Reduce Cost and Risk Through Application Portfolio Rationalization

Media are constantly extolling the virtues of the nimble start-up culture that “just gets stuff done,” while flagellating the traditional large organization for their slow, ambling response to existential threats.  Today’s global CIO is in the unenviable position of having to explain why it is going to take longer and cost more to recreate the experiences that innovative start-ups are able to rapidly churn out.

The modern CIO is confronted with a Faustian bargain.  One can recreate the elegant, integrated experience offered by a start-up, but it will require significant time and resources.  By the time these ideas get to market, the opportunity may be lost.

Alternatively, the IT chief can carve out innovation teams that rapidly create new concepts that don’t integrate with an organization’s existing systems and processes.  Unfortunately, this just propagates the application sprawl that inhibits agility in the first place.  Therefore, more and more global CIOs are turning to application portfolio rationalization efforts to simplify their complex IT landscape and power-up enterprise agility.

Key objectives of application portfolio rationalization:     

• Reduce cost – Simplifying the IT landscape by reducing the number of business applications is an effective way to create sustained cost savings.  When an application is retired, so are the development, support, infrastructure and licensing costs associated with it.
• Retire technical debt – When enterprises fail to keep up with technical upgrades of their hardware and software they often carry significant technical debt (legacy programming languages, out-of-support software versions, legacy architecture patterns, legacy hardware, etc.).  Understanding where this exists and the risks associated with it becomes a priority once hardware and software vendors stop supporting it.
• Eliminate functional redundancy – Organizations that have grown through M&A, or via a decentralized approach to IT governance, can end up with a highly fragmented and redundant application landscape.  Increasingly, large enterprises require globally harmonized systems.
• Improve situational awareness – The prevalence of shadow IT, 3^rd party cloud solutions, vendor-hosted solutions, public cloud infrastructure, operations technologies run by the business and decentralized governance can make it difficult for IT leaders to understand what they have in their networks.  Thus, troubleshooting becomes extremely complicated.
• Reduce risk – Calibrate the level of investment in risk mitigation strategies (high availability, business continuity planning, disaster recovery, architecture and security reviews, etc.) based on the criticality of a given application to the business.  An understanding of the likelihood and impact of any given risk, as well as existing mitigation strategies, is critical in identifying potential gaps.

When is a rationalization approach right?

Application portfolio rationalization is a great technique, but it isn’t the solution to every problem.  Enterprises that will benefit the most from a rationalization initiative often have the following characteristics in common:

1. Application count – The ideal candidate for a rationalization exercise would have over 500 business applications, but it can be effective with as few as 200.  Application counts that get into the thousands can naturally offer significantly more benefits.
2. Technical debt – Enterprises with significant technical debt are likely to find more benefits than organizations with modern enterprise architectures using the latest software and design patterns.
3. Functional redundancy – Companies with a high degree of functional redundancy as a result of decentralized decision making, or mergers and acquisitions, are great candidates for optimization.
4. Poor situational awareness – Organizations lacking an up-to-date and accurate application inventory and configuration management database are likely to realize significant benefits just from understanding what they have.
5. Lack of EA standards – A firm with weak enterprise architecture standards that has a proliferation of different technologies and standards will likely benefit from an improved understanding of their current installed base.
6. Data center migration – Rationalization initiatives are a great way to maximize the benefits of any data center migration by ensuring remediation of technical debt concurrently with the migration effort.
7. Technology-enabled transformation – Organizations embarking on a large transformation initiative will likely replace a significant number of legacy systems. Scoping this in such a way as to simplify the application landscape will help realize maximum benefits of systems that will be decommissioned.

Application portfolio rationalization is a powerful technique for reducing IT costs, simplifying the IT landscape, reducing risk, retiring technical debt and improving situational awareness.  However, such initiatives should be undertaken with a rigorous methodology and a well-architected plan if the aim is to sustain momentum and to realize the full potential of the benefits.

In the second installment in this series, I will share some insights on why CIOs shouldn’t be focused on application portfolio rationalization, but rather on “application portfolio optimization.”

Part 2- Why a CIO Should Focus on Application Portfolio “Optimization” over Rationalization

Part 3- How to Leverage Application Portfolio Optimization for Risk Reduction and Cost Savings