sufficient. If we have already divided our resources by business units, each business unit should build its own portfolio management.

However, it still is preferable to build a whole organization-wide opportunity portfolio. It will help to ensure that organizational silos will not prohibit the implementation of future opportunities. It is essential to preserve the vitality of portfolio management decision making, not to suffocate it with an oversized load.

Portfolio management decision making levels should be proportional to prioritization of critical resources work.

Portfolio management control cycle

Decision making frequency must be understood and described. How often will decisions be made, and how will it relate to the organization’s other decision making points? A product development sprint, release, or possible different timetables must be taken into consideration also when planning portfolio management frequency.

It is preferable, for instance, to describe different decision making point timetables and their relations for a three-month period. It will help to understand the decisions’ interrelations and coverage better.

With the control cycle, we must contemplate the required speed of decision making in relation to the needs of business and product development. Waiting for decisions creates wastage in the organizations; we should avoid it by all available means.

In addition to portfolio management processes, the control cycle with its reliance on organization’s other decision making points must also be described.

Portfolio management responsibilities and liberties

One of the most challenging things in portfolio management is to say “no”. “Yes” is easier and occurs regrettably often in organizational decision making. Portfolio management works well if each portfolio

clearly has an owner to make the final decision, if not achieved otherwise.

It pays to include representatives of the most important stakeholders in portfolio decisions. As knowledge increases, portfolio management is interaction, reflection from various viewpoints, and prioritization between issues.

Portfolio management is not just “yes” or “no” decisions on individual needs. A competent organization is not a democracy. We must know who has the authority to say “yes” or “no” when required.

An organization is not a democracy. Each portfolio must have someone in charge to make prioritization decisions when necessary.

Agile development and portfolio management

As we develop portfolio management projects, we hear questions about whether portfolio management is exhausting, or if agile development can’t solve the challenges in itself.

Two questions relate to this: what is the goal of agile development, and what are agile development methods created for? We have based the development of the Three-portfolio model on them.

Agile development is fundamentally the acceleration of learning for maximum value creation. The core of agile development is to accelerate the increase of knowledge to facilitate the making of necessary corrective decisions to make value creation reach its goal.

Our three portfolios aim at the same thing: to focus on learning from value potential as early as possible.

One of the development’s validations is that early correction of mistakes is cheaper and more productive.

The three portfolios incorporate the same paradigm atthe organizational level. We must focus on continuous learning to improve productivity and effectiveness as quickly as possible.

Agile development often mentions self-direction, autonomous teams, and the product owner’s authority to be the CEO of their products. But it cannot be fully realized in larger organizations. We cannot make decisions on a team level for the whole organization.

Instead, each team makes them from their own starting points. It enables quality results for the team’s customers.

The Three-portfolio model brings the agility principles higher up into the organization, striving to ensure the agility of investments and prioritization regarding the whole organization’s future market.

Portfolio management is part of an organization’s most important decision making. The greatest potential for developing an organization’s productivity and effectiveness lies in portfolio management.

ROI calculations for projects to improve the organization are not possible due to the complexity of value creation. However, we can estimate the return potential from conversion projects utilizing the multiplier effect.

The multiplier effect of portfolio management is manifold compared to almost any other change.

Portfolio management is the organization’s backbone. No product or service organization will function without a backbone.

Business success requires investments in these three different portfolios in proportionate relation. The impact they create comes at various points in time, and appropriate emphasis facilitates both short-term and long-term success.

The core of the Three-portfolio model is to understand the value creation model of Opportunity, Development, and Offering portfolios as well as their differences and decision making needs.

Increase the effectiveness of your portfolio

Portfolio management is part of an organization’s most important decision making

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1. Six challenges of effective portfolio management

1.1 Understanding how the product organization’s efficiency is formed

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1.2 Differing views of portfolios and portfolio management concepts

People understand the concept of portfolio management differently depending on their own context.

1.3 Coordination of diverse steering models

1.4 Inadequate selection of different portfolio managing methods

Portfolios have different methods and tools for analyses and decision making.

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1.5 Strategy’s role in prioritizing

Strategy must e a portfolio management decision making tool.

1.6 Organization size and organizing portfolio management

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