A Thought Paper on “Application Portfolio OptimizationApproach” from the Business Consulting GroupRight AligningApplicatio...
Executive SummaryAs software applications play an ever increasing role in enabling business operations of corpora-tions, C...
3Figure 1Value erosion from application investments can be traced back to a number of factors such as lackof business-IT a...
4Application Portfolio Analysis (APA) is a methodology and framework that improves organiza-tional understanding of applic...
It is important to note that even though specific portfolio objectives exist for APA such as cost con-trol, there are othe...
Step 2: Application InventoryThe major deliverable of this phase is to give an accurate application inventory structured a...
Step 3: Application Portfolio AssessmentIn the third phase an assessment map is created based on parameters identified und...
8Step 4: Application Portfolio OptimizationThe optimization phase puts the results of the analysis phase into action as sh...
9Application Portfolio Optimization can help significantly alters the cost structure of IT. Although itrequires investment...
10About the Author(s)Sandeep Kumar is VP and BCG Head for ITCInfotech. Kumar holds an MBA from IIM Banga-lore and a degree...
11ReferencesITLEx-Applications_Maturity_Diagnostic -www.cio.comAn Oracle White Paper in Enterprise Archi-tecture - Applica...
13For more information please write to: contact.us@itcinfotech.comwww.itcinfotech.com© Copyright 2013, ITC Infotech. All r...
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Right Aligning Application Investments

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A Thought Paper on “Application Portfolio Optimization Approach

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Right Aligning Application Investments

  1. 1. A Thought Paper on “Application Portfolio OptimizationApproach” from the Business Consulting GroupRight AligningApplication Investments
  2. 2. Executive SummaryAs software applications play an ever increasing role in enabling business operations of corpora-tions, CIOs and IT leaders face considerable pressure to create more and more sophisticated,flexible, agile and high performance solutions while grappling with pressures on increasing costs.Any historical analysis on application investments made by corporate would reveal investments ofbillions of dollars in software applications. A significant challenge that CIOs face however, is aquestion on which of these really yielded desired business results. Reasons for these are mani-fold.This is driving a consistent need towards an Application Portfolio Optimization approach to helpdrive better ROI from application investments. In this paper, we examine the challenges, needsand expectations around an application optimization approach and present a structured approachfor the same.2
  3. 3. 3Figure 1Value erosion from application investments can be traced back to a number of factors such as lackof business-IT alignment, absence of a business value case, overuse of legacy technologies,changing consumer sentiments and needs, lack of a structured portfolio approach towards newapplication investments, etc. As an example, business-IT alignment challenges often manifestthemselves in situations as mentioned below in Figure 1:We often see organizations make a push towards IT investments driven largely by short term con-siderations rather than long term potential business value creation. This has sometimes resultedin complex, inflexible and high cost heterogeneous IT environment with redundant applicationsand processes. The combination of complexity and lack of oversight has resulted in inefficientadaptation of applications resulting in risks and delays. Meanwhile increased regulatory require-ments have led to a huge upsurge in governance procedures and application compliance. Intoday’s world of constant evolution and innovations IT organizations are finding it a huge challengeto create sustainable value and innovation.As a way of addressing these challenges, many organizations are turning to Application PortfolioAnalysis and Management as a structured process and method to modernize their portfolio,extract more value out of the portfolio and drive better business-IT alignment and value creation.Application Portfolio ChallengesCompetitiveDifferentiationDrivedifferentiationthrough newtechnologyadoption and newtechnology drivenbusinesscapabilitiesNew BusinessModelsCompanies arere-analyzingcurrent strategiesto reflect changingneeds and ways ofdoing businessAgility & Abilityto Turn on aDimeTo stay ahead ofthe competitioncompanies need torespond at a fasterrateReduce ITCostsCompanies areunder pressure toreduce IT costswhich in turnwould effectperformance anddevelopmentAddressRedundancies &ModernizationneedsHelp addressredundancies andnon productive ITassets throughrationalization,consolidation andlegacy moderniza-tion
  4. 4. 4Application Portfolio Analysis (APA) is a methodology and framework that improves organiza-tional understanding of applications leading to their effective management. Such approacheshelp drive alignment of application portfolio with business strategy and also bring in an enterprisearchitecture concept while helping improve the business value of applications.We believe, if organizations view APA as an iterative methodical process rather than a one-timeinvestment, it can help transition the focus of organizations from “keep the lights on” activities to“tactical informed business investments”.Quantifying the business related merits of APA can be measured through the organization’s ITbudget. IT budget control is particularly important in the current economic environment as thereis a great deal of concern about financial conditions, particularly among senior managers. Hence,they are well-positioned and well aware to exploit cost control tactics.Figure 2 provides an illustrative example of how APA can help organizations open up additionalavenues of strategic/discretionary investments.Application Portfolio Analysis Benefits ArticulationFigure 2GOALSHelp enhance strategic/ discretionaryspendChange IT Value-Cost (Cost to Serve)baselineEstablish business value of ITMEANSRationalize & ConsolidateModernize – address technologyobsolescenceStandardize Enterprise ArchitectureNB:The numbers are illustrative onlyITSPENDINGCOSTHEADSAS IS TO BEBUDGETARY ALLOCATIONSStrategic ITBudgetsDiscretionaryBudgets“Keep LightsOn” BudgetsExpand by20-25%Expand by10-20%Reduce by15-20%10-20%20-30%60-70%CHANGINGITBUDGETMIX
  5. 5. It is important to note that even though specific portfolio objectives exist for APA such as cost con-trol, there are other objectives which can be achieved during the process as mentioned in Figure3:A robust framework for Application Portfolio Optimization (APO) is focused on understanding,evaluating and transforming the current portfolio to an effective rationalized portfolio. This trans-formation will lead to the creation of opportunities resulting in cost cutting measures withoutaffecting the balance of the business-IT alignment.5Application Portfolio Optimization – Our Proposed FrameworkFigure 3Figure 4Define Create Assess OptimizePortfolio Goals/ObjectivesApplicationInventoryApplicationPortfolioApplicationPortfolioDefine EngagementObjectives and ApplicationPortfolio GoalsConstruct applicationportfolio hypothesesagainst goalsDesign Application Masterneeds against portfolioobjectives to be analyzedCapture ApplicationInventory Master DataProcess/ Tools to capturethe information, update onan on-going basisCentralize the applicationmaster management foreasier access to all thestakeholdersDrive applicationsegmentation into differentportfolios based onportfolio objectivesAssess the portfolioperformance based onapplication parameters andhypotheses selectedPresent reports andgraphical visualization forpresenting the applicationportfolio status & healthRationalize the applicationassets based on analysisoutputsAlign the application assetsto strategic objectives,resource needs, lifecyclecostsPrioritize investments &budgetary analysis forbetter cost-controlmanagementOptimization Goals &ObjectivesApplication MasterTypically 8 – 15 weeksPortfolio HealthAssessmentPortfolio OptimizationRecommendationsA B C D
  6. 6. Step 2: Application InventoryThe major deliverable of this phase is to give an accurate application inventory structured accord-ing to the specific needs of the enterprise. To determine the scope of APO, we need to produce adetailed inventory of the applications used in the organization.Application assessment starts with issuing a questionnaire that is intended to assemble dataelements across technology, business, functionality and cost dimensions. The primary informa-tion is obtained through interviews, using the questionnaire, with the application service managersand business system owners of the process.During the optimization process, the value of each application is computed. According to theanalysis conducted on each application, a rec¬ommendation is made to either retire or decom-mission end-of-life applications or conduct a functional upgrade to applications determined to becritical to the business.Step 1: Portfolio Goals and ObjectivesIn the first phase of APO we advocate a hypothesis led approach that binds the objectives,expected outcomes and scope wherein we define the engagement objectives and applicationrelated decision parameters and goals.6Figure 5ApplicationDecommissionApplicationInventoryApplicationReplacementApplicationEnhancementApplicationOutsourcing/OffShoringNewApplicationInductionInfrastructureOptimizationApplicationIntegrationApplicationConsolidationApplicationRe-EngineeringApplication ServiceDecisions(Whatthe application shoulddo and deliver?)Application ServiceDecisions(Whatthe application shoulddo and deliver?)Operate Decisions(Where should one operate(build/support)theseapplications?)Cost Decisions(Whatshould be theapplicationbuild,deliverandsustain costs?)Architectural Decisions(Whatalignmentneedsto bedriven on EA standards?)Technology Decisions(Whatplatforms/technologiesto be used?)
  7. 7. Step 3: Application Portfolio AssessmentIn the third phase an assessment map is created based on parameters identified under the busi-ness and technical dimensions. Each parameter is assigned a weight based on its relative impor-tance to the other parameters within a dimension (see Figure 6). Individual applications areassessed on each parameter, based on the data collected through interviews and surveys. Thebusiness value and technical health indices identify each application’s lifecycle positioning,assesses the opportunity for improvement, calculates the cost savings and determines theactions needed to optimize the application’s business effectiveness.7Figure 6Business Valueof Application ApplicationLandscapeMaturityRiskManagement CostEffectivenessFlexibilityBusinessImpactOperationalEfficiencyAlignmentwith industryrecognizedstandardsApp PlatformMaturity OperationalRiskCostDistribution OrganizationalFlexibility forChangeOperationalFlexibilityCost ReductionComplianceRiskComplexityHuman FactorRiskOperationalCapabilityAlignmentwith Global ITStandardsStandardsAlignmentwith EnterpriseArchitectureStandards
  8. 8. 8Step 4: Application Portfolio OptimizationThe optimization phase puts the results of the analysis phase into action as shown in Figure 7(sample scenario). The 4R Matrix Framework consisting of Retire, Replace, Re-Engineer andRetain is used for mapping the application based on their assessment and evaluation.Having determined the general course of action, decisions need to be more concrete and detailedin a well defined solution, taking into consideration how these selections might affect the businesscase and the individual application dimensions. Each action shown needs to be carefully moni-tored throughout the entire phase and keep it aligned with its specific business case.Figure 70% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%100%90%80%70%60%50%40%30%20%10%0%TECHNICALADEQUACYBUSINESS ADEQUACYRetireReplaceRe-EngineerRetainFast TrackTCRMIDASRSTSCMRetail StorefrontSRMMIDAS llCrate retailHRMSRTPAPODDSMPACTPRSPARISAPSRFPInexpensive to operate and maintainAdequate support available internallyCapable of Biz-IT alignment in mid-termCapable of Functionality Scale – UpTechnology constraint to improve functionalityLow or expensive vendor supportConstraint to build in new business featuresScope for enhancing / upgrading technologyScope for improving Business Process coverageData Management can improveExpensive to operate/maintainNone or low support from vendorCannot enhance for new Biz needsLow skills availability4R Matrix – A way to plot application strategy4R Framework
  9. 9. 9Application Portfolio Optimization can help significantly alters the cost structure of IT. Although itrequires investment, upfront APO will more than make up for it in the long run. For example, con-solidation of applications initially would require a large amount of due diligence in regard torequirement gathering. But then this action would not only result in a decrease in maintenance andsupport due to lesser number applications, but also reduce overall compliance quality checks.APO can be used as a guiding tool moving forward by helping meet contemporary business needswith cutting edge technologies and business processes. This framework helps organizationsadapt to the constant evolution of market demands.ConclusionAPOStrategic CostManagementApplication/Business ProcessConsolidationOutsourcing/Off shoringImprovedOperationalEfficiencyBusiness ValueAdditionImprovedagility totackle newbusinessneedsImprovedtime-to-market ofnew serviceofferingImprovedservicedeliveryImprovedApplicationconsolidationand removeredundanciesFasterresponsetimes due toreusabilityfunctionalityReduction indocumenta-tion andtrainingeffortsEliminationofredundantfunctionali-tiesReduction instandards,proceduresandplatformsReduction incompliancetasksImproved ITEfficiencyImprovedBusinessProcessesImprovedGovernance
  10. 10. 10About the Author(s)Sandeep Kumar is VP and BCG Head for ITCInfotech. Kumar holds an MBA from IIM Banga-lore and a degree in Mechanical Engineeringfrom NIT, Rourkela. He has more than 18 yearsof operations and consulting experience span-ning across diverse industries as Hi-Tech,Aerospace and Defense, Discrete Manufactur-ing and Retail Operations.Christopher Stanley is Global Partner for theStrategic Programs and Transformation Groupof ITC Infotech. Chris is an MBA in OperationsResearch and International Business. He hasabout two decades of International Consultingand Account Strategy experience in enterprisetechnology implementations and programmanagement. His industry experience in Auto-motive Ancillaries, Rubber and Tyres, Pulp andPaper, Processed Food Manufacturing is wellreceived. He has also been a guest speaker atsome of the premier CIO forums in this part ofthe geography.Sunil Kondala is a Lead Consultant in STASpractice at ITC Infotech India Ltd. He holds adegree in Electrical Engineering. He has morethan six years of experience in Business Analy-sis and Project Management for various linesof business that include Telecom, Health, Gov-ernment and Manufacturing industries.About the ITC InfotechBusiness Consulting groupITC Business Consulting Group provides richbusiness consulting capabilities across keybusiness functions such as Product Design &Development, Manufacturing & Supply ChainManagement, Sales & Service, Loyalty & Cus-tomer Relationship Management, etc. Thegroup has expert practices around EnterprisePerformance Management, CRM and Loyalty,SCM and Operational Excellence, Auto IDSolutions and Corporate Sustainability. Ourdomain experts and management consultantsbring in expertise of addressing customerneeds and problem statements in these areasacross verticals such as CPG, Retail, Process& Discrete Manufacturing, Travel & Hospitality,Banking & Financial Services and Logistics &Transportation.
  11. 11. 11ReferencesITLEx-Applications_Maturity_Diagnostic -www.cio.comAn Oracle White Paper in Enterprise Archi-tecture - Application Portfolio Rationaliza-tion: How IT Standardization Fuels GrowthMay 2010COBIT3_4 Management GuidelinesEsr-application-portfolio-management-from-assessment-to-transformation (IBM)
  12. 12. 13For more information please write to: contact.us@itcinfotech.comwww.itcinfotech.com© Copyright 2013, ITC Infotech. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, trans-mitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permis-sion from ITC Infotech. The information contained herein is subject to change without notice. All other trademarks mentioned hereinare the property of their respective owners.

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