As organizations grow, particularly through mergers, acquisitions, or ideally, through natural expansion, they become more complex, administrative, and difficult to control.
With management overlays, multiple locations, and numerous processes and procedures in place, it can become difficult for the company to understand and keep track of its application portfolio.
Studies have shown that the number of applications within large firms across all industries worldwide is rapidly increasing, reaching an average of 175 apps per company in 2020.
Duplicate applications, unused systems, distributed data, and replication is both a wasteful investment and resource consumption (support/development effort). These specific challenges also become a blocker for an organization that needs to adapt to change.
This is where application rationalization can and will help most businesses.
The following document provides an overview of application rationalization, what it is, how it drives value for your business, company considerations, and potential pitfalls for successful implementation. For a more detailed description please see the case study.
What is application rationalization?
In simple terms, application rationalization is the continuous process of analyzing a company’s application inventory to determine which applications should be retained, retired, replaced, renovated, and re-engineered (5Rs).
It is an important process for every enterprise to undertake and will help with many aspects of running the business. Access to data, consolidated support contracts, and simplified licenses are just some of the areas where application rationalization can help.
Application rationalization is critical for maintaining the overall cleanliness of the application portfolio irrespective of where the applications are located e.g. in the cloud.
Why would your organization need to do application rationalization?
Applications are one of the cornerstones of nearly all businesses today. With the use of the latest technology, they are accessible from all parts of the company regardless of location. They provide employees with access to information that allows them to fulfill their daily responsibilities and make informed business decisions.
However, as companies grow or change, the application portfolio becomes ever more complex. Organizations can have hundreds or thousands of applications, but with no clear overview about what they are all used for or the cost of using them. Application rationalization can give an organization visibility, management, control, and cost savings of their application repository.
Benefits to your business from application rationalization
Your business can realize many benefits by completing the rationalization of applications including:
Optimizing the people and resource use in your portfolio
Retiring unused applications
Reducing the risk profile by removing unnecessary portfolio surface
Eliminating applications with redundant functionality
Reallocating teams to create more customer value rather than creating duplicate functionality
Validating the value of application investment
Lowering the total cost of ownership (TCO) of applications
Standardizing on common application platforms
Creating synergy within the application ecosystem
Providing up-to-date information, automatically, for informed decision-making.
Simplifying maintenance and support processes
Targeting business goals with the application portfolio
As an example, Ardoq has helped a mid-sized company save ~$0.5-1M annually in their application portfolio costs and ~$150K from a more efficient analysis process.
How does rationalization play into company strategy?
Application rationalization can be a major contributor to company strategy. With an optimized application portfolio your business is much better placed to:
React, in a timely manner, to changing business conditions
Identify and target business opportunities
Reduce operating and maintenance costs
Make relevant updates and changes to applications such as bug fixes
Consolidate application life cycles
Allow the development of lower-value IT projects
Effectively plan, optimize, and modernize different aspects of your IT and business landscape
With a rationalized application portfolio an organization usually has much more streamlined communication between IT leaders and business leaders, with everyone “on the same page” and with a common language and understanding of the business strategy.
How to be successful in a rationalization exercise?
A successful rationalization project involves completing the following steps:
Scoping the Application Rationalization initiative
Creating the Application Inventory. For an understanding of how to do this please read “How to Document Your Organization's Architecture and Realize Value Quickly”
Ensuring that collection (and maintenance) of information is to those with the best knowledge rather than using a centralized team
Portfolio Assessment comprising:
Identifying Application Rationalization Opportunities
Plan (5Rs) / Execution
These may seem like simple steps or processes but for large and complex organizations, with multiple budget holders, diverse locations, and in-house politics, they are not necessarily straightforward.
Communication, process buy-in, and strong leadership are all required components that will lead to a successful rationalization project.
It should also be noted that application rationalization is a continuous process. Once the portfolio has been initially optimized, it is imperative that the process be maintained over time for continual efficiency and optimization of IT to ensure that it is aligned to business goals and objectives.
Continuous application rationalization includes automatically triggering change requests to update the information when ownership changes, new applications are added, contracts approach expiry, or employees leave the company.
What are some potential pitfalls that should be avoided when completing application rationalization?
Many rationalization initiatives are launched as a result of external pressure to reduce IT costs. However, these initiatives often lose momentum, the inventory grows stale and is then out of date by the time that the next initiative is launched some years later.
But why do such well-intentioned initiatives fail to achieve their stated objectives? The most common identified reasons for failure are:
1) Not having either clear business objectives or a clear business plan. The business context driving the need for application rationalization can include:
Improved financial agility
Transformation of the operating model
Rationalization needs to consider all elements of the current application models including the human, financial, technical, and customer factors.
2) Having a too large scope. It may be beneficial to limit the scope to one business capability such as the one with the largest spending or the one with the most applications, to ensure greater success. Giving a focus allows the organization to realize quick wins while demonstrating value and efficiency.
3) Lack of collaboration from affected departments, personnel, or stakeholders. Application rationalization is a process that needs to happen at the enterprise level and needs buy-in at all levels of the organization.
4) Incomplete or incorrect data leads to incorrect decision-making and destroys credibility with stakeholders
5) Change management is often a problem as people do not like change – they like to do things “as they have always been done”. Identifying an application that can be retired is the easy part but getting users to adopt something else, such as a new process or technology, is much harder.
How should you frame the rationalization discussion with business stakeholders without over or underpromising?
For a large, complex, organization pitching an application rationalization should be a clear choice. However, as outlined above, organizational issues, including having multiple budget holders, different cultures and country-based locations, and in-house politics, can all affect this viewpoint.
Having good communication lines, together with strong management, is a good starting point for the necessary discussions.
In nearly all cases the key benefits resulting from application rationalization need to be explained, for each affected area. These will focus on expected cost savings through reduced operational and ongoing expenses, efficiency improvements, and alignment with the organization’s business and political strategy.
It is also critical to identify key stakeholders, as well as decision-makers, as these will be the people that help drive the process internally.
Most large enterprises, and many smaller ones, often have hundreds of applications that are used to run different aspects of the business.
The complexity, duplication, and lack of ownership of many of these applications cause the business to be inefficient in its decision-making, using excessive resources and incurring unnecessary expenses.
Undertaking an application rationalization project across the entire organization will allow the company to understand exactly what applications it has, who owns them, and what they are used for. It will identify those applications that can be retained, retired, replaced, renovated, and re-engineered.
The key to the success of application rationalization is communication. Communication between management, stakeholders, decision-makers, and operations personnel.
By defining an achievable and realistic project plan a successful rationalization will offer the organization a much-reduced application portfolio, reduced operational and ongoing costs, simplified support and maintenance together with better application alignment with the underlying business strategy.
However, it is essential that experienced and qualified personnel undertake the whole rationalization program to reduce risk and minimize the impact on the business from completing the process.
Once initially completed, application rationalization should be an ongoing activity to ensure that the enterprise’s business objectives and strategy are supported by an optimum and efficient application portfolio.