One of our most requested topics to cover recently has been Agile Portfolio Management. We invited Accenture | SolutionsIQ’s Brent Barton and Ryn Melberg to explain what is portfolio management and how to use it in an Agile organization.
Traditional portfolio management assumes an infinite supply of knowledge worker’s capacity. It also plans for 100% utilization (which is impossible) using full time equivalents, and part time people introduce a lot of context switching. These are two big problems.
Instead, Barton recommends building teams of people as enduring corporate assets, and then focus on maximizing the return on those assets – what we call return on team. Portfolio management in a traditional sense has the tendency to break up teams, which in turn crushes Agile. Melberg likens this to the cost of infrastructure for tearing down an office building each time a new project is started, yet companies do this to their people all the time.
Tune in to learn how to do portfolio management in today’s rapidly changing marketplace.
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Read the full transcript
RYN MELBERG: Hello, and welcome to another episode of Agile Amped. We’ve gotten a lot of requests for this particular subject matter, and I’m personally and professionally very excited to talk about portfolio management. It’s controversial. It’s necessary. And it’s kind of exciting. And I think this is going to be a great conversation with one of my colleagues, Brent Barton. And I’m going to let Brent tell you about himself. Brent.
BRENT BARTON: Hi. Welcome. And I’m excited to be here myself. This is something that I’ve been working on over 10 years, specifically in portfolio management, and the impact Agile has to it, and the impact that portfolio management has to an Agile environment. And so it’s really exciting. I came from developer ranks, actually. And in the ’90s, I was an engineer, engineering manager. And I’ve moved through that to help not just implement Agile for myself and my environment, but also organizations. Personally, I was early in Solutions IQ when we moved to Agile whole heartedly. I had about 15 Agile teams who were doing Scrum with XP practices because technical excellence enhances agility. And then as we started helping more people figure out how to do Agile for themselves, what I realized is that at scale, portfolio management has the ability to crush an Agile implementation to the point where it’s unrecognizable within a year or two.
Also, if you have a new leadership shift, and you don’t have the governance in place to be able to handle that question when the leadership says, “How do we manage and govern our environment so that our strategic initiatives are being worked on in the right ways?” If you don’t have an answer for that, I’ve found that executives can throw out Agile, and that’s happened. And I think those areas that are a challenge are one of the reasons why many of our clients today are asking us to come in. And they’ve had, often, a few attempts that they consider failures, or just not successful in their Agile implementations. And I’ve come to believe that portfolio management is one of those things that we have to bring into the mix of: How do we change this organization for success in this fast paced business change?
RYN MELBERG: Thank you so much for including some of those examples in your introduction because I think all of us have lived through those, especially when you have a new executive come in, and they’re not familiar with the practices, the Agile practices of the org, and how easy it is for that one person to disrupt it in a very negative way, not in a good way, because sometimes disruption’s very good.
BRENT BARTON: Yeah, absolutely.
RYN MELBERG: But sometimes it’s really, really not. Right? But having those structures defined that you talked about in a way that supports the agility, I really want to explore that some more. First, can you tell us how you define portfolio management? And for myself, and I hope that’s okay with everybody, really like to talk about it generically in terms of Agile at scale, and not a particular framework or methodology, so just generally Agile at scale. What do we mean by portfolio management?
BRENT BARTON: That’s a great question. First of all, when we talk about Agile, Agile has a very specific connotation for a lot of parts of the organization. And I think when we talk about portfolio management, and you’re looking a little more holistically, and it ties to things like the financial performance of the organization, and governance, especially in highly regulated or highly compliant organizations, where a lot of compliance and regulatory things show up. Those things are sort of, Agile has to accommodate. And from a portfolio management perspective, I would say that’s part of the role, is helping us understand how to do that. The first thing I’d like to say is what traditional portfolio management is and why I think it’s frankly broken, and then how we think about it differently. A couple of … Does that work? Or shall I go on?
RYN MELBERG: Yes. Yeah, definitely. Go on.
BRENT BARTON: Okay. Great. Traditional portfolio management has a couple of perspectives. The first presumption is that you can flex an infinite amount of capacity to meet organizational demand, meaning that if I’m pouring concrete, and I dig too big of a hole, I can bring more supply by more concrete trucks, and fill that hole better. And in an organization that is moving to knowledge workers much more and the notion of servers or capacity and compute capability on a cloud, those are far less problematic today.
What we really are finding is that the knowledge worker, the people is the real biggest challenge. And that’s a capacity problem, is understanding our organizational capacity. And so what we’ve found is that when you check an organization and ask them this question. When you bring some new people on, how long will it take for them to come up to speed to the point where they move the needle from the portfolio perspective? And the answer is at least three months. And often, organizations say, “More like six.” Many are saying, “We have a lot of tribal knowledge. We have a lot of very specific things that are unique to our organization. It can really take up to a year.”
RYN MELBERG: Sorry to interrupt. But do they acknowledge that when you bring people on board in your example, the needle actually goes down before it goes up?
BRENT BARTON: At a portfolio level, the traditional assumption is that you have immediate gain in your business. That’s why often when you don’t hire-
RYN MELBERG: Right. Reality is it’s the opposite. Right? Reality is leaning back on my past experience, the reality is you bring on six new people into an organization that has 50 people, you’re not going to see a 10% bump. You’re actually going to see a decline in performance because those 50 people are getting those six people up to speed. Right? And then eventually, like you said in your example, depending on what’s going on, it could be three months. It could be six months. It could be a year before you see the performance. Right?
BRENT BARTON: Yes. I think that’s fair. And trying to make sure that portfolio management doesn’t get too far into the weeds, so that we can move authority and accountability both down as far into the organization as we can because flatter organizations require that we move and shift accountability and authority together. I do agree that often, especially in organizations that don’t have a continuous delivery environment, that don’t have the ability to do great technical work, will find a bigger dip in their ability to deliver when they bring people on. The better you are at that, the faster that may happen.
I was the portfolio manager as the head of the PMO that we had at Solutions IQ when we were doing a lot of outsourced delivery. And my goal when we were moving people on, as an organizational goal, was when we bring somebody on, is there things we can do so that we can have at least hopefully a break even most of the time by the end of the first sprint, which we did in two weeks. And I found a couple of things that were really important in that, so I’ll make a comment on them, even though it’s not portfolio management. It’s about organizational improvement.
The two things that made a difference is developing in a day. How do we bring somebody on? They’ve got all their systems ready to go. HR doesn’t take the whole first day, or first two weeks, or however long they do, for onboarding. They’ve got an hour. And then we can figure out how to fold the rest in. And then by the end of the day, whoever they were, whether they were writing code or doing other parts of the work, they had to have meaningful contribution to production system development by the end of the first day. And it’s a game changer.
The second thing is that the team was required for much of the onboarding, and so they would pair program together in order to bring things up. And so what happened was the team started developing a lot of the onboarding needs because everyone was in it together. And so if we gave them space to do that for the betterment of the organization, then a lot of teams could benefit from that. And so those were the two things that started to show up when we had, you shall have well tested code, because it becomes more flexible. And we were doing software, so that made sense, and so we had CI environments and all that stuff. We wanted to move towards continuous delivery in as many teams as we could.
Those are important things for helping you speed that process up. From a portfolio management, just to bring us back. I don’t want to look at that. I want to say, “When can we move the needle as an organization?” And I can work on improvement environments for that experientially from lots and lots of customers. It’s three months minimum, six months likely, and a year for outliers.
RYN MELBERG: Got it. But I can kind of see how that thinking … They’re very synergistic. Right? The Agile portfolio sets the strategy and the overarching goals, but empowers the teams to figure out how they’re going to get it done. Right? That’s ultimately what we’re trying to do in an Agile organization. Right?
BRENT BARTON: Yeah. That’s true. I think that I would like to more fully define portfolio management to start answering that question. As I mentioned, traditional portfolio management assumes an infinite supply. It also tries to achieve 100% utilization using full-time equivalents. Those are two big problems because we can’t plan around 100% utilization. We do not have the efficiencies in an organization to be anywhere near 100%, so it’s silly to do that. And the second thing is that people, part-time, introduce a lot of context switching. What we like to say is to build teams of people as enduring corporate assets, and then focus on maximizing return on those assets. And we call that return on team.
Now that is very comfortable for an Agile group to say because people that are trying to do Agile well say it all the time. I need stable, persistent, dedicated teams. So we’re trying to put that language of: What is a team? It’s actually an asset to the company. And we know that people say that is true. But we don’t always act that way because portfolio management in the traditional sense has a tendency to break up teams, which is what crushes Agile.
RYN MELBERG: Absolutely.
BRENT BARTON: Those are the things that are challenging. What we like to say, given the world is going faster, and that we have largely a fixed capacity, at least in the short-term, or mostly fixed. What we want to do instead is match our organizational capacity to business demand in order to achieve our vision and strategic goals. And when we do that, we actually create a space where we first understand our organizational capacity better, and we can make it simpler by that notion of return on teams. And then if we can find a way to be roughly right, and understand our business demands, and we operate in more loosely coupled environment in portfolio management, we’re able to make course corrections because we all know that in today’s world, what we thought was right usually ends up being somewhat right, also, somewhat wrong. And so we need to be able to tune and adjust in order to address that at an organizational level, not just at a team level. And I think that’s where-
RYN MELBERG: And be okay and comfortable with that. Right?
BRENT BARTON: Yeah.
RYN MELBERG: Because I think that’s really the hard part for people, is that as knowledge workers, we feel like we’re paid to be smart, and so when we’re wrong, it sometimes just feels really bad.
BRENT BARTON: Yes.
RYN MELBERG: And when you’re talking about people in the portfolio management level, that’s a really big … It feels like you’re gambling now. Right?
BRENT BARTON: Yeah.
RYN MELBERG: Because it’s a big deal. If you’re talking about millions of dollars that are being invested on teams.
BRENT BARTON: Sure.
RYN MELBERG: And you’re wrong.
BRENT BARTON: Exactly. And it’s not unusual to have portfolio investments that total hundreds of millions and even billions of dollars in today’s world. These are big numbers that we’re talking with. So how do we do that in a way that allows us to actually have a better outcome, more safe? And that’s I think why we call our offering Agile Portfolio Management. And a lot of people use the terms Lean portfolio management in various frameworks and things like that. And I think that is fine. And I believe that Agile and Lean have the same roots in complex adaptive systems. The challenge I have is that many people start and stop with visualizing the current workload, and don’t realize that in portfolio management, we need to ensure that we understand work all the way up to investment strategy in the organization. And that means we’re looking out, not just this quarter, which we recommend that you tune and adjust your portfolio on a quarterly basis. But we also have to think about funding and forecasting.
And that often happens sort of in an annual basis. If we split prioritization from funding and forecasting, we are fundamentally changing some of the ways we’re budgeting because now we’re starting to be able to decouple. And the only way we can do that is if we also look further than a year because organizations actually do a lot of their business operations planning in the two to three, or three to five year sort of range. And that really is where I think we can go down and talk about: So what’s different, really, here? Okay, I get the return on teams thing. I get the fact that we have a financial model that we can consider, where we’re building teams as enduring corporate assets. And we focus on maximizing those return on assets. There’s something even more important, and that is on the demand side, Agile says we need smaller chunks of work. And that’s true. We need to be able to desegregate things well. We need to be able-
RYN MELBERG: Well, yeah. Yeah. That’s how we deliver faster, but it’s also how we reduce risk going back to the previous conversation around the fears around portfolio management. That’s how we address some of those in Agile Portfolio Management, is we’re taking smaller risks.
BRENT BARTON: Absolutely true. And that language doesn’t always show up at the senior level. When organizations say, “I want to have fixed teams so that we can do Agile better,” the people hear this as a request from the supply side. It’s a request. It’s not a corporate mandate for the betterment of the organization. It’s a request. Often, the first time they do Agile, they will give you some persistent teams that then the next time you try to do something, and you have some shift in the organizational strategy, they break up all those teams and reform them for the new strategy. And that’s not what we’re asking. The basic request that Agile teams have that IT organizations, that engineering organizations, and product companies have, which says, “Build stable, persistent teams,” often doesn’t last because it’s a request to the company about how we want to receive our money. And it’s usually perceived as part of today’s strategy, maybe not tomorrow’s.
RYN MELBERG: And it’s not connected to your point of creating a persistent corporate asset, but also reducing risk and uncertainty in the whole system.
BRENT BARTON: Yes. When the strategy of your organization shifts and you solve it by breaking up and tearing down teams, what you’re doing is solving a demand side problem with a supply side solution, and don’t do that.
RYN MELBERG: I just got a picture in my head of every time you change a project, then that means you have to tear down the building everybody works in, and rebuild it for the new project. It really is essentially the same thing. But we don’t think about it. If you think about people in the teams of being, like you said, persistent company assets, like the real estate is, then it would be the same thing. And no one in their right mind would do that.
BRENT BARTON: I agree.
RYN MELBERG: No one. So why do we do this to our teams? And you’re right, I love how the connection to the portfolio management, that really has a huge impact on how well you can do Agile Portfolio Management.
BRENT BARTON: Exactly. What is a demand side solution that you could consider for changing strategies? Well, to jump off on your perspective of, I want smaller pieces of work because it helps reduce risk and it helps increase learning in highly uncertain environments and all the rest. Can we take these long-term investments and carve a piece, a smaller commitment, associated with that long-term investment? Or maybe it’s a new long-term investment in the situations of innovation, things like that. That reduces some of the risk. And it also signals to the organization that we’re going after this. But you’re funded a portion of it. We intend you to be funded long-term, assuming that the business demands say we should keep doing this. The hardest thing an organization can do is to stop these old products from staying alive, or having a project that you thought you’d killed, and then it’s like a zombie. It just comes back to life.
RYN MELBERG: We all know zombie projects. We all have encountered them.
BRENT BARTON: Yes. Exactly.
RYN MELBERG: And cutting off the head doesn’t stop it.
BRENT BARTON: No. No. Good intentions don’t always end up with the right outcomes.
RYN MELBERG: True. Yeah.
BRENT BARTON: If we think more about intermediate outcomes, it forces us on the business side of the equation to think more deeply about, I have this big initiative. It’s a multi year initiative. It may change the face of how we do work, by maybe these technology plays, maybe a new market adjacency. Who knows what those things are? But they tend to be big and cool and maybe successful. But portfolio management doesn’t like maybe successful.
RYN MELBERG: No, because it sounds like gambling. You’re back to gambling, Brent.
BRENT BARTON: It does. Yes. So we need to be able to-
RYN MELBERG: Gambling bad.
BRENT BARTON: Let’s say that we operate portfolio management, and we optimize on a quarterly basis. That means I need to be able to carve off some quarterly interim objectives against those long-term investments and potentially new long-term investments. I’ll tell you the most fascinating thing around doing that, that I experienced over the last year is I was co-presenting at a Beyond Budgeting conference. And what we did was we used some of the techniques that we’ve been using for years. And it’s called participatory budgeting. I call it prioritization and funding, participatory prioritization and funding.
We brought that in, and we were able to take big initiatives with a whole group of financial folks. And we were able to prioritize those things together. We then identified all the things as either hard dollar returns, soft dollar returns, or no dollar returns. And then with these financial people, we said, “All right. Now take one of the hard dollar returns and come up with some intermediate outcomes for approximately a quarter.” And you know what, it was straightforward, understandable, and easy. And the thing that blew me away, and I’ve been in love with that moment ever since, it was that ah-ha moment, they had no problem whatsoever by the fact that we had a hard dollar return initiative that the quarterly interim objectives, that are our outcomes that we would want to target, didn’t have to have a financial return in their outcomes.
RYN MELBERG: But an important question for you in that exercise. Was Excel involved?
BRENT BARTON: No.
RYN MELBERG: And they were okay with that? Because these are people who are used to doing financial models. And believe me, I can still do them in my sleep. It’s terrifying. Freedom from Excel is a very special gift, Brent.
BRENT BARTON: We call that Excel Hell. And we like to get out of that.
RYN MELBERG: It is. Yeah, because it also communicates even when we try not to, it communicates a degree of certainty that doesn’t exist. It exaggerates certainty.
BRENT BARTON: Yes.
RYN MELBERG: And that’s where Excel can be particularly hellish. But what you’re talking about feels much more transparent and balanced because it’s obvious that here are the trade offs, but also, here’s what we know and here’s what we don’t know.
BRENT BARTON: Yes. I agree. You know, there’s something that Agile teams do all the time, and that is that we say, “You know, sometimes our stakeholders can’t really tell us what they want. But they sure as heck can give us feedback on what we give them.”
RYN MELBERG: Right.
BRENT BARTON: If we allow ourselves space to touch things more than once, meaning we’re iterating, we can show them something, and then they can say, “Gee, I don’t like this, or this, or this, or that.” We can talk about it and figure out what to do then. And we’re far more well informed based upon real delivery. Part of the Agile Portfolio Management piece is if I can carve off a small piece of long-term investment, arrive at some reasonable intermediate outcomes, that says, “If we were to do these things, it would move the needle,” and we say that, yeah, I think that makes sense, then we can go after that. And then we can get feedback and we can tune and adjust our business side of the learning equation, not just the how, like you described. The teams really need to still on the how.
And so that’s really important. And we use a term for this matching. And how do we be loosely or decoupled between demand and supply? And I would say that we need to get good at operating on just good enough data, meaning being roughly right is better than being precisely wrong. We can get down into business cases that are so precise that you can’t tell when the assumption started, or whether you made assumptions based on other assumptions. So you can’t even tell. And they look beautiful. They took forever, but they don’t actually help us move the needle.
RYN MELBERG: Well, and they’re really bad capitalism too. And so it always kind of annoys me because it’s a bad … Once you get past that point where you have 80 ish percent of the data, you need to make a decision. Anything you do beyond that point is just waste. To your point, right? It isn’t going to likely to inform or change your decision, but it is delaying you getting a return on that decision. And so it really isn’t good. There’s a point in which, like you said, we just have to accept that we’re directionally correct. And that’s better than trying to be any degree of precision, because you’re never going to be precisely correct. That’s not an option, unfortunately.
BRENT BARTON: I agree.
RYN MELBERG: Before we-
BRENT BARTON: What I’d like … Before you move on, though, you said 80% correct. Right? The Pareto principle.
RYN MELBERG: Roughly, yeah.
BRENT BARTON: I would actually argue that in today’s world of volatility, uncertainty, complexity and ambiguity-
RYN MELBERG: It’s a lot lower, yeah.
BRENT BARTON: That 80% is too high a bar. And we need to be somewhere in the 40% to 60% range of knowing everything. And that’s where it becomes super important to be able to say, “And we need the skills to be able to move away from things that turned out to be wrong, and double down on things that are turning out to be right.”
RYN MELBERG: I think that’s an excellent point. You’re absolutely correct. Before we wrap this up, do you have any recommendations for a successful transition from traditional portfolio management to Agile Portfolio Management?
BRENT BARTON: Yes. Rules are useful, however rules are often rigid, and they actually often are broken in the goal of really creating success. And portfolio management tends to operate on a set of rules because of governance. I would like to move towards principles. And so we have six principles. We have that on webinars and information out on solutionsiq.com. We do have five simple rules about how you shape a portfolio. And I think the first thing to understand is that since we’re really needing to solve the problem of organizational capacity and matching that to demand, we really need to have our portfolio planning completely encapsulate our supply.
If I were an organization that has two independent products, and all the people working on those products are separate, I can operate with two portfolios. If I’m sharing a lot of the load of the work from an organizational perspective, and it’s shared multiple portfolios by the same people in the supply side, I’m creating a huge problem. And one example that I’ve seen is a big deal is when we have keep the lights on portfolio and strategic portfolio. And part of the problem that shows up is that we can’t even trade off between those things. We can’t even say, “What things can we end of life in order to start to achieve these new strategies?” So we’re not really planning with the right lens. And that creates a lot of stasis in a company. Companies that can’t move often are looking at: How do I take with the extra 10% or 15% I’m allocated and get some strategy into that keep the lights on world?
RYN MELBERG: And when you think of the world we live in now, the idea of allocating, like your example, 15% to strategy is bizarre. Right? Because it feels like the whole portfolio should be prioritized together like the example you gave. And it shouldn’t be that allocation. You may need 15% this quarter. But what about next quarter or next month?
BRENT BARTON: Perfectly said.
RYN MELBERG: Right? It may need to be a different allocation. And we need to keep that variability so we can respond to changing needs in the organization.
BRENT BARTON: Yeah. I agree. One of the ways … You asked about: How do people get started with things? Well, understand your team. The notion of return on teams gives us a rough capacity unit that aligns to teams. We call those team iterations. And that team unit reduces the complexity of portfolio planning by an order of magnitude, 10 times easier, just by using team based units and thinking about persistent teams. And then that makes portfolio much lighter weight. If you can’t run a bunch of scenarios really fast when people don’t like to see the real capacity you have to deliver, and cannot make up new capacity, and they start to see what’s not possible, we have a lot of senior leadership, some are affectionately called hippos and various other different, even better terms for our leadership, who strategically want to do the best things for the organization.
And they see that the things that they think are really important don’t even fit. Oh boy, do they ask smart questions. And if we have to wait for a week to do a scenario on a portfolio for answering those questions, it’s game over because they’re going to pepper what if questions. What if we add teams? What if we remove teams? What if we spread some of the strategy over multiple years? What if? What if? What if? If you can’t answer 10 to 30 scenarios in a couple of days, then it’s not soon enough. Right?
RYN MELBERG: Right.
BRENT BARTON: And look at what traditional portfolio management takes sometimes eight months. I’ve heard 14 months, and the target is to be able to be done with traditional budgeting within a year, for a year. What’s a 14 months? You’re broke and broken. It gets worse and worse. So how do we, in fact, really minimize that? Well, simplify by an order of magnitude. Build teams as enduring corporate assets. And not all of them necessarily have to be Agile teams. Agile Portfolio Management is not limited to Agile. It’s really focused on bringing Agile principles and good practices into the portfolio layer, so we can operate with the needs for change, and to be able to double down on the good things and be able to walk away from the old things, understand how to invest heavier on getting us out of the conundrum of technical debt and various other things that prevent us from moving forward, and still operate in a way so that we’re compliant from a governance perspective.
Capitalization, certainly one of the challenges in portfolio management. It’s not hard, we just have to sit down with our finance partners and actually resolve how we want to manage that. Funding teams, totally resolvable with our financial perspectives. And really, I think that finance is the new frontier. And it’s now time for us to really resolve some of these pieces that have taken so long to get us to the point where we said, “Let’s actually make this more about business agility, rather than teams doing Agile.” That’s what we look at as portfolio management in an Agile environment.
RYN MELBERG: Can we say that again? Because I think that’s our mantra. Right? This is really about business agility versus teams doing Agile. I think that’s really so much. That just beautifully encapsulates everything we do. So I just love that. That’s a great place to end this. Thank you so much, Brent. This was great.
BRENT BARTON: You’re welcome, and thank you for having me. I enjoyed it.
RYN MELBERG: I have a sneaky suspicion people might like this so much, we might have to do it again, which I would be excited to do. With that, thank you so much, Brent. And thank you everyone joining us with the podcast today. Please listen to all our Amped podcasts. We love your attention. And also, the most important thing, continue to send in suggestions, requests. We’re listening, and we will do everything we can to get to them and make a podcast for every request. Thank you again, everyone. This is Ryn Melberg signing out. Have a wonderful day.