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Application rationalization is a strategic approach to evaluating business applications to determine which should be kept, replaced, retired, or consolidated.
Find out how to rationalize your app portfolio!
Informed business decisions fuel innovative enterprises. Organizations succeed when they make well-informed, integrated business decisions across the organizational landscape.
Understanding the application portfolio is more important than ever. Operating an agile application portfolio enables a rapid response to business, technology, and market changes.
For application rationalization to be successful, make sure to align business with IT.
That's where Application Rationalization Hub comes in. This Hub is a definitive guide including a curated collection of articles, whitepapers, videos, and other resources that provide a wealth of information.
Whether you're just getting started with rationalization or you're a seasoned pro, you'll find valuable insights and practical advice that can ensure a fluid application rationalization initiative.
📚 Related: Application Portfolio Management guide
Application rationalization is a strategic approach to evaluating business applications to determine which should be kept, replaced, retired, or consolidated. It involves analyzing costs, value, and risk to achieve overall goals and objectives.
This comprehensive approach involves a range of techniques and processes designed to ensure a leaner, more effective application landscape. It creates a more vital, adaptive, and scalable application landscape within your organization.
If you want to explain application rationalization to a 5-year-old, try this: "Application rationalization is like cleaning up your toy room. Just like how you sort out your toys and only keep the ones that you really like and play with, application rationalization is when grown-ups do the same thing with their computer programs."
IT saving potentials from application rationalization
As one of the IT cost optimization techniques, application rationalization sets the basis for other cost-saving endeavors, including:
Application rationalization takes the form of specifically selecting your applications solely based on their positive effect on the business, balancing the value and cost of all existing proposed applications, constantly monitoring application value in real time, and adjusting it accordingly.
Application rationalization has its roots in the early days of computing when organizations started using computers to manage their business processes.
The term itself gained popularity in the early 2000s as organizations sought to optimize their IT environments to reduce costs and increase efficiency.
Around 70% of organizations do not have referenceable documentation on the current version of their application portfolio. The negative results that stem from this lack of documentation can cost a lot of money.
Without application rationalization, organizations run the risk of:
Not only is IT portfolio rationalization an effective way to identify capital for reinvestment, but it also supports streamlined communication between IT leaders and business personnel.
📚 Related: LeanIX IT Cost Optimization Survey 2023
Application lifecycles vary in their length, and it is quite difficult to keep track of all of them.
LeanIX research indicates that large enterprises with more than 1bn EUR revenue have an average of 650 applications. The 10% largest has an average of 3,400. Not all of these applications are necessarily practical or useful.
In order to stay abreast of current innovative trends, provide first-class customer service, reduce cost, and spread operations globally, enterprises benefit from having a tightly integrated application landscape.
📚 Related: Why is Application Rationalization Valuable? and How does Application Rationalization contribute to the Bottom Line?
Application rationalization decreases complexity and lowers IT spending. Numerous studies show that eliminating inefficiencies in the IT landscape can uncover hundreds of millions of dollars in savings and free up the IT budget for innovation.
Financial mechanics of application rationalization. Source: A Guide to Application Rationalization
“However, most CIOs think their organizations only use around 30 or 40 cloud apps.”
Lack of collaboration
Disengaged stakeholders can destroy your efforts to an efficient and successful application rationalization initiative. The ideal way to start engaging them is with a fact-based conversation about the total cost of ownership of the existing applications.
"Start by investigating older applications running on legacy systems. These are likely to be hoarding all sorts of resources and are usually quick wins."
Bloated portfolios
If you are looking into software rationalization, chances are that you have hundreds of applications...usually, that means that simply reducing the number of applications will probably be a win.
Under-utilized applications
Buying something new is easy, and usually also very exciting. We use them once, and then completely forget about them.
Try to maximize existing applications before purchasing additional ones. Or, check out what your colleagues on the other side of the globe are using.
So, how do we face these challenges? And the most burning question: How do we actually manage to collect all the data?
6 steps to rationalize applications. Source: A Guide to Application Rationalization
For a successful app rationalization initiative, there are 6 main steps required to complete.
Develop a strategy involving multiple iterative projects for a focused scope. Each concentrated rationalization effort should only focus on applications that support specific business capabilities or organizational units - of course, always considering strategic business goals. Rationalizing all applications at once has shown that its likelihood of success is low.
When deciding on the scope of your application rationalization efforts, it is beneficial to consider your operating model. There are 4 operating models based on the degree of process standardization and process integration:
During the scoping phase, it is imperative to involve business and IT leaders in the planning process to prioritize, delegate, and support ongoing rationalization projects. With the added help of other business points of view, the full picture will always be aligned.
An application inventory is a list of all the software applications that are currently deployed in an organization. It includes information about applications' functionality, business relevance, owners, and other relevant details.
There are two ways to build an application inventory. The one you will use depends on the size of your organization.
A comprehensive application inventory provides valuable insights into an organization's application landscape. The success of app rationalization relies on the completeness of the data collected.
📚 Related: How to build an Application Inventory? and Create an Application Rationalization Questionnaire
The assessment step can range from simple to advanced depending on the organization's maturity level and needs.
After this step, you will be able to display your application portfolio in matrix and landscape views. These views will give you valuable information about the health of your portfolio and help you identify areas where rationalization is needed.
📚 Related: How to Assess your Application Inventory?, Assess the Criticality of Applications, What are Mission-critical Applications?, and What are Business-critical Applications?
At the end of this step, you will be able to make a decision on every application. There are multiple methodologies with which you can define the future state of your landscape. The two most known ones are the TIME model or 6Rs. No matter which one you choose, both support these four general outcomes:
Or, try using this application rationalization decision tree.
Application rationalization decision tree. Source: A Guide to Application Rationalization
The application rationalization process will be done in waves - immediate, mid-term, and long-term, focusing on elimination, migrations and consolidations, and full rewrites or upgrades.
It is crucial to involve business leaders, IT leaders, and enterprise architects to review recommendations and create a best-fit roadmap for implementation.
This will establish transparency and align the business with IT. At the end of this mapping phase, defined architecture standards and structures for future analysis should be in place.
📚 Related: Define your Target Architecture and Create you Application Modernization Roadmap
Now that the portfolio is officially optimized, it is imperative to continually maintain the landscape. Onetime application rationalization endeavors might save the organization money in the beginning, but they lack the long-term value that continual application rationalization offers.
Application rationalization improves the overall effectiveness of IT and ensures that the IT landscape is actively aligning with business goals and objectives. The continual revisitation of the application portfolio is just as important as the previous steps.
📚 Related: Application Rationalization in LeanIX
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