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

Part 1- Reduce Cost and Risk Through Application Portfolio Rationalization

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

 

In a world of sprawling application landscapes, CIOs are often turning to application portfolio optimization (APO) initiatives to reduce risk and achieve cost savings at scale for the organization. There is a wide variety of cost reduction levers available to today’s IT chief to try to optimize the enterprise application portfolio. Let’s explore these in more detail.

 

Cost Reduction Strategies

In my experiences, having advised a number of large companies on streamlining costs across the IT landscape, elements of these five strategies have all played a key role in creating significant business benefits for the organization.

1. Application retirement – One of the most effective (and obvious) strategies is to shut down applications no longer in use. However, this isn’t enough. In order to realize the full benefits of application retirement, it is imperative that they are fully decommissioned This includes re-claiming un-used software licenses, archiving historical data, re-deploying freed-up hardware capacity, and releasing support and maintenance budgets.
2. Functional consolidation – Consolidating functionally-redundant applications can be time-consuming and expensive, hence it is best accomplished in conjunction with other business-driven initiatives. To align IT technical debt retirement with business objectives, identify first those capability areas with a high degree of redundancy and then, map those areas to existing business transformation efforts.   
3. Maintenance & support operating model optimization – An APO initiative can help to identify which of the four basic application maintenance and support operating models is most appropriate for each application by creating a “risk fit” matrix that assesses outsourcing risk versus global delivery fit. Each application would fall into one of four basic quadrants:

• Retained onsite – Appropriate for systems of innovation or differentiation where there is a high degree of user interaction required and it is supporting a core competency.
• Captive – In order to be viable, this model should support a minimum of 250 employees.  If you are pursuing a captive strategy, it can be a very cost-effective way to support applications that don’t require the same level of user interaction.
• Staff augmentation – Applications that don’t lend themselves well to support through a global delivery model, but for which there is no competitive advantage achieved by keeping knowledge in-house, they can be supported with a staff augmentation model.  This is ideal for applications with high-variable or seasonal demand.
• Managed services provider – Applications that do not create a competitive advantage can often achieve significant savings by moving to a managed services model. It can also drive additional efficiencies through incident elimination, automation, deflection and shift-left strategies.

4. Software license optimization – The average IT organization spends 13% of their IT budget on licensing – with the vast majority of that spend going to the top 10 software vendors. The topic of software licensing is complex, but for APO the most important elements to have a clear handle on include:

• Understanding total cost of ownership – Each layer of software or hardware represents another layer of costs. Too often, teams make decisions about deployment without understanding the true cost of those decisions.  Making those costs visible should be one of the primary tasks of APO.  Exposing that information to IT and business leaders can quickly remove resistance to retiring applications that aren’t really meeting a key need.
• Install base vs. entitlement – Software licensing optimization tools from vendors like CA Technologies, Eracent, Flexera, Hewlett Packard, Landesk, Scalable Software and Snow Software help organizations understand both their current license position (what they own) as well as what is installed so that they can identify opportunities to recycle licenses and avoid new purchases.
• Lower cost software alternatives- It is important for procurement and the enterprise architecture organization to stay on top of industry dynamics and continually re-evaluate the economic competitiveness of third-party software solutions in their portfolio.
• License entitlement optimization – Enterprises are frequently over-licensed for functionality they never end up using.  As more organizations move towards the cloud, it is becoming easier to adjust subscriptions to match actual consumption.
• Open source software alternatives – There are a variety of open source software solutions, particularly at the system software level that have gained significant traction with enterprise customers because of the significant cost advantages they offer.

5. Tiered storage – Applications with significant data (>2TB) that have been in service for more than 5 years and don’t have a data archival strategy can benefit from implementing a tiered storage strategy that moves infrequently accessed data to lower-cost storage solutions.

An Approach to Reduce Risk

Risk reduction strategies are generally difficult to support with a traditional cost/benefit justification, but are equally, if not more, important to drive value around.  Typical strategies employed include:

1. Platform alignment – If an enterprise already has a defined technology reference architecture, an APO initiative is a great way to identify applications that may not be in compliance. At a minimum, the initiative can be used to identify operating system, database, application server, integration, authentication, data archival, security and resiliency standards.
2. Performance – An APO initiative can be used to identify and mitigate against potential performance bottlenecks related to usability, response time or batch job performance.
3. Scalability – For organizations anticipating significant organic or inorganic growth, an optimization initiative is a great way to be proactive in identifying potential bottlenecks.
4. Resiliency – It is important to not over or under-invest in infrastructure. Business critical applications that lack a high-availability or active-active architecture, represent a significant risk, while non-critical ones that have been architected for high-availability are likely to be over-invested.
5. Security – An optimization exercise is a great time to identify any potential security vulnerabilities or compliance issues.
6. Business alignment – IT organizations may want to scale back their investments in legacy applications that are failing to meet the current or future business needs if a major re-platform is going to be required in the future.

Thanks for reading – I hope you gained a few practical take-aways that you can apply in your ongoing work.

To read more about the benefits of APO and when it should be undertaken, check out the first installment in the series.

In the fourth and final installment coming soon, I will share more about how to govern your application inventory information once you have completed an optimization effort, as well as the vendor tools available in the marketplace.

 Part 1- Reduce Cost and Risk Through Application Portfolio Rationalization

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