Delivering Value through Application Portfolio Rationalization

Delivering Value through Application Portfolio Rationalization

portfolio rationalizationBy proactively identifying and eliminating or remedying poorly performing application assets, Application Portfolio Rationalization helps companies to:

  • Reduce costs,
  • Target efforts to the areas of highest return, and
  • Maximize the business value of their application portfolios.

Globalization and changing business requirements impose significant challenges on technology leaders who are under constant pressure to both innovate and reduce costs. These demands to do more with less have been exacerbated by business leaders hearing about prospective savings from use of the Cloud without understanding the impact of transition. Many organizations are electing to combine their initiatives for application rationalization and migration to the cloud.

IT leaders are forced to accelerate the rollout of new systems and technologies to support the business without compromising the performance of existing applications. They must address key issues, such as balancing cost, complexity, and capacity, and also deliver business value by applying continuous improvement methodologies. Application portfolio rationalization helps organizations turn these challenges into benefits in terms of reduced costs and more value delivered to the business.

Application portfolio rationalization is an important and continuous exercise for evaluating and controlling IT costs. Application portfolio rationalization involves focusing on the application portfolio looking for redundant applications, one-off technologies, applications with few users, and applications with a high cost/user ratio. With a complete understanding of the current environment, the next step is to consider what should be done to move from current to the ideal.

Gartner Group research confirms that a focused application rationalization effort will typically result in substantial cost savings while improving support for the lines of business. These savings are too large to ignore. Additional benefits include a simplified infrastructure and an availability of resources—allowing organizations to focus on what really matters.  One of the most consistent discoveries that organizations find in the rationalization process is that they are at a competitive disadvantage. IT environments are considerably more complex than they thought, and their total cost of ownership is considerably higher than many of their peers.

In rationalizing an application portfolio, it is important to look at three key areas:

  • Reduce Cost and Remove Complexity
  • Deliver More Business Value
  • Reduce Maintenance and Support Risks

Each of these areas is discussed in the following paragraphs.

Reduce Cost and Remove Complexity

The first step in application portfolio rationalization is simply to identify opportunities to reduce cost and remove complexity. Some of these methods are easy and obvious and others will take significantly more work.

  • Consolidate Redundant Applications – Consider replacing or removing redundant applications that have overlapping functionality in order to reduce costs.
  • Eliminate Applications that are not used – In many application portfolios, there are applications that are no longer used.
  • Find Other Alternatives for Seldom Used Applications – Many applications may only have a handful of users.  These applications can be very expensive to maintain and support.
  • Replace Applications that have High Maintenance and Support Costs – Analyze the support costs for each application.  If support costs for an application seem high compared to the business value provided, work with the business to consider replacing expensive applications with a more cost-effective solution.
  • Standardize Application Vendors – Consolidating a major portion of your application portfolio with one main vendor (e.g., IBM, Microsoft, Oracle, SAP, etc.) enables an organization to gain additional discounts due to higher volume purchases, and cost less in interfaces and in achieving seamless streamlined processes. Training costs and personnel support costs are also less with a consistent technology stack.
  • Manage User Counts – Ensure you have an accurate user count for software licenses. Right size application software for your exact needs. Only purchase and pay maintenance for software licenses for the current number of users. For example, one company purchased 300 ERP licenses as the company was on an aggressive growth curve. The company did not grow as anticipated, and they continued to pay for excess software license capacity for years rather than right sizing the contract.
  • Watch Processors, Cores, or Virtual Machines – The price for some software is based on the number of CPU processors or number of core processors. If so, look at reconfiguring hardware to have a lower processor count. Make sure to understand the impact of virtualization on application licenses. For example, one major vendor requires that if an organization uses a software product in one virtual machine, they must pay license fees as if the software were deployed to all of the cores in that server.
  • Consolidate Application Instances – Try to consolidate application instances into the least number possible for a lower TCO. Generally, each separate instance costs additional money for licenses as well as maintenance and support costs.
  • Minimize Customizations – Minimizing customizations to package software takes discipline but can save significant dollars.  A software vendor package that has significant customization is a challenge to support and keep operational. The total cost of ownership of custom modifications is significant over the life of the software package as it is necessary to redo and test modifications on all future software releases.  This also has a significant impact on business agility. Unfortunately for many companies, software customizations are like eating just one potato chip; it is difficult to stop once you start.

Deliver More Business Value

Business change is occurring rapidly, requiring IT to be able to respond at an increasingly rapid pace. Many applications support old antiquated business processes.  Worse yet, many businesses make changes to the business processes without making necessary changes to the technology that support them. Business units became frustrated with long cycle times for IT to make the necessary changes, and as a result developed workarounds in the form of spreadsheets or standalone departmental systems to accomplish their needs. One goal of application rationalization is to leverage the application portfolio to deliver more value to the business.

  • Identify and Eliminate Workarounds – A good starting point is to simply identify the number and extent of workarounds and departmental systems. Find out why these exist and see if there is a quick fix by simply taking advantage of functionality that already exists. Commercial software is generally continuously upgraded, but most companies fail to fully take advantage of these features after the initial implementation. Companies have been paying for these features through ongoing maintenance contracts but have not taken advantage of the functionality to improve operations and reduce workarounds.
  • Assess Business Value – Assess business applications to ensure they are providing the desired business value. Make sure that the business value received from each application is in proper alignment relative to the associated costs. Review the support costs by application with each business executive to ensure they feel they are getting comparable value.
  • Identify Functionality Gaps – When examining the application portfolio, try to identify areas that are underserved.  For example, in one company, when doing this analysis, the company discovered that there was no automated support for marketing. When looking at the processes in marketing, they found a severe need for improved processes and technology, which, when implemented, resulted in tremendous business benefit. Other examples include implementing a Business Intelligence (BI) system to get the right information to the right individual faster and cheaper, enabling improved business decisions and finding new ways to interact with customers to drive additional revenue.
  • Use More Functionality – According to the Standish Group, 64% of functionality implemented is rarely or never used. Most companies fail to take full advantage of their enterprise software packages, ignoring important features that drive significant business efficiencies.  Work with business managers and staff to review currently owned functionality to see if they would benefit from using available features.
  • Use Purchased Software or SaaS Where Possible – Custom-made, internally built applications cost more than vendor-supplied packages in the long run.  The real question is how to change an organization with a strong appetite for custom software to a mentality focused on utilizing standard software packages. Most organizations claim that they are special, their business is unique, it has to be a certain way, and the like. In fact, just about every company makes that claim. Yet, evidence shows that about 80% of all business functions are common to all companies within a given vertical. The key is to figure out what and where is that 20% that provides a true competitive advantage, and make it better. The goal is to use commercial software for 80% of the business and custom software only for the other 20%.
  • Focus on Business Process Improvements – In implementing new software, many companies focus on the software and hardware when focus should be on business process improvement and redesign, as that is where the true benefits are realized. Companies that have focused on the process and people benefits have realized exponential payback from software implementations.  When finished with implementing new software, the business process improvement must continue.

The following are examples of ways that companies have redesigned business processes to realize true cost savings:

  • Faster cycle times
  • Fewer handoffs
  • Fewer steps in the process
  • Fewer decisions
  • Less duplication
  • Minimize delays
  • Minimize discrepancies
  • Allow fewer exceptions
  • Automate manual activities
  • Automate workflows by using conditional rules to drive different processes
  • Capture data at the source 

Reduce Maintenance and Support Risks

Many application portfolios place companies at great risk.  If executives really knew how prevalent this problem was, they would not sleep well at night. The main goal is to assess the portfolio from a risk perspective and to take action to reduce risk to the business from the following:

  • Evaluate Unsupported Software – Do you ever ask this question: “Should I upgrade my software, or should I take a risk and keep using an old unsupported version?” Taking a risk accurately describes what using unsupported software equates to. It’s like driving your car without insurance so when something goes wrong, it can cause you a world of pain. Eventually, unsupported software becomes a security, support, and business risk. It is important to identify software that is no longer supported and determine what is the best strategy for moving forward. If the software supports a critical business function that is the lifeblood of your company, then the risk is probably too great to continue. For example, you may find that the application software no longer functions when upgrading the hardware it runs on.
  • Assess Availability of Skills – There is still a lot of legacy software written in programming languages where it is difficult or impossible to find programmers with the skills to maintain it. Even something as common as COBOL is becoming a problem as this language is simply not taught at the university level and the people that know it have left the active workforce.
  • Assess Software Complexity and Documentation – Some software has been patched so many times and has so much technical debt that any changes made to the code has great risk or takes 10 times as much time as it should. This is further exacerbated because there is little or no documentation available and the software developers have left the company.

After identifying strategic changes to their application portfolio, organizations must plan how to move forward to achieve these benefits. This requires defining and prioritizing projects, and defining a clear set of requirements for each project.

Enfocus Requirement Suite™ from Enfocus Solutions Inc. is a powerful tool, knowledgebase, and framework that can be used to help with application portfolio rationalization.  Using this SaaS, applications may be defined in a product portfolio and evaluated for areas of improvement. Organizations can identify key stakeholders and make decisions to determine which applications should be retired, combined, or enhanced to deliver more value to the business.  Projects may be defined with specific business objectives and accountable stakeholders to make the necessary changes to the application portfolio. The needed changes can be defined as project scope statements. Additionally, each scope statement can include detailed requirements to ensure that the application support teams clearly understand what needs to be done to achieve the cost savings and improvements in delivering more business value.  To find out more, please download our product fact sheet below.

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