Application Rationalization

Introduction

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

What is application rationalization?

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."

A starting point for other IT activities

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:

• Software license and SaaS optimization
• Application retirement
• Server and data storage optimization
• Project rationalization
• Eliminating redundancies
• Standardizing common technology platforms

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.

History

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.

READ ON BELOW

Why do you need to rationalize applications? (Business Case)

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:

• 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.

📚 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?

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 and free up the IT budget for innovation.

Financial mechanics of application rationalization. Source: A Guide to Application Rationalization

1. 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.
   
   
2. 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.
   
   
3. 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.
   
   
4. 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.
   
   
5. Reduce 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.

“However, most CIOs think their organizations only use around 30 or 40 cloud apps.”

The biggest challenges of app rationalization

1. 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."

2. 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.

3. 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?

READ ON BELOW

Rationalize applications in 6 steps

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.

1. Set application rationalization scope

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:

1. Diversified operating model: Independent business units with different business models (e.g., GE). Optimize processes and applications within each business unit individually.
2. Coordinated operating model: Unique business units with strongly coordinated transactions (e.g., Merrill Lynch). Rationalize information assets with the objective of establishing a single source of truth.
3. Unified operating model: single business with global process standards (e.g., Delta Air Lines). Perform broad-scope application rationalization that enables enterprise systems to enforce the standards and maximum possible improvements.
4. Replicated operating model: Independent but very similar business units (e.g., Marriott). Establish standard infrastructure and application components for global efficiencies one business unit at a time.

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.

2. Build your inventory

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.

• Use spreadsheets: Quick but manual effort for smaller organizations without a large number of applications and a non-complicated organizational structure.
• Use professional tools: To continuously monitor the IT landscape, use enterprise architecture or application portfolio management tools, such as LeanIX EAM or LeanIX SMP. Professional tools are best for mid-size companies and enterprises with a complex organizational structure, hundreds of applications, or multiple departments.

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

3. Assess the application portfolio

The assessment step can range from simple to advanced depending on the organization's maturity level and needs.

1. A simple model (pragmatic approach): A model which is used within LeanIX EAM's core reports. It is collected collaboratively with all application owners using custom surveys. Each application includes information about functionality, technicality, strategic value, costs, and data-related aspects. These criteria can be used to evaluate applications and make decisions about their usage, decommissioning, or replacement.
2. Advanced model to assess applications by functionality (Beyer- Smertnig model): Assess applications' functional suitability based on support and criticality. The criticality assessment ranges from -2 (not relevant to success) to 2 (critical to success), with 0 representing an obligatory functionality. The support assessment ranges from -2 (not supported) to 2 (excellently implemented with no need for change), with 0 representing standard support. Intermediate values of 1 and -1 can also be used to reflect more nuanced evaluations.

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?

4. Define the target state

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:

• Keep: Keep the application and consider further investing in it (high-value application in good technical shape). Tolerate the application as it is doing its job (a certain amount of value in good technical shape) or if there is no reasonable alternative.
• Update: Modernize applications as they are of high value to the business (high-value application supported by aging technology)
• Migrate: Retire application, migrate data and users to an existing application (redundant applications), Standardize multiple applications on a common version/ technology platform, Merge applications (either physically, logically, or both), Replace the application with a commercial off-the-shelf solution.
• Eliminate: Retire low-value applications without replacement (e.g., not used, low value, based on aging technology).

Or, try using this application rationalization decision tree.

Application rationalization decision tree. Source: A Guide to Application Rationalization

5. Plan the implementation roadmap

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

6. Make it an ongoing 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 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

Conclusion

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

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