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.
Each SAFe portfolio contains one or more Value Streams, each of which is dedicated to build, deploy and support a set of solutions the enterprise needs to accomplish its business mission. In the small-to-midsize enterprise, one SAFe Portfolio can typically govern the entire technical solution set. In larger enterprises—usually those with more than 500 to 1,000 technical practitioners—there can be multiple SAFe portfolios, typically one for each line of business, or as otherwise structured around the business organization and funding model.
In either case, the portfolio is not the entire business. So, it’s crucial for the enterprise and portfolio stakeholders to ensure that each portfolio solution set evolves to meet the broader business needs. This is a critical capability of the Lean Enterprise.
Enterprise Strategy Drives Portfolio Strategy
For many companies, the way they conduct business is mostly outside the scope of SAFe. However, there is a critical intersection at which the enterprise strategy couples directly with the strategy for a specific SAFe Solution Portfolio. Developing the business strategy and deciding how much to invest in the solutions that enable that strategy are critical concerns. Portfolio stakeholders are directly involved.
SAFe offers two primary mechanisms for connecting the enterprise strategy to a portfolio:
- The portfolio budget is the total funding provided to a portfolio for development, operating, and capital expenditures. It’s then allocated to the individual Value Streams by Lean Portfolio Management (LPM).
- Working together, enterprise executives and portfolio stakeholders establish a set of Strategic Themes. These are specific, differentiated business goals that communicate aspects of strategic intent from the enterprise to the portfolio.
In addition, the portfolio context (described below) provides constant feedback to support governance and inform ongoing enterprise strategy development.
Small Enterprises May Have a Single SAFe Portfolio
As mentioned above, a single portfolio (a single instance of SAFe) may be enough to deliver a set of solutions for the entire organization. The solution portfolio is connected to the business strategy by strategic themes and the budget, as Figure 1 illustrates.
Large Enterprises Will Have Multiple Portfolios
Many of the world’s largest businesses use SAFe. These enterprises have thousands, and even tens of thousands, of IT, system, application, and solution development practitioners. Of course, not all of these practitioners are working on the same solutions or within the same value streams. Most likely, IT and development are organized to support various lines of business, internal departments, customer segments, or other business capabilities. The enterprise will have multiple SAFe portfolios, to achieve this larger purpose. Each will have 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 more general funding and governance for all the portfolios.
Enterprise Strategy Formulation
The enterprise strategy drives each portfolio budget. In the tech sector, many philosophies and current trends influence strategy formulation, including Geoffrey Moore’s series of books  and The Lean Startup . There is also a variety of more specific strategy approaches in vogue, including the Business Model Canvas  and Lean Canvas . (Note: the Business Model Canvas is the model used in the SAFe Portfolio Canvas.) One generalized strategy formulation model is described in Beyond Entrepreneurship, by Jim Collins . Figure 3 highlights the main aspects of that approach, as adapted to the SAFe context.
Each input is discussed briefly in the sections below:
- Total enterprise budget – As part of the organization’s total operating budget, people and other resources are allocated for technical solutions across all SAFe portfolios. This may include guidelines for headcount, capital, and operating expenses (see the CapEx and OpEx guidance article).
- Enterprise business drivers – Enterprise business drivers reflect the larger industry themes and operating issues that inform the evolving strategy. Typical examples include business drivers such as ‘integrate the capabilities of the new acquisition into the suite’ (a security company) and ‘move applications to the cloud’.
- Financial goals – Whether measured in revenue, profitability, market share, or other metrics, financial performance goals should be clear. These are relevant to the portfolio stakeholders.
- Mission, vision, and core values – A clear, unifying mission, vision, and set of core values provide the purpose and objectives that define and guide the strategy.
- Portfolio context – The most effective strategies are developed while working in the complete portfolio context. Much of this context is captured by the current and future state of the Portfolio Canvas. Key performance indicators (KPIs), strengths, weaknesses, opportunities, threats (SWOT) analysis, and more provide the background. However, strategic differentiation is what provides the enterprise’s competitive advantage. It’s the cultural and technical DNA that delivered the business’ current success.
- Competitive environment – Competitive analysis helps to identify the most significant threats and areas of opportunity.
As we noted, from a SAFe perspective, there are two primary outputs:
- Portfolio Budget – To fund the development of a set of portfolio solutions, a budget is allocated to each portfolio.
- Strategic Themes – Strategic themes, typically updated annually, are the differentiating, specific business objectives that connect a portfolio to the enterprise strategy. They provide business context for decision-making and serve as inputs to the Vision, budget, and backlogs.
Portfolio Context Informs Enterprise Strategy
However, even though any strategy has largely centralized properties, some elements simply cannot be known just centrally or up-front. Challenges and opportunities that exist in the current solution set and in local market conditions inform Enterprise strategy. To that end, strategy development requires continuous collaboration, communication, and alignment with downstream portfolios. In other words, it demands total 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 SWOT analysis and, most importantly, the accumulated solution, market, and business knowledge of the portfolio stakeholders.
- Lean Budget Guardrails – Each portfolio also contains a set of Guardrails, which describe budgetary and spending policies and practices for a specific portfolio. These can be driven by—and are drivers of—elements of the business strategy.
Strategy Formulation is Largely Centralized; Portfolio Execution is Decentralized
In keeping with SAFe Principle #9, Decentralize decision-making, responsibility for forming the business strategy is mostly centralized but also collaborative. Business executives and essential portfolio stakeholders play a vital role. Executing a 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 establish the relevant Economic Frameworks and 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.  Osterwalder, Alexander; Pigneur, Yves. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Wiley. Kindle Edition.  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: 21 September 2018