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The Definitive Guide to

Application Rationalization

Application portfolio rationalization is the act of streamlining the existing application portfolio with an explicit goal of improving efficiency, reducing complexity, and lowering total cost of ownership (TCO) through a myriad of processes.

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Application Rationalization

Introduction

Informed business decisions fuel innovative enterprises. Enterprise architects and organizations as a whole 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, we must make sure to align business with IT. This definitive guide will guide you through a framework that ensures a fluid Application Rationalization initiative in nine steps.

What is application rationalization?

Application portfolio rationalization is the act of streamlining the existing application portfolio with an explicit goal of improving efficiency, reducing complexity, and lowering the total cost of ownership (TCO) through a myriad of processes.

As one of the IT cost optimization techniques, application rationalization sets the basis for other  cost-saving endeavors, including:

  • Software license optimization
  • SaaS optimization
  • Application retirement
  • Server optimization
  • Project Rationalization
  • Data storage optimization
  • Retiring aged and low-value applications
  • Eliminating redundancies
  • Standardizing common technology platforms.

Application rationalization also 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, and constantly monitoring application value in real-time, and adjusting it accordingly.

Application rationalization leaves your organization with a more vital, adaptive, and scalable application landscape. 

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  • A guide to rationalize your application portfolio
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Why do you need to rationalize applications?

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.

Infosys, a global leader in technology services and consulting reports that Application Rationalization can lead to the cost-saving of more than US $2 million in an enterprise. Currently, 75-80% of IT budgets are spent on operating and managing applications.

Without application rationalization, organizations run the risk of:

  • Being unable to react in a timely manner to changing business conditions
  • Not making appropriate updates and changes to bug fixes
  • Holding on to low-value IT projects
  • Not being able to effectively plan, optimize, and modernize different aspects of the IT and business landscape.
  • Increased cost
  • Missing business opportunities

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.

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 euro revenue have an average of 650 applications. The 10% largest has an average of 3400. 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.

How to Answer the Top Questions of Enterprise Architecture Stakeholders [Poster]: Align business and IT and learn how to support each of their needs. »

What are the benefits?

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.

So, what are the key benefits of application rationalization?

Reduce IT cost

After performing rationalization, it is not uncommon to uncover substantial savings. This money can be used to reinvest in innovative endeavors such as IoT, artificial intelligence, and machine learning.

Minimize unnecessary IT spend

With a strong application rationalization strategy and continual upkeep in place, an organized landscape will provide the information to negotiate the necessity of future applications.

Reduce complexity

Symantec reports that by the end of 2016, the average enterprise organization was using 928 cloud apps, up from 841 earlier in the year. Symantec noted in the report: “However, most CIOs think their organizations only use around 30 or 40 cloud apps.” Running an excessive amount of applications can lead to an overly complex landscape, which in turn makes innovation inconceivable.

Eliminate redundancy

Once the rationalization project is completed, it will be easy to identify applications that perform similar functions. Consolidating look-alike applications reduces IT spend.

Reduced training

Every application being used at an organization requires some amount of support from vendors or in-house staff. This support costs money. If there are fewer applications to support, there will be less money spent on maintaining these apps.

Application rationalization improves the overall effectiveness of IT by simplifying the application landscape so that organizations are not running redundant applications, overspending on license costs, and investing in unnecessary programs.

The biggest challenges of rationalization

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.

If you have been collecting data on the TCO of applications, you should be able to quickly see where you are able to divest.

TCO of Applications for Application Rationalization

Image 1: Application Landscape heat map showing the annual costs of IT components associated with applications.

Source: LeanIX GmbH

In the example above, we can already suspect that we can divest in some applications, for example, we are using "AC Management v1" and "AC Management v2". We also see that the cost associated with version 1 is much higher than with version 2... so my first question would be "why are we using both applications? Would it make sense to only invest in version 2 (which also happens to be cheaper)?".

Your stakeholders probably already know that there are issues in the application portfolio, as a tip if you do not already have information on the TCO of all of your 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.

In the view below, we re-confirm our suspicion from the previous point. We see that "AC Management v1," has an inappropriate Technical Fit for the company, while its predecessor is adequate. Yet another reason to divest in it.

Technical fit of applications for Application Rationalization

Image 2: Application landscape showing the technical fit of applications.

Source: LeanIX GmbH

 

Under-utilized applications

Buying something new is easy, and usually also very exciting. On a weekly basis, we try out applications or install new add-on's, use them once, and then completely forget about them. This same behaviour can also be seen happening on a large scale in enterprises and can cause friction against Application Rationalization initiatives. 

Try to maximize existing applications before purchasing additional ones. Or, check out what your colleagues on the other side of the globe are using!

For example, in the LeanIX screenshot below we can see that the functional fit of "Personnel System" is Perfect, but only China is using it. So when Brazil decides that they also want an application to manage people, they should ideally use this existing application, instead of investing in a redundant new one.

Functional fit of applications and their user groups
Image 3: Application Landscape showing the functional fit of applications depending on user groups.

Source: LeanIX GmbH

So, how do we face these challenges? And the most burning question: How do we actually manage to collect all the data?

 

9 steps for successful application rationalization

To start with the application portfolio assessment for the application rationalization use case, follow these steps:

  1. Compile a list of applications
    Compile a list of past, present, and future applications currently deployed on your system. This includes all offices on different continents.

  2. Identify who owns the application
    Identify the appropriate stakeholders (users) of the applications. During this session of discovery, it is often to find out that not many people are using certain applications. You may also find that some applications go totally unused.

  3. Identify the lifecycle of the application
    Once the technology becomes active, the value increases and the risk goes down. At the end-of-life of a technology product, IT management has to deal with challenges such as integration issues, limited functionality, low service levels, lack of available skills, and missing support from vendors.

    Experience shows that executives are quite good at managing the risk at the early stage – at least problems here are not going to surprise most managers – but that they tend to underestimate or ignore the risks of end-of-life technology.

  4. Assess the usage of applications
    Misused applications can be identified in an Application Rationalization endeavor. Often, applications are not used to their full potential or can be easily exploited if used incorrectly.

  5. Establish the application's business value, quality, and costs
    Determine the total cost and business value of every single application – even the ones that are barely used. Compare this cost to the TCO of similar applications being used in the industry.

    It's best to use business capabilities in this step. Business capabilities encapsulate what a business is doing right now and what it needs to be doing in order to meet current and future challenges. They define “what” a business does, rather than “how” it does it.

    Business capabilities help to identify redundancies in IT, to spot risks, and to develop innovative technology solutions.

  6. Create an Application Architecture Framework
    A best practice is to develop an application architecture vision and an application architecture framework with principles and set rules. Define a set of business, information, and application concepts that your organization would like to see reflected long term.

  7. Document the Application Architecture Framework
    This is where LeanIX shines. Having an easy-to-reference, tangible, visual display of the application landscape helps to keep a full overview of which parts of the organization are being fulfilled by the current application stack. One can also conclude the true relevance of each application.

  8. Map the total concept onto the landscape
    Business leaders, IT leaders, and EAs should gather to review the recommended actions of each application and formulate a best-fit roadmap for implementation going forward. Involving various business leaders while creating a supporting architecture will help to establish transparency and will properly align the business to IT. Some consolidation endeavors will be easier to implement than others. It is best to consolidate applications within a business domain e.g. Human Resources, Financials, etc, to achieve a shared business model.

  9. Make Application Rationalization a continuous process
    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 to business goals and objectives.
    The continual revisitation of the application portfolio is just as important as the previous steps.

 

Conclusion

In this business climate, operating an agile landscape is key. With digital transformation driving customer demand, the IT architecture will need to dynamically adapt to the rapidly changing needs of the market. Most businesses spend 70-80% of their IT budgets on supporting aging low-value legacy applications, leaving very little money to invest in optimizing business processes. 

The goal of Application Rationalization is to articulate an architectural vision that enables the business goals, responds to the strategic drivers, conforms with the architecture principles and standards, and addresses the stakeholder concerns and objectives.

Application Rationalization efforts will help you optimize your application stack, establish transparency between stakeholders, deliver value to the business leaders, dramatically cut costs, and uncover money to invest in trending topics.

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Scope and inventory the application portfolio, assessing each by functional fit, technical fit, and lifecycle

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Identify opportunities for investment or the decommissioning of redundancies, and deciding on a desired future state technology architecture

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Plan and implement the roadmap for success, including key financial metrics and governance.

Answers to frequently asked questions on Application Rationalization

What does Application Rationalization mean?

Application Rationalization provides your company with a more vital, adaptable and scalable application landscape.

The explicit goal of Application Rationalization is to improve efficiency, reduce complexity and lower the total cost of ownership through a variety of processes. Application Rationalization also takes the form of a targeted selection of your applications based solely on their business impact, balancing the value and cost of all existing proposed applications, and constantly monitoring and adjusting the application value in real time.

What are the benefits of Application Rationalization?

Through Application Rationalization, the company reduces its IT costs and above all minimizes unnecessary IT expenditures, reduces IT complexity, eliminates redundancies within the IT landscape and reduces unnecessary training for applications that are no longer used.

What are the biggest challenges to succeed in Application Rationalization?

The biggest challenges to succeed in Application Rationalization is the lack of collaboration, which results by disengaged stakeholders within a company, bloated IT portfolios and under-utilized applications.

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