A strategic inflection point is that moment when some combination of technological innovation, market evolution, and customer perception requires the company to make a radical shift or die.
—Andy Grove, Only the Paranoid Survive
The Enterprise represents the business entity to which each SAFe portfolio belongs.
In the small-to-midsize enterprise, one SAFe portfolio can typically govern the entire technical solution set. In larger enterprises, typically those with more than 500 to 1,000 technical practitioners, there can be multiple SAFe portfolios, typically one for each line of business. In either case, the portfolio is not the entire business, and it’s important for the enterprise to ensure that each portfolio solution set evolves to meet its needs.
Each portfolio within an enterprise exists for just one reason: to fulfill its contribution toward realizing the overall enterprise strategy. SAFe offers three primary constructs for connecting the enterprise strategy to a portfolio:
- The budget is the total funding provided to a portfolio for operating and capital expenditures. The portfolio budget is then allocated to individual value streams by Lean Portfolio Management authorities.
- Strategic Themes are specific, differentiated business goals that communicate aspects of strategic intent from the enterprise to the portfolio.
- The portfolio context (described below) provides constant feedback to support governance and inform the ongoing strategy development.
Enterprise Strategy Drives Portfolio Strategy
Developing the business strategy, and investing in solutions that enable it, is a mostly centralized concern—the primary responsibility of the executives accountable for business performance. After all, portfolios don’t form themselves or fund themselves; they exist solely to fulfill the larger enterprise purpose.
Small Enterprises May Have a Single SAFe Portfolio
In small enterprises, a single portfolio (a single instance of SAFe) may be enough to deliver a set of solutions for the entire organization. The portfolio is connected to the business strategy by strategic themes and the budget, and it provides feedback to the enterprise via portfolio context, as Figure 1 illustrates.
Large Enterprises Will Have Multiple Portfolios
SAFe is successfully applied by many of the world’s largest enterprises. And many of these enterprises have thousands, and even tens of thousands, of IT, system, application, and solution development practitioners. Of course, these practitioners are not all working on the same solutions or within the same value streams. More likely, IT and development are organized to support various lines of business, internal departments, customer segments, or other business goals. To achieve the larger purpose, the enterprise will have multiple SAFe portfolios, each with its own budget and strategic themes reflecting that unit’s portion of the business strategy, as Figure 2 illustrates.
In this case, each SAFe portfolio exists in this broader enterprise context, which is the source of the business strategy it must address. The enterprise also provides the more general funding and governance model for all the portfolios. But the strategy is a two-way street.
Defining the portfolio budget is a strategy development exercise (see Strategic Themes) that requires extensive collaboration. There are many philosophies and current trends and influences in the tech sector, including Geoffrey Moore’s series of books  and The Lean Startup . There is a variety of more specific strategy approaches in vogue as well, including the Business Model Canvas and Lean Canvas .
One example is described in Beyond Entrepreneurship, by Jim Collins . The output of this process is a set of strategic themes that provides an ongoing strategy snapshot that communicates evolving intent and a budget to the portfolio. Figure 3 highlights the main aspects of that approach when adapted to the SAFe context.
Each aspect is discussed briefly in the sections below.
- Total enterprise budget – As part of the organization’s total operating budget, an allocation of people and other resources is established for technical solutions across all SAFe portfolios. This may include guidelines for capital and operating expenses (see the CapEx and OpEx guidance article).
- Enterprise business drivers – Enterprise business drivers reflect the evolving enterprise strategy. Since the current business and solution portfolio context is largely understood, there’s no need to repeat the obvious. Instead, these should express the additions to the current strategy. Business drivers such as “integrate the capabilities of the new acquisition into the suite” (a security company) and “move applications to the cloud” are typical examples.
- Financial goals – Whether measured in revenue, profitability, market share, or other Metrics, financial performance goals should be clear. These must be communicated to the portfolio stakeholders.
- Mission, vision, and core values – A clear, unifying mission and set of core values provide the purpose and objectives that act as boundaries for creating the strategy.
- Portfolio context – The most effective strategies are developed while working in the complete portfolio context. KPIs, SWOT analysis, and more provide the background. But strategic differentiation is what provides the enterprise’s competitive advantage. It’s the cultural and technical DNA that delivered the business’s current success.
- Lean Budgets – A budget is allocated to each value stream to increase empowerment and decrease overhead by moving the day-to-day spend decisions (and associated resource decisions) to the people closest to solution development.
- Competitive environment – Competitive analysis will help identify the largest threats and areas of opportunity.
- Strategic Themes – Strategic Themes are differentiating, specific business objectives that connect a portfolio to the strategy of the enterprise. They provide business context for decision-making and serve as inputs to the vision, budget, and backlogs. The primary purpose of strategic themes is to drive portfolio innovation and differentiation.
As shown in Figure 3 and as we have described, portfolio budgets and strategic themes are an output of a process, a process where the business executives and other stakeholders systematically analyze a set of inputs before arriving at conclusions.
Portfolio Context Informs Enterprise Strategy
However, the strategy has emergent properties—some elements simply can’t be known just centrally or up-front. And that depends on the challenges and opportunities that exist in the current solution set and in the local market conditions they address. To that end, strategy development requires continuous collaboration, communication, and alignment with downstream portfolios. In other words, it demands full and complete awareness of the portfolio context. This may include:
- Key performance indicators (KPIs) – The portfolio is responsible for providing feedback on the allocated investment spend. This can include quantitative and financial measures, such as return on investment (ROI), market share, customer net promoter score, and innovation accounting .
- Qualitative data – This often includes a strengths, weaknesses, opportunities, and threats (SWOT) analysis and, most important, the accumulated solution, market, and business knowledge of the portfolio stakeholders.
Strategy Formulation is Largely Centralized, Portfolio Execution is Decentralized
In keeping with SAFe Principle #9 – Decentralize decision-making, forming a business strategy is largely centralized but also collaborative. Business executives and key portfolio stakeholders play a vital role. Executing solution strategy, however, is decentralized to the portfolio. Supported by transparency, constant feedback, KPIs, and appropriate portfolio metrics, only these people have the local knowledge necessary to define, evolve, and budget for value streams. They’re in the best position to apply the Economic Framework and to manage the development of the solutions necessary to address changing Customer needs and new market opportunities.
Learn More Moore, Geoffrey. Crossing the Chasm (1991, 2014), Inside the Tornado (1995, 2004), and Escape Velocity (2011). Harper Business Essentials.  Ries, Eric. The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Random House, 2011.  Maurya, Ash. Running Lean: Iterate from Plan A to a Plan That Works. O’Reilly Media, 2012.  Collins, Jim and William Lazier. Beyond Entrepreneurship: Turning Your Business into a Great and Enduring Company. Prentice Hall, 1992.
Last update: 30 October, 2017