Organizational Needs – Viewpoint of Information Technology Landscape
From a business perspective, the prevailing economic uncertainty stands as the prime cause of stringent cost pressures on organizations across industries. To this end, several businesses are prioritizing their investments to drive operational efficiencies and minimize IT spend. Even from a CIO’s viewpoint, the primary factors for consideration during cost optimization process would be:
- The budget value for the annual year, utilization assessment and direction of the IT strategy -progressive or disparaging - towards budget goals.
- The nature and efficacy of existing applications in the IT landscape.
- The major cost incurring areas in the landscape which comprise:
- 34% - people cost for application maintenance and development
- 17% - annual maintenance contracts
- 16% - software licensing
- 33% - hardware
Therefore, in order to achieve the right balance of IT landscape, it is imperative that organizations concentrate their efforts on streamlining the application inventories for cost reduction (time and effort), productivity improvements and better regulatory compliance. However, several factors entailing the expanding size and complexity of the application portfolio, poor license management, rising total cost of ownership and increasing inflexibility act as a hindrance towards business transformation and IT consolidation.
Opportunities for IT Cost Reduction
The expanding role of IT has also resulted in higher IT costs (as a percentage of revenue). It is observed that IT budgets tend to consume anywhere from 2% to 15% of the total revenues and more than half of the capital spending. Some major areas that could serve as potential cost saving zones are listed below.
- Vendor consolidation to achieve economies of scale.
- Unified Licensing Agreement to ensure centralized procurement of licenses for the global units.
- Outsourcing to capitalize the benefit of labor arbitrage.
- Portfolio rationalization.
Application Portfolio Rationalization
Application rationalization is a systematic and informed approach to assess and optimize the application landscape, thereby addressing certain transformational business demands or meeting strategic IT objectives such as:
- Minimizing TCO
- Standardizing technology
- Reducing complexity
- Enhancing the risk control and information system compliance
The process starts with radical reshuffling of an application portfolio based on its state, risk and technical viability and further implementation of changes to applications to achieve a desirable business outcome.
Questions to Ask:
Identifying rationalization opportunities requires a careful assessment that answers questions such as:
- What is the functionality of the application?
- Who are the users?
- What is the technology architecture – platform, version, operating system and programming language?
- Criticality of the application (high / medium / low)
- Which department / LOB it caters to?
- What is the annual hardware and licensing cost?
- Average number of service requests, number of change requests, unplanned downtime in a year
- What is the type of the application – COTS (commercial off-the-shelf), C-COTS (custom commercial off-the-shelf), custom 3rd party or custom in-house?
- How many interfaces are present in the application?
- Extent of documentation or source code availability (high / medium / low)
All applications have a typical lifecycle or life span which can serve as one of the critical factors while assessing their suitability in the IT landscape. Rationalization process can easily evaluate in which stage of lifecycle an application is and based on that its fate can be decided.
An application lifecycle usually comprises 4 stages such as:
A Systematic Approach to Application Rationalization
Rationalization process is crucial to planning an application strategy in an organization’s IT landscape. A step-by-step process to application rationalization comprises the four phases listed below:
Data Collection: The stage entails the filtration of application inventory to remove the obsolete applications that can be earmarked for retirement. To this end, a survey questionnaire is issued that is intended to collate data on application’s value in terms of business, technology, strategic functionality and cost dimensions.
Application Profiling and Value Analysis: The rationalization model focusses on parameters that influence the business value, technical health and annual cost of ownership of the application. It identifies the application’s lifecycle positioning, computes the cost savings and determines the action plan for improvement.
Opportunity Mapping: In this phase, a rationalization map is generated based on analytical results which determines the scope for application decommissioning, consolidation, platform upgrade and functional enrichment.
Benefits Realization and Implementation: This is an action plan based on the set of conclusion derived from the above mentioned phases. This roadmap can be prioritized based on the ease and cost of implementation, savings and inter-dependencies.
(Picture Courtesy: Cognizant Whitepaper - CTS-Application-Portfolio-Rationalization – Nov’11)
Application Destiny Post Rationalization
An application is destined to meet its fate once it crosses the assessment parameters. Portfolio rationalization leads to:
- Retirement of non-valued applications.
- Replacement of legacy systems.
- Re-platforming or migration of application to better stabilized contemporary platforms.
- Facilitation of upgraded version or elimination of functional redundancy.
- Combination of numerous applications into a more effective and coherent application.
- Retention of useful and value-add applications.
Recent research indicates that application portfolio rationalization succeeds best when driven by honest information patterns in conjunction with the CEO’s mandate for improved business processes. Through that combination, CIOs are finding an average of 20% immediate cost savings (within 12 months of implementation) along with improved IT value positioning.”
— Gartner (Erstwhile META Group)
APPLICATION RATIONALIZATION IMPACT ON BUSINESS
A decentralized approach for managing the application portfolio typically leads to organizational inefficiencies. A standardized and simplified application architecture with optimized agility, strength and flexibility is always present as a CIO’s top priority. Such rationalization process is essential to support business operations and future growth plans of an organization. So, as the need for new business applications arises, the IT landscape changes quickly, which necessitates the execution of a rationalization exercise periodically to ensure an optimal applications infrastructure.
- Whitepaper on Application Rationalization published by Siemens - 2006
- Whitepaper – A Comprehensive Approach to Application Portfolio Rationalization published by Cognizant Technology Solutions – Nov’11