The critical best practice is to subdivide portfolio resource allocation into three separate competitions, one for each horizon, each having its own dedicated pool of resources, not to be shared with any of the others.

– Geoffrey Moore. Escape Velocity

Investment Themes Abstract

Investment themes reflect how the enterprise allocates budget to the various initiatives it has defined to implement the enterprise business strategy. Each is a compelling, longer-term initiative that drives the programs that ultimately differentiate an enterprise from its competitors.

Investment themes differ from epics and features in that they are not prioritized backlog items. Instead, investment themes are considered as a “capacity allocation” in that each theme gets the amount of resource implied by the budget. They are executed concurrently and have equal priority, though some may reflect a smaller part of the overall budget. In this way, smaller but still important initiatives get the amount of attention they deserve. This assures the enterprise behavior is true to its strategy, and that it is not short-changing big or small initiatives to the point of compromising its ability to execute the agreed-to strategy required to achieve longer-term financial goals.

In SAFe, most investment themes translate directly to the company’s value streams, which are implemented by one or more Agile Release Trains. One such theme is different: this “interstitial theme” reflects the capacity allocation reserved for those cross-cutting business and architectural epics that help create the more holistic, comprehensive solutions, as represented in the Portfolio Backlog.

Details

In Portfolio Vision, we provide a comprehensive overview of the highest-level business strategy constructs in SAFe. Figure 1 illustrates the portfolio vision, and the key role that investment themes play.

Figure 1. Investment themes in the context of the portoflio vision

In the context of the Big Picture, the Portfolio Vision represents the business drivers behind each of the Program Portfolio Management value streams, which are represented by Investment Themes, which ultimately allocate budget and resources in accordance with the strategic intent.

Each investment theme represents a key value proposition intended to provide marketplace differentiation and competitive advantage. Each represents a purposeful, known, and measurable ongoing investment in one or more systems, products, or applications that the teams are developing. Figure 2 illustrates one such example (from ASR [Ref 1], Chapter 23.).

Figure 2 An Example Set of Investment Themes

As implied by the themes in Figure 2, investment themes are fairly long lived, and it is common for an investment theme to drive business for a few years.

Investment Themes Drive Release Trains

Since investment themes are indeed long lived, they lend themselves extremely well to the continuous flow-based Agile Release Trains of SAFe. In this way, there is no need for the delays and overhead of starting and stopping “projects”, rather the value stream is funded at approved levels as long as necessary. Figure 1 showed each release train as an individual investment theme, thereby establishing a current operating budget, and implied resources and resource constraints, for each train in the portfolio.

The Interstitial Investment Theme Drives the Portfolio Backlog

In addition to the agile release trains, Figure 1 illustrates an additional, “interstitial” investment theme, one that represents the portfolio backlog of Business and Architecture Epics. Driven by broader market feedback, business opportunities, mergers and acquisitions, etc., this backlog is used to prioritize more temporal, cross-cutting initiatives that have made their way through the lightweight business cases, WSJF prioritization mechanisms and decision authority of the Business Epic Kanban and Architectural Epic Kanban systems. With respect to budgeting, each new initiative may be funded individually by allocating additional resources to the affected release trains. Alternately, trains just assume some capacity allocation for these initiatives, knowing that they may occasionally trump other priorities in their local backlog.

Escape the Pull of the Past with Horizon-Based, Value Stream Investing

The mechanical constructs described so far in SAFe were used to visualize, capture, describe, and implement the investment themes that reflect the company’s strategy. In order to provide further guidance as to how to think about and actually create business strategy, and its corresponding investment themes, we look to Geoffrey Moore. Moore’s prior classics including Crossing the Chasm and Inside the Tornado. These stand as essentially required reading for anyone responsible for establishing strategy in a technology company. Moore’s most recent work, Escape Velocity: Free Your Company’s Future from the Pull of the Past, makes a number of more specific points with respect to portfolio strategy. These include:

Last year’s budget, plus a small delta, is often a poor proxy for the strategic investments you should be making
Think about allocating investments along the three different opportunity horizons, as described in The Alchemy of Growth by Baghjai.

Figure 3 illustrates the key horizons and the relevant strategy consideration aspects for each.

Figure 3. Managing a Portfolio with the Three Horizons Model (Ref[2])

Horizon 1. These are the existing “cash cow” businesses that provide the majority of the company’s profitability and cash flow. But these markets are maturing, or are already mature, so investments in this horizon are expected to provide returns in the same year.

Horizon 2. These are new, targeted, fast growing market opportunities. Here, though some initial returns are perhaps starting to be seen, new investments are expected to provide a return in a year or two. With successful execution, these will eventually become the “bread and butter” of Horizon 1.

Horizon 3. Here are the greatest future opportunities for the business. However, these investments are challenging in that they are not expected to be returned for some time, maybe even beyond the company’s strategic planning horizon. But they require dedicated R&D resources, and talented ones at that, now, and that takes institutional fortitude.

Moore’s Guidance for Horizon Based Investing

Key premises of Moore’s book include that

All three horizons should be held to different measures of success, and that
The business must recognize that each horizon continuously creates demands for constrained, critical resources.

One result is that it is likely that the defense of Horizon 1 investments causes the enterprise to constantly borrow Horizon 2 and 3 resources, or prevent Horizon 2 and 3 initiatives from accessing corporate resources (marketing, sales, development, IT, operations, etc.) needed for them to meet their objectives. If this is allowed to continue, then the company will ultimately fail, as the inevitable decline of Horizon 1 revenues cannot be replaced by starved initiatives from Horizon 2 and 3.

Therefore, “the critical best practice is to subdivide portfolio resource allocation into three separate competitions, one for each horizon, each horizon having its own dedicated pool of resources, not to be shared with any of the others.” In SAFe, we achieve this by creating specific release trains for each investment in a specific horizon, and establishing the measures relevant to that horizon. Moreover, even in the case where resources are spread across functional organizations, we can use the virtual organization of the release train to segment and dedicate resources to a value stream, even when the functional organizations are too slow to respond.

Thereafter, periodically, perhaps twice per year, new budgets are allocated to each release train based on the market maturity, growth and profitability measures that have been established for trains in that horizon. Here again, Moore’s advice suits as well:

“this may require committing to choices that everyone else in your competitive set eschews ….. it requires skewing resource allocation, sometimes radically, potentially over the objections of your own internal stakeholders, or even longtime customers and partners.”

This may seem like risky stuff, but since we know that product development cannot innovate without taking risks (Reinertsen), at least we can understand that these are indeed the strategic risks you must take if you want to achieve escape velocity.

Learn More

[1] Leffingwell, Dean. Agile Software Requirements: Lean Requirements Practices for Teams, Programs, and the Enterprise. Addison-Wesley, 2011.

[2] Moore, Geoffrey. Escape Velocity: Free Your Company’s Future From the Pull of the Past. Harper Collins Publishers, 2011.

Last update: 15 March, 2013