Application Portfolio Rationalization – A playbook for the CIOs

Application Portfolio Rationalization is not just a buzz word, and it is not just for mega corporations – it is a business imperative that needs to be tackled head-on by more small and medium sized businesses as well as the very large. application portfolio rationalization can improve your bottom line by saving money, reducing risk, improving compliance and minimizing complexity.

In today’s digital world, and especially with Cloud computing where so much is provided as a service (Software – SaaS, Platform – PaaS, Infrastructure – IaaS) portions of a company’s application portfolio may not even be managed in-house. And the more complex the IT infrastructure becomes, the more likely there will be redundant applications or opportunities for improved utilization through consolidating under-utilized applications.

A significant portion of the IT budget is spent every year on software licensing and upgrading both software and hardware to remain current. Additional expenditure is driven by ensuring compliance and maintenance. And ever-present is the potential – or realized – costs of risk mitigation. If a company has multiple applications providing essentially the same business value, then the overhead of maintaining those applications represents a key potential to the savings that can be realized by rationalizing the portfolio and reducing the number of applications used to produce a result.

A brief examples may help put this in perspective. Through mergers and acquisitions, you may now have two, three, or even more applications that handle accounting functions such as billing and AP / AR, which are essential core functions for every business. This is redundant, requiring resources to manage the applications from business unit, IT and Governance Risk and Compliance perspectives. It also requires that end-users be proficient to operate in multiple applications for the same or similar functions. And at some point disparate data sources must be merged to get a holistic view of the company’s financial status.

What is Application Portfolio Rationalization?

Application portfolio rationalization is a deliberate and systemic approach to evaluating and making business decisions on the applications a company uses to run and support business initiatives. Whether by merger and acquisition, migration to emerging technologies or just organic growth over the years, many companies wind up with a portfolio of applications that contain redundant, obsolete, and under-utilized applications. application portfolio rationalization could be looked at initially as a “clean up” project, but in order to achieve the real benefits, the principles behind your rationalization decisions need to be integrated into the on-going processes used during mergers as well as new application design. If not, then at some point in the future, you will be right back to square one with more redundant applications.

Simply stated, the goal of application portfolio rationalization is to help organizations keep their IT portfolio efficient, projects on target and budgets under control by minimizing the number of redundant applications, which will simplify the environment and minimize risk. It can also help with obsolete and under-utilized applications, but there really should be other controls in place to identify and manage those in a healthy business so we will not focus on those as much.

How to approach Application Portfolio Rationalization

There are a number of overall strategies that can be employed, and what works best for your company will be largely dependent on specific characteristics of your IT landscape, and to some extent, the size of your enterprise. However, you are cautioned against just picking the “low hanging fruit” and calling it a day. This will have quick and real benefit, but it is a short-sighted strategy that will likely result in having to key up the initiative over and over as time goes on. Still, if the task seems overwhelming, one very effective approach would be to pilot your rationalization strategy in one part of the company, then with success and experience in hand, roll it out across the remainder of the portfolio. Perhaps the pilot could be executed where the low hanging fruit lives, garnering a double win in the early stages, which would be a great way to generate support and enthusiasm for the program.

who are setting the strategic direction, and the business units who have the accountability to execute and achieve the results. This approach works if your IT department is a stand-alone service silo or integrated into the business units. If rationalization is driven only from a bottom-up approach, too much emphasis will be placed on cost savings factors, and could generate turf wars when evaluating overlapping applications. Also, without the top-down governance, a cohesive strategic architecture is more difficult to achieve, and uncontrolled architecture decisions could continue to drive greater complexity and have a negative impact on the overall simplification goal.

Five keys to a structured Application Portfolio Rationalization approach are:

1. Strategy: When starting a journey, it is best to know where you intend to end up. Use of an initiative charter will help clarify and define the scope and goal, and provide the foundation for gaining agreement from IT and business units. This is also where you can be sure your rationalization efforts remain aligned with business plans.
2. Architecture: Define your overall architecture and technology standards for the application portfolio rationalization initiative along with performance metrics, implementation guidelines and operational processes that will drive the project. While you may already have a robust architecture model in place, it is very likely that you have some applications which are outliers. These are often acquired through mergers and acquisitions. Now is a great time to evaluate those for migration to the preferred architecture or integration into other similar applications.
3. Selection: Utilizing the architecture, set specific requirements for the solution and begin the RFP process. You may need to expand your selection process to evaluate and include vendors and service providers beyond those you typically work with. After all, application portfolio rationalization is about making changes from “the way things are” to more of a deliberate view of “the way things need to be”.
4. Deployment: Ensure that the new implementations are staffed and deployed, and that migration to the new solution is enforced. A great rationalization initiative can be undermined by leaving the old application in place and giving end-users a choice since people will often stay with what they are familiar and comfortable with, even if there is a better option available. So remember to actually shut down the old applications.
5. Run the Business: Just as you would with any new project or application, incorporate it into your overall operational models to monitor things like performance, governance, compliance and risk. Adjustments or enhancements will be necessary as the business requirements and IT landscape change.

Next steps

If your initial venture into managing your application portfolio project was a pilot, you now have a baseline to work from for other projects. Depending on the size of your IT infrastructure, you may need to define multiple waves or silos to work through as you rationalize the remainder of your portfolio. These can be done in series or in parallel based on your available resources and the magnitude of the changes anticipated.

While going through your application portfolio rationalization journey, make note of key decision points that can be incorporated into your future merger and acquisition strategy as well as future application development. With a well-defined portfolio and sound architecture guidelines in place, you will be better equipped to approach future merger and acquisition due diligence investigations a plan to help determine which applications are vital to the newly acquired company, and which are candidates for integration into the existing portfolio. Thus, application rationalization can be incorporated as part of the integration plan new acquisitions. Likewise, as a part of the application development process, rationalization decision points can help ensure new applications are being created to fit and compliment the portfolio, and avoid niche one-off applications that may result in unnecessary complexity and risk.

Summary

In summary, managing your application portfolio by reducing the number of applications in your portfolio by eliminating redundancy, cleaning up obsolete applications and finding alternatives to under-utilized applications can reduce operating expense including hardware and software costs, reduce complexity, and eliminate or at least minimize risk. Future merger and acquisition integration can be more efficient, and future application development can be better focused on augmenting a cohesive application portfolio. All this driving toward a more profitable bottom line.