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A Comprehensive Approach to Application Portfolio Rationalization

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A comprehensive approach to application portfolio rationalization will enable organizations to maximize the business value of their applications and focus on strategic opportunities.

A comprehensive approach to application portfolio rationalization will enable organizations to maximize the business value of their applications and focus on strategic opportunities.

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  • 1. • Cognizant 20-20 InsightsA Comprehensive Approach toApplication Portfolio Rationalization Executive Summary Application portfolio rationalization leads to other cost and business benefits realized through quick Ongoing economic uncertainty is imposing cost savings, reductions in total cost of ownership stringent cost pressures on organizations across (TCO), heavier reliance on more flexible Op-Ex industries. In response, many businesses are prior- models, maximization of ROI to drive long-term itizing their investments to drive operational effi- business value and architectural alignment. If ciencies and minimize IT spend on their application executed correctly, our approach eliminates portfolios. However, several factors — including functional overlaps and ensures stricter the expanding size and complexity of the appli- compliance with regulatory requirements and cation portfolio, poor license management, rising alignment with corporate strategy. The rational- total cost of ownership and increasing inflexibility ization exercise we lay out is not merely another — are challenging many organizations to adapt to instrument for cost cutting but is a strategic the rapid changes in the business environment. initiative for improving the business effectiveness Many IT organizations are working to lower the and operational efficiency of the organization. percent of the budget spent on operations and maintenance, which tends to hover at 70% or Making the Business Case above, according to industry estimates. With change being the only constant in today’s This paper provides a methodical approach, with hyper-competitive global economy, organizations embedded critical success factors, for application need to innovate to adapt quickly to ever-fluctu- portfolio rationalization. It also describes a robust ating market conditions. To keep pace, organiza- model for assessing the business value, technical tions have tended to invest aggressively in IT ini- health and strategic fit of the application estate, tiatives, resulting in a wide array of disparate and as well as prescribed solutions, such as decentral- disconnected applications across their portfolios. ization of the software/application procurement Mergers and acquisitions, niche applications, IT function and other overlooked components of upgrades and in-flux replacement projects add to cost avoidance in the portfolio. A comprehen- the application cacophony. sive approach allows organizations to utilize the residual business value of the existing portfolio, Through application rationalization, organizations which frees key resources and funds to support a can transform a highly complex, costly and only focus on high-value opportunities. moderately effective application catalog into an agile, lean and productive portfolio, aligned with cognizant 20-20 insights | november 2011
  • 2. key business needs and adaptable to an ever- • Strong commitment from top management:changing macro-economic climate. Creating a Top-level support is mandatory, since initia-business-aligned portfolio can enable operational tives like this have organization-wide impact.agility and flexibility; however, it may necessitate The leadership team must align applicationchanges in the organization’s governance and portfolio rationalization strategically with keyfundamental operational processes. It will also organization objectives to first overcome andrequire IT leaders to shift core resources from then resolve conflicting business needs. Mosttactical to strategic initiatives. Key considerations experts would agree that strategic planningfor rationalizing the application portfolio are: should be at the heart of the IT leader’s agenda.• Establishing a quantitative baseline on the efficiency and effectiveness of the current • Clear communication of objectives and expectations: Clearly conveying top-priority application landscape so that prudent objectives to all relevant resources is extremely management decisions can be made regarding critical. Objectives must be “SMART,” as in, current and future application development, specific, measureable, achievable, realistic and application phase-out and remediation. time-framed.• Ensuring proper business/IT alignment (i.e., making sure IT is working on initiatives that • Access to and active participation of stake- holders: Data collection is a crucial part of the business values the most) and prioritizing the application rationalization exercise. It is applications that need the most attention. essential to assemble both fact-based data, as• Determining management options for trans- well as information regarding the perception lating application value improvement theory of business users to properly measure overall into meaningful results. application portfolio effectiveness. So, access to and involvement of stakeholders in the dataCritical Success Factors collection process, as well as validation of theTo control the leakage of value realization from hypothesis, is essential.an application portfolio rationalization program,it is important to understand the critical success • A robust model for applications health analysis on key dimensions: A model forfactors that drive the value expected from such application health analysis will increase thean initiative (see Figure 1), such as the following: probability of developing recommendationsDrivers of Success Strong commitment from top management team Clear communication of objectives of portfolio rationalization Access to and active participation of all the stakeholders Robust model for application health analysis on key dimensions Critical Success Factors Experienced team of consultants with right mix of skills Higher degree of confidence on financial data Availability of budget and resources to implement recommendations Application rationalization as an ongoing process requiring regular evaluationFigure 1 cognizant 20-20 insights 2
  • 3. that drive successful rationalization of the ization projects fail is lack of budget, resources application portfolio. The assessment can or both to implement appropriate recom- be performed based on strategic, business, mendations. The organization must assess technical and commercial dimensions, using a the cost and level of involvement required comprehensive questionnaire for surveys and before executing the application rationaliza- interviews. tion initiative to ensure desired benefits are realized.• A higher degree of confidence regarding financial data and information: Decisions • Application rationalization as an ongoing on which recommendations are implemented, process with regular evaluations: Applica- and in what order, are made on the basis of tion rationalization is a continuous improve- translated financial benefits. The financial ment program that requires regular re-eval- model for realizing benefits must not only be uation to determine the effectiveness of the robust; it must also be reinforced by a high portfolio and its alignment with organizational degree of confidence in the financial informa- objectives. tion supporting it. A Framework for Transforming• An experienced team of consultants with the Application Portfolio the right mix of skills and knowledge: A cross-functional team comprising highly expe- A robust framework for application portfolio rienced business consultants, domain experts, rationalization involves data collection, applica- process consultants and technology architects tion profiling, application value analysis, identi- is an essential parameter for successful appli- fication of opportunities and defining an imple- cation rationalization. A cross-functional team mentation roadmap. The framework is focused helps drive synergies and improve collabora- on understanding, analyzing and transforming tion, as well as bring multiple perspectives to the current application portfolio to arrive at the a case, which helps in gaining alignment more most effective rationalized application portfolio. quickly. Following the application portfolio analysis, an opportunity domain grid is created for categoriz-• Availability of budget and resources to ing the opportunities identified by the framework, implement recommendations: One of the fun- as well as other hidden costs that, if surfaced, damental reasons some application rational- reveal potential cost-cutting opportunities.A Step-by-Step Process for Application Rationalization Application Profiling Opportunity Benefits Realization Data Collection & Implementation & Value Analysis Mapping Roadmap Finalize project scope Prepare business Create Develop value and technical rationalization map recommendations health model Prepare interview/ survey questionnaire Identify opportunity Profile the domains Develop business Collect data from application portfolio cases application support team for data inventory Map applications on opportunity Conduct cost/benefit Collect data from Score applications on analysis business value and domains grid application estate register and portals technical health Analyze application Interview/survey of Create Discuss with clusters application service implementation business team roadmap managersFigure 2 cognizant 20-20 insights 3
  • 4. During the rationalization process, the value of analysis. Applications are also clustered based on each application is computed. According to the their business function. analysis conducted on each application, a rec- ommendation is made to either retire or decom- Applications Profiling and Value Analysis mission end-of-life applications or conduct a In the next phase, a robust application portfolio functional upgrade to applications determined rationalization model factors in the key to be critical to the business or with significant parameters that influence the business value business potential (see Figure 2). and technical health of an application. Each of the parameters identified under the business Data Collection and technical dimensions is assigned a weight In the first phase, the application inventory is fil- based on its relative importance to the other tered to remove applications that are obsolete parameters within a dimension (see Figure 3). or have been earmarked for retirement. Applica- Individual applications are assessed on each tion portfolio profiling starts parameter, reinforced by the data collected Application portfolio with issuing a questionnaire through interviews and surveys. The business that is intended to assemble value and technical health index identifies each profiling starts data elements across busi- application’s lifecycle positioning, assesses the with issuing a ness, technology, strategic opportunity for improvement, calculates the cost questionnaire that is fit functionality and cost savings and determines the actions needed to dimensions. The question- optimize the application’s business effectiveness.intended to assemble naire can be customized to data elements capture the essence of the A rationalization map is generated using the quantitative data model to identify the under- across business, domain to ensure the most performing assets and propose measures for accurate and useful informa- technology, strategic tion is captured for analysis. improvement. fit functionality and The primary information is Opportunity Mapping cost dimensions. obtained through interviews, In the third phase, a rationalization map is gen- using the questionnaire, with the application service man- erated, using the business value and technology agers and business system owners of the process. health index. The rationalization map identifies A kaleidoscopic view is generated on the demo- opportunities for application decommissioning, graphics of the portfolio to develop a high-level application consolidation, technology/platform Key Parameters for Weighing Business Value, Technical Health Key Parameters for Weighing Business Value and Technology Health Scalability Usage Data and Scalability Analysis and Documentation Flexibility Functionality and Dependencies & Training Coverage Flexibility Documentation & Training Stability & Financials Complexity Usage Stability Criticality Criticality Business Value Technology Health Figure 3 4 cognizant 20-20 insights 4
  • 5. Converting the Application Rationalization Mapto an Opportunity Domain Grid Rationalization Model Rationalization Map 0.900 Enhance Maintain/ Functionality/ Evolve Consolidate 0.800 0.700 0.600 Opportunity Domain Grid Technical Health 0.500 Support Service Applications Team Category 0.400 Consolidation Consolidation Savings 0.300 Instance/ 0.200 Enrichment Technology Retire/ Rewrite/ Versions Opportunity Upgrade Consolidate Replace Consolidation 0.100 0.100 0.200 0.300 0.400 0.500 0.600 0.700 0.800 0.900 Business value Decommissioning/ License Functional Retirement Consolidation OverlapFigure 4upgrade and functional enrichment. After the reduce the overall license spend by the simpleapplication rationalization map is generated, an principle of economies of scale. Centralizationopportunity domain grid is created. The oppor- also enables IT to identify the right number oftunity domain grid maps the opportunity based users in advance, which streamlines managementon decommissioning, consolidation and upgrad- and improves utilization.ing the application environment, and identi-fies additional opportunities for cost avoidance Benefits Realization and(see Figure 4). Implementation Roadmap In the last phase, an implementation roadmap isTraditionally, most large organizations allocate created. It collates a set of actions, clustered on aand manage IT budgets in silos; as a result, time-scale basis, that are required to achieve sus-many similar applications are procured and used tainable business results. This roadmap suppliesby different business units. By centralizing the the organization with immediate, short-term andsoftware procurement function across business long-term opportunities to improve the applica-units/geographies, the IT organization can helpPrioritizing the Opportunities Wave 3: Longer Term Wave 2: Near Term 3 2 Wave 1: Immediate Rationale 1 Rationale RationaleFigure 5 8 cognizant 20-20 insights 5
  • 6. Improving Operational Efficiency Through Rationalization Payback Opportunities Cost/Benefit Attributes 1 Optimizing Business IT Cost Innovation IT Efficiency Payback from Application Portfolio Rationalization Process Improvement 2 Improving Operational Ease of Efficiency GovernanceFigure 6 9tion portfolio. The opportunities can be prioritized Long-term payback from application portfoliobased on the ease and cost of implementation, rationalization will be realized in four ways:savings and inter-dependencies (see Figure 5). > Reducing TCO by retiring the redundant applications.Spotlight on ROIRationalization enables organizations to signifi- > Consolidating multiple versions of similarcantly alter their cost structures (Figure 7). While applications and services running at differ-rationalization demands an initial investment, it ent locations.can significantly reduce the cost of running the > Maximizing the reuse of common utilitiesbusiness. For instance, an initial investment in across various business functions.the consolidation of similar applications, utilitiesand services will create a foundation for medium- > Reducing total cost of quality by minimiz- ing the number of applications that wouldand long-term payback by reducing maintenance undergo the quality compliance process.expenses and improving operational efficiencies.Quantifying Application Portfolio Rationalization Expenditure Pattern Cost ($) Lights-On Transformational Development Overall + savings growth Initial consolidation Minimum cost to run Development the business Cost can + = be reduced growth operations through rationalization + Operations application + maintenance application maintenance TimeFigure 7 cognizant 20-20 insights 6
  • 7. Case Study: Life Sciences • Identified the business function cluster and developed business cases focused on applica-Client Situation tion consolidation. This reduced the functionalA leading pharmaceutical organization faced the overlap and complexity of individual clusters,challenge of increased size and complexity of generating further cost savings.its application landscape, making it difficult torespond quickly to dynamic business changes. The Building a Lasting Infrastructurecompany was looking to reduce the total cost of Companies across industry face overwhelmingownership of its applications, identify cost savings challenges to gain operational efficiencies andand cost avoidance opportunities and assess the reduce the complexity and TCO of their appli-impact of tighter IT architectural alignment with cation portfolios. A decentralized approach forits global business architecture. The IT organiza- managing the application portfolio typically leadstions’ goal was to identify the functional overlaps to organizational inefficiencies. As the need forand opportunities for application portfolio ratio- new business applications arises, the portfolionalization. landscape changes quickly, which necessitatesValue Delivered a rationalization exercise to be performed at regular intervals to ensure an applications infra-We worked with the IT leadership team to perform structure that supports business requirements.the assessment/analysis of a global drug devel-opment applications portfolio, with the following The desire for continuous improvement andresults: realization of rationalization opportunities will help organizations reduce license costs, tap the• Simplified the application portfolio by reducing existing portfolio’s residual business value and portfolio size by 40%. reduce functional overlap — all of which are key• Proposed savings of $1.5 million from quick ingredients in an IT infrastructure that supports wins — $1 million from near-term actions and today’s business requirements and anticipates $600,000 from long-term opportunities. tomorrow’s needs.• Concluded that 20% of the application had license savings opportunities, a key parameter for cost avoidance.About the AuthorsDinesh Singh is a Lead Business Consultant within Cognizant Business Consulting’s Life Sciences Practice.He is a seasoned advisor with nine-plus years of experience in strategy, business and domain consultingacross the life sciences industry. He has worked with leading pharmaceutical clients on addressing keybusiness problems with an aligned IT strategy. He can be reached at Dinesh.Singh@cognizant.com.Rajesh Kuppuswamy is a Practice Director within Cognizant Business Consulting’s Life SciencesPractice. He has over 14 years of experience across pharmaceutical R&D, clinical R&D, safety and riskmanagement and R&D IT. Rajesh specializes in providing strategic leadership to help life sciencesorganizations more effectively leverage the global delivery model. He can be reached atRajesh.Kuppuswamy@cognizant.com.Dr. Andrew Hill is an Assistant Vice President within Cognizant Business Consulting’s Life SciencesPractice. He has more than two decades of IT industry experience and deep knowledge of the lifesciences domain. Andrew is responsible for providing leadership to help Cognizant’s Life Sciencesconsulting clients achieve their business goals. His areas of specialty include strategic planning andlong-term partnerships, as well as relationship and delivery management. He can be reached atAndrew.Hill@cognizant.com. cognizant 20-20 insights 7
  • 8. About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 118,000 employees as of June 30, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.