Why CIOs Need to Consider Application Rationalization for Digital Transformation
When talking to customers and prospects, I hear great ambitions for digitization. But I also hear about pains when they describe their IT landscape. Customers have often grown a complex IT landscape and lack transparency about their costs, or functional redundancy occurs, especially after mergers and acquisitions. Information about their IT landscape sometimes resides in cluttered, disconnected and different silos, which makes it hard to get control over the IT portfolio.
But why is Application Rationalization beneficial? Reducing costs is a prominent driver for rationalization or application portfolio management in general. However, reducing costs is not the only driver. In this blog post, I share top business drivers for application rationalization and how Bizzdesign supports your rationalization initiative.
CIOs’ top 4 business drivers for application rationalization
Executives are under pressure to perform. Three generic levers for performance are money, market, and exposure. Executives strive to increase revenue and profit, market share and retention of clients, employees, and partners. In turn, they also want to decrease costs, time to market and various risks, including legal, technical or reputational.
The main drivers for application rationalization are:
Optimization of costs
The most obvious and often noticed driver for application rationalization is cost reduction. To have 100% control over the portfolio, leaders need to know the total cost of ownership (TCO) of individual applications and the entire portfolio. The question is: Is this required in detail for all the applications at all times?I agree with the statement of the ‘Application Rationalization Playbook’ of the CIO Council: “The precise cost of ownership is less important than the approximation of that cost with the added context of the application’s business value and technical fit all relative to the agency’s mission and business priorities.”Ranges or t-shirt sizes help to identify the candidates for rationalization and to get transparency. Of course, more exact cost details are needed for ROI calculations for decision-making. Deciding on the level of detail regarding costs is also a decision based on balancing effort and outcome. You’ll need to adjust the information at the right moment to act fast.
Minimization of risks – A million-dollar race
According to an IBM report, the average cost of a data breach in 2022 reached USD 4.35 million, sometimes even $9.44 million. Decision-makers don’t want to face these costs, but when a data breach occurs, action needs to be taken quickly. Resolving a data breach in 200 or fewer days saves $1.12M on average, according to the same IBM report (mentioned above).Once a data breach has occurred, transparency about your IT landscape is key. There are different risks, such as on the operational side, to ensure that IT services are available to employees, partners and clients to maintain business continuity. Especially knowing which applications run on outdated software helps to secure your application landscape. It even supports predicting needed investments to keep the security lights on green. So, considering the risk perspective is very important and justifies an ongoing application rationalization.
Increase business and technical value to accelerate strategy We’re living in a time of rapid and disruptive technological innovations. Having an outdated or no strategy leads you in the wrong direction. Understanding and eliminating outdated technologies reduces risks and makes your portfolio better suited to meet current and expected future expectations.Another perspective to consider is the business value of your application portfolio. Involving the business and assigning them the responsibility of assessing the portfolio’s business value ensures that you, as an IT leader, understand how much they ‘trust’ their applications to bring them to the desired future.Aligning investments with change initiatives allows you to validate whether you invest in applications with high business and technical value. If not, it’s advisable to reallocate your investment and rationalization decisions toward applications that align with your organization’s envisioned goals.
Reduce functional redundancy after mergers and acquisitions Although Mergers & Acquisitions slowed down in 2022, global M&A still reached $3.6 trillion in value, according to Morrison & Foerster. Private equity firms are particularly interested in AI, fintech, healthcare, and consumer companies. IT leaders must address the increased functional redundancy of their application landscape after an M&A. Reducing functional redundancy is critical for reducing the number of applications users need to manage and to decrease IT costs. Another essential aspect of exponential effects is complexity. By reducing functional redundancy, IT leaders can also decrease the IT portfolio’s overall complexity, which helps slow the speed of change and adoption of new technologies.
Call to CIOs
Invest in application portfolio management software and apply best practices:
Act fast with the right level of detail at the right time
Get decision support for portfolio councils
Future state design for full-traceability: From strategy to implementation
Design future transformations
Bizzdesign’s approach to application rationalization
Bizzdesign understands the requirements of the enterprise from the boardroom’s perspective. Our APM+ solution goes beyond traditional application inventory tools and provides actionable insights to help IT leaders make informed decisions.
With APM+, we provide best practices for assessing the application landscape with the right level of detail, including (e.g. costs in t-shirt sizes to identify rationalization candidates and TCO when making decisions). Future state design and roadmapping with APM+ enables full traceability and impact analysis from strategy to realization so that IT leaders can see the outcomes of their investment decisions.
Read how one of Bizzdesign’s customers reduced their IT costs by 24% with application rationalization
Watch a replay of our webinar to see how we support application rationalization initiatives