Posts from the Field: Application Portfolio Rationalization

I recently spent four months mired knee-deep in a large enterprise transformation project, analyzing and working directly with the customer on a bloated application portfolio rationalization. This isn’t easy, especially with a very large, diverse enterprise. Companies of this type have multiple business areas, some of which in turn have multiple business units, each with its own complexities and quirks. These areas and units each have their own versions of shadow IT. Further, in the name of being more productive, they may choose to use applications that aren’t known or supported by the central IT organization.

Application Portfolio Bloat

Application portfolio bloat was costing the customer I was working with hundreds of thousands of dollars, if not millions. Yet, the customer was doing nothing to remedy the situation (and to a certain extent, this is still the case). As most businesses begin to prioritize their investments to drive operational efficiencies, they are faced with their application portfolio’s having had years of expanding size and complexity. This customer is a prime example of that. Its IT group is partly to blame, as it had not taken the necessary accountability to manage complexity, license management, rising total cost of ownership, and increasing inflexibility of applications to help its business areas and units adapt to the rapid changes in today’s business environment.

Initial Steps

The first step we took was to conduct an application portfolio assessment. Then, we began the long, grueling work of rationalizing the portfolio with the heads of each customer business unit. It can be very challenging to determine the cost savings that may be attained by rationalizing old, unused, or incompatible applications from a bloated portfolio. Some application types (managed, unmanaged, custom, etc.) may generate more savings than others. Application usage also affects costs and savings. The more users, the greater the license costs and potential number of support tickets. Additionally, older applications may drive higher costs as compatibility and functional issues arise.

According to Gartner, the average IT cost per user in an organization is $4,000/year. About 21% of this cost is spent on software, resulting in a per-user software cost of $840/year (Gartner Key Metrics 2011). Gartner also estimates that there is approximately one software application for every ten employees in an organization (Gartner, Understand the Real Cost of Migrating to Windows 7, 2010). Application rationalization results can vary per organization based on the nature of a portfolio; however, we felt that a reasonable estimate would be a 20% reduction.

In addition to operational cost savings, application rationalization fosters IT agility. A well-rationalized portfolio ensures that applications are current and supported and, as such, able to readily adapt to new platforms and changes in the IT environment. Keeping applications up to date also reduces the risk of downtime due to crashing by old, unsupported applications.

Future Steps

Future steps will be to work diligently with the customer to implement an application portfolio management program along with its IT outsourcer. The benefits of conducting an assessment of the current portfolio will help generate momentum for the application portfolio management (APM) program efforts:

  • Reduces fixed costs to operate current portfolio
  • Reduces duplication, risk, and complexity
  • Reduces resistance to change
  • Focuses resources on core activities and applications
  • Establishes a clear, common language for value ranking of the portfolio, based on key business and IT characteristics
  • Provides crucial information required to drive out opportunities for transformation and improvement, including focus on retiring low business value applications

APM Governance Framework

As we moved through the processes of the assessment, we began the joint work to develop a framework for APM governance. Some of the key goals were to:

  • Shorten time to realize business value through improved flexibility
  • Cost- and risk-efficient alternative to replace
  • Migrate to strategic environments like cloud
  • Radical simplification of the applications and data architecture
  • Create a roadmap setting out recommendations to reduce costs, rationalize, modernize, improve, or decommission applications
  • Enable integration with key and emerging business technology solutions, such as social and mobile computing

This engagement is still ongoing. I wanted to share a little of the efforts and initiatives we have been working through. I’ll keep updating with “posts from the field.”

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