What is strategic portfolio management (SPM)?

Strategic portfolio management (SPM) is the ongoing process that focuses and aligns a company’s IT resources with its strategic business goals.

Quick wins, shortcuts and tactical maneuvering may get you through the next round of budgeting but if your executive board aspires to long-term market leadership, you will need to adopt an SPM approach.

Why is strategic portfolio management emerging now?

Strategic portfolio management—while certainly not something new to many IT strategists and planners—is increasingly winning recognition as critical for business success. Noted research firms have in recent years added it to their nomenclature of market categories, including definitions of the term, playbooks on how to establish a practice and market guides to tools supporting the topic. Although the definitions and needed capabilities can vary, the drivers, purpose and benefits are the same.

Strategic portfolio management is a culmination of several disciplines which are often pursued individually by separate teams. These disciplines are things like strategy management, program portfolio management, integrated IT portfolio analysis, Lean portfolio management and agile financial management. In SPM, these tasks are viewed as a cohesive web of interrelated activities that make any change across business strategy, business and operating models, the IT portfolio, the enterprise architecture and agile development immediately visible.

Digitalization and serial innovation are the main drivers of strategic portfolio management. Companies must transform themselves into digital-driven businesses and they must be able to continually innovate if they are to survive over the long haul.

What does sustainable digital business innovation require from IT?

  • Integration of business and technology planning
  • Alignment of strategy and execution across the various portfolios of investments, change, products and IT assets
  • Agility in realignment of budgets, resources and roadmaps as the strategy changes 

Agility is key. As companies have adopted agile development methods to respond to the rapidly changing business environment and digitalization, they have realized that they also need agility at the strategic level. They need the ability to quickly align budgets, resources, projects and architecture roadmaps to new business strategies. 

What are the elements of a strategic portfolio management approach?

Strategic portfolio management is a collection of capabilities and functionalities required for enterprise IT planning and management focusing on business and IT planning alignment, IT investment planning and management, IT portfolio optimization, strategy execution, and cost and risk management.

For Software AG, effective SPM needs interrelated capabilities in the areas of business strategy development, operating model development, agile enterprise transformation, IT portfolio management, enterprise architecture governance, finance management and security and risk management. These capabilities you can see here:

Business strategy development and operating model development are closely aligned for formulating the company’s strategic vision, defining the objectives, devising and implementing strategic themes to achieve those objectives and monitoring and correcting execution. It involves business model and operating model definition (how the business should be transformed into a digital business with new digital products and services and how they will get to market), alignment of the business strategy with IT initiatives that will implement it and business capability management to prioritize the capabilities that best support corporate strategy.

Agile transformation is about ensuring a unified, clear line-of-sight from the strategic business goals, on to the strategic themes, digital product and services portfolio and into the feature backlog for continuous alignment of Agile Release Train delivery with business priorities. It helps you see the impact of changing any part of the digital business planning and execution chain on upstream strategy definition and downstream execution activities. It also provides business leaders and Lean portfolio management with information on how newly developed digital products and services are faring on the market, any obstacles in getting products onto the market and how this is impacting the attainment of strategic outcomes. They can then adjust strategy and operations to better achieve success.

IT portfolio management enables an organization to neatly organize the information needed to optimize portfolios, improve agility and set the pace for change. Integrating portfolios enables impact analyses that reduce planning errors and improve synergies between the portfolios.

Enterprise architecture governance describes complex IT systems in terms of their business, application, information and technical layers. It helps enterprise architects align the IT landscape with the business to guide competitive transformation and develop standards for change.

Finance management aligns IT cost optimization with business strategy to be able to see where to cut costs and understand the resulting impact on the business. It enables organizations to understand current and future business priorities and to know which IT supports them at what cost.

Security and risk management helps enterprises identify and assess threats and risk more effectively and achieve greater efficiencies in compliance control. It provides insight into risk exposure to be able to understand which, e.g., IT systems, technology components or investments carry risk due to direct and indirect threats, what the implications of the risk are and what kind of mitigation measures are needed.  

Supporting these SPM capabilities are an underpinning of road mapping, analytics, and reporting functionalities. IT road mapping is inherent to strategic IT planning. Road mapping helps an IT organization carefully calibrate the different IT projects and plans across a dispersed IT organization.

Insights-based portfolio analytics serve individual portfolio optimization as well as portfolio-level strategy modeling to incorporate all portfolios into a cohesive strategy. Cross-portfolio analytics provide a high-level view of how the various IT portfolios interrelate to assess the impact of change to any one portfolio on the others.

Reporting should help each of the many stakeholders involved in enterprise transformation in their daily tasks with information gleaned from the SPM system repository and rendered in a way most meaningful to the stakeholder.

The "three Cs" of effective strategic portfolio management

For strategic portfolio management to be useful to an organization it must cover the “three Cs”: be contextual, continual and collaborative.

  • Contextual: IT must be planned in the context of the business – in digitalization, IT is the business. And any changes in IT must be considered and planned with a full understanding of that change object’s role in the grand scheme of things and how a change would impact anything related.
  • Continual: SPM needs to be a continuous process. The world around us is in constant change. Transforming the enterprise is not a one-off project. An organization needs to be able to continuously adapt to be resilient. This means continuous analysis, decision-making, IT road mapping, planning, execution, monitoring—and then go back full circle to analysis. This needs to happen across organizational hierarchies, across all organizational units and from strategy to execution and back.
  • Collaborative: Having the insights to make good transformation decisions requires good data. Good transformation decisions require data on many perspectives of an organization. This is why SPM involves many different stakeholder roles and it must be based on collaborative processes.

When done properly, strategic portfolio management promises success in rapidly becoming a competitive player in digital business and maintaining market momentum.