Such a process can be done by conducting an application portfolio rationalization that enables business and IT leaders to better understand the value of their applications and how they contribute to the business in comparison to the total cost of ownership (TCO).
Reasons/Benefits for Application Rationalization
Application portfolio rationalization is common when companies are identifying and evaluating their assets during a merger, aquisition, divesture, migration and integration effort. It enables companies to reduce cost, attain operational efficiencies to standardize, streamline, and simplify the company’s portfolio. The approach used needs to be aligned with the company’s overall M&A strategy depending on whether the target company will be retained as-is, assimilated within the target company, consolidated into a best-of-breed or if the two companies agreed to come together to fundamentally transform both their respective businesses.
Application rationalization is a valuable approach that is also used when business or IT leaders want to streamline their existing application portfolio with an explicit goal of improving efficiency, reducing complexity, and lowering total cost of ownership.
Some of the cost-savings outcomes that companies can expect to get from such an effort include retiring low value applications, standardizing platforms and optimizing software licenses, servers, data storage and data centers.
Addressing the Challenges
Too many organizations have inefficient applications with teams spending too much time supporting non-critical applications when there could be more focus on transformation and innovation of new business digital applications and on managing business risks.
It is therefore important to clearly understand the existing issues so objectives can be aligned accordingly. This means doing more due diligence and deeper analysis to better understand problem areas as it relates to assessing criteria such as:
By going through proper planning and a structured assessment process, business and IT leaders can get clarity on the issues and the business value of their portfolio of applications so they can ensure that their portfolio is contributing the desired results to the bottom line.
Below is a six-step approach to assess the value of a portfolio through an application rationalization and measurement framework that leaders or consultants can use to drive the business forward in optimizing costs and increasing value of a company's portfolio.
1, Initiation and Kickoff
The initial step starts with defining the goals, objectives and the scope of the application rationalization effort. When determining the scope, consider utilizing best-practice by focusing on applications that support specific business capabilities or business units and breaking them up into multiple iterative projects vs. rationalizing all applications at once.
Also, in considering scope, it is important to ensure the objectives are defined in context with the operating model and how standardized or integrated processes are across the organization. This will identify if the scope of the rationalization project is within specific business units, or if the objective expands across business units. The answer to that depends on whether the objective is to establish one single source of truth across the organization, enforce standards, or gain global efficiencies within a business domain (such as HR, Finance, etc...).
In any case, it is critical to engage and collaborate with the relevant stakeholders, application owners, business and IT leaders in ensuring goals, objectives and scope are all clearly defined. The output of this process is the creation of a project charter.
2. Planning and Information Gathering
Once the charter is defined, the next step is to build a plan and a timeline to complete the roadmap development.
The information gathering process starts by building an inventory of the applications while gathering information on each application. This data is gathered typically from different sources, through interviews with relevant business and IT stakeholders, extracted from CMDBs, business modeling tools, Visio diagrams, surveys, etc...
In some cases, an organization may consider building a capabilities framework, if one doesn't exist, and mapping applications to it.
This can provide a complete overview of what capabilities are supported, which ones are not and what gaps exist.
The output of this process is an inventory spreadsheet. An inventory spreadsheet list can be used to capture the application on a simple spreadsheet and include such fields as business unit, work streams, business process, location, number of users, etc.
3. Value Assessment and Recommendation
Once the application inventory list is built, applications can be assessed at the level needed to determine issues, gaps and outcome.
The assessment criteria and scoring model is defined in this step to determine business value, costs, and other criteria that can determine disposition of applications. The analysis and findings are summarized, and a score for each application can be used to determine the disposition and plans for each application. Some recommendations can take into account migrating custom applications to SaaS or cloud platforms, while others may be lift or shift in an initial phase, then upgraded at a later stage.
This evaluation requires understanding the IT strategy, and enterprise architecture, while assessing dependencies, risks, regulatory needs and a plan with the least disruption to business-as-usual.
4. Roadmap Development and Plan
As a result of the recommendations, the applications can be grouped into projects, and projects can be grouped into programs. The implementation roadmap is developed as part of this step with a plan showing which groups of applications will be implemented in which wave.
Risks and dependencies have to be identified and a timeline needs to be put together showing what projects/apps get implemented when.
As always, stakeholders, business owners and application owners have to be part of this planning process and must provide any constraints and feedback on the implementation approach.
As part of the development of the roadmap plan, some of the areas that need to be determined for each application include:
The roadmap needs to identify early adopters and quick wins that can help realize the synergies with immediate results.
5. Program Planning and Execution
Once the roadmap planning is done and the disposition of each of the applications in the portfolio is determined, the program can be kicked off . In some cases, where further assessments need to be done on any specific applications, a discovery project can be assigned.
A strong program management office (PMO) would need to be established to oversee the application rationalization efforts and to ensure the right structure and required governance and processes are in place. Below are some the program management best practices that will play a vital role in the success of the program:
6. Measuring the Impact
Finally, when all is said and done, organizations need to track the results from the program through clear program metrics. The tracking approach needs to be formalized and the reporting process with actual results vs. planned monthly/quarterly targets based on the dispositions need to be clearly communicated. Each application’s total cost of ownership can also be tracked for savings and includes the original capital investment as well as maintenance and support fees.
On an ongoing basis, measuring the value of the portfolio and ensuring KPIs are in alignment with strategic objectives can also become part of the operational metrics and ongoing executive briefings.
The goal of an application rationalization effort is to help companies operate in a more efficient agile environment while ultimately reducing cost and increasing value to the business. There are different triggers for launching an application rationalization program. Some are strategic, some are cost-reduction initiatives, while others are related to mergers, acquisitions or divestures. In all cases, the target outcome is to adapt to the rapidly changing competitive landscape and ongoing transformation initiatives. This requires that the application rationalization effort aligns to the company's strategic objectives and utilizes a methodical approach with a strong program management framework to deliver sufficient value back to the business.
Rania Kort is an Independent Management Consultant and Business Advisor with more than 20 years’ experience helping Fortune 100 companies successfully implement strategic initiatives. Rania has managed large-scale programs and programs, established and run PMO's and implemented process improvement in many different industries. She ran and grew an IT Management Practice for PricewaterhouseCoopers for more than seven years managing over 300 consultants. Currently, she serves as an independent consultant focusing on achieving results through collaboration and a team leadership approach that ensures alignment, accountability and trust to develop high-performance teams.