• Cognizant 20-20 Insights
An Integrated Approach to Application
Portfolio Rationalization
To improve customer service, reduce COGS and deliver shareholder
value, enterprises need a well-planned and executed application portfolio
rationalization program that visualizes the current state, identifies high
potential optimization opportunities and defines an actionable roadmap
to support growth and achieve operational efficiency objectives.
Executive Summary
“Doing more with less” has been the norm for
CIOs and IT executives since the beginning of
digital time. The prolonged economic downturn,
however, has put even greater pressure on IT
budgets. With the global economy slowly stabilizing, IT organizations face unprecedented
demands from the business side for a wide array
of IT services to sustain growth and impact the
bottom line.
These demands come as application management
costs continue to edge upward due to aging
and highly complex IT environments, as well as
obsolete and redundant applications that have
been sporadically enhanced through patchwork
updates. To make matters worse, organizational
silos, as well as mergers and acquisitions, have
added to application proliferation.
As a result, some organizations are spending
too much of their scarce resources on the “run”
portion of the IT budget. In such cases, the
inherent complexity and baseline costs of their
application portfolios limits their ability to build
cognizant 20-20 insights | may 2013
new capability to support business or reduce prohibitively high implementation costs.
Our approach to application portfolio rationalization (APR) provides a structured approach to
help IT organizations clearly visualize the current
state of their application portfolios, identify high
potential opportunities to better support the
business and define an actionable roadmap to
support it.
An effective APR should address two key areas:
• Where
to start and focus efforts to enable
business to achieve IT excellence.
• And,
importantly, where to invest for better
returns and long-term business and IT value.
This white paper highlights a proven and
methodical approach to address these questions.
For starters, it illuminates APR investment
decision focal points and provides a clearly
defined rationale and roadmap for achieving
optimal returns on investments.
The outcomes of an APR assessment, such as the
application inventory, business case and roadmap
(including quick wins and multiyear transformation initiatives) provide a blueprint for the next
three to five years as a reference point for IT initiatives that will better support the business.
A Framework for Transforming
Application Portfolios
IT executives are realizing that a wide array of
applications in their portfolios are outdated or
redundant, or that some functions are no longer
needed and consume precious maintenance
budget. Their business counterparts contend that
these applications provide little business value
or do not support evolving enterprise objectives.
Moreover, as the portfolio has become more
complex over time, due to short-term fixes, many
application change requests take longer and
longer to fulfill. The result: The basic IT application portfolio is unable to meet the business’s
targeted time-to-market or regulatory deadlines
(see Figure 1).
Business and IT leaders understand that costly
and overgrown application portfolios must be
cleansed — but the big question is where to start or
to focus their efforts. Evaluating applications and
making disposition decisions provides direction
regarding opportunities to enhance applications
that deliver business value or improve technical
health to address current challenges. Our
framework provides answers to which applica-
tions, or clusters of applications, have the largest
gaps in terms of business functions or technical
architecture and present opportunities for rationalization (see Figure 2 for suggestions).
Once organizations find the “focus areas” or
opportunities, these are turned into a list of
projects that support business goals to “run
better” and “run different.” Then, the next
question is where to invest? Budget constraints
prevent most IT organizations from executing
every project in the pipeline. It is imperative,
therefore, to establish a proper risk/return
framework to inform funding allocation decisions.
Projects with high anticipated business value and
low risk are usually the highest priority, while
those with low business value and high risk are
obvious “no-go” decisions. Investment opportunities that have high business value but high risk
require more scrutiny before including them in
the roadmap with other short-, mid- or long-term
initiatives (see Figure 2 for suggestions).
Our approach to APR methodically addresses the
aforementioned two questions through several
phases including baseline, analysis, opportunities
identification and roadmap.
In the initial phase of the assessment — as-is analysis and data collection — there are predefined
key data collection parameters such as business
criticality, risk to business, technical health, IT
operations, total cost of ownership, risk, resource
Key Drivers of Application Portfolio Rationalization
Key Drivers
Description
Aging
Portfolio
• Applications may be meeting current needs but are becoming increasingly expensive to operate.
• Significant constraints to update/change systems to meet business/regulatory needs.
• Legacy applications that are suboptimal to enable new business imperatives, hampering business
agility and creating IT support risks.
Inorganic
Growth
• Corporate events such as mergers, acquisitions, partnerships and changes in product portfolio lead to
proliferation of applications in the portfolio.
• Multiple, potentially duplicate and poorly-integrated IT assets arising from mergers and acquisitions.
Organic
Growth
• Global footprint combined with pressure to reduce time-to-market, resulting in local application
portfolio misaligned with organization-wide IT strategy.
• Business units drive development of independent application portfolios, leading to siloed and
disconnected business processes.
Lack of
Business-IT
Alignment
• Lack of measurement of the business value that an application produces with respect to the
investment.
• Lack of IT alignment with business priorities, resulting in IT focusing on potentially noncore areas.
Figure 1
cognizant 20-20 insights
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Where to Start vs. Where to Invest
Application Disposition Evaluation
IT Investment Evaluation
Year 4 ...
Year 3
Year 2
Technical Health
RepositionAsset/
Enhance
Functionality/
Integrate
Retire/
Consolidate
Asset
High
Consider
Discard
Maintain/
Evolve Asset
Long-Term
Risk
Good
Consider
Medium-Term
Reengineer/
Rewrite/Replace
Quick Wins
Low
Poor
Low
Low
Execute
Business Value
High
Business Value
High
Figure 2
allocation, etc. to be used as input for further
analysis (see Figure 4). Important considerations
during the initial phase are:
• Surveying and establishing the baseline for the
strategic, functional, technical and financial
aspects of the applications in scope.
• Understanding
the business context of the
applications and evaluating them against
required future capabilities to provide guidance
on where the application portfolio should be
heading.
• Using
the perspectives, based on current
and future gaps, to establish the basis for
developing recommendations for both shortand long-term direction.
The next phase of the assessment — multidimensional analysis — can be structured in multiple
ways based on the outcome of the initial phase.
For example, applications can be clustered by
business function, technology such as databases
or platforms, etc. A multitude of analytical
techniques can be used from statistical analysis
to more qualitative functionality mapping or
more technical architecture-based analysis.
Disposition
decisions/recommendations
are
made at the individual application level or at the
Application Portfolio Rationalization Phases
Bottom up
portfolio view
Key Activities
As-Is Analysis &
Data Collection
Analyze
Conduct
Multidimensional Analysis
• Understand the strategic business
drivers for the portfolio.
• Map apps to business capabilities.
• Identify in-flight initiatives planned to
enhance portfolio business capabilities.
• Identify potential gaps in
application portfolio to support
future business needs.
• Analyze the value of the
applications leveraging the
suitable optimization frameworks:
Top down
business view
Phases
Baseline
• Collect data on applications in the IT
portfolio on functional, technical and
operational dimensions.
• Build application clusters for
optimization.
• Assess the current state of the IT
portfolio and assess the cost of
optimization opportunities.
• Identify potential candidates for
“cloud” and/or “legacy
modernization.”
• Understand the
interdependencies across the
optimization opportunities.
> Strategic.
> Functional.
> Technical.
T
> Financial.
Figure 3
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3
Recommend
Define Optimization
Opportunities
Develop High-Level
Implementation Roadmap
• Define opportunities and conduct
a deeper dive to determine:
> Overlaps, redundancy,
obsolescence.
> Opportunities for migration
to the cloud.
> Opportunities for modernizing
legacy footprints.
• Define the implementation
roadmap. This includes
potential optimization
opportunities and high-level
mitigation strategies to
ensure future business
capabilities.
• Consolidate opportunities into
initiatives/projects.
• Determine suitable mitigation
strategies to align with future
business strategy.
• Develop high-level business
case with potential
application portfolio
optimization savings.
Data Collection Parameters
IT TCO
Regulatory
Usage/
Satisfaction
Operational
Efficiency
Criticality/
Business Risk
Criticality
Scalability/
Flexibility
Functional
Coverage
Complexity/
Dependency
Stability/
Volatility
Business
Alignment
Documentation
Availability
Security
Support
Requirement
Business Value
Technology Health
Figure 4
cluster level, as appropriate, which is generally
based on business value vs. technology health.
For those applications that fall under the “retain”
or “enhance” categories, further analysis can be
done depending on the situation or preference.
For example, legacy modernization or cloud suitability analysis can be conducted when the application portfolio is heavy on legacy platforms
or the organization is looking to consider cloud
as a potential alternative. In addition, when IT
management wants to review the current development/maintenance resource composition or
location, “offshorability analysis” can be added
to the analysis. The data for these additional
analyses should be identified and collected
upfront to avoid any rework.
The outcome of the analysis phase is a list of
opportunities to address a range of business
and technology challenges. To acquire buy-in
and approval for funding, the next step is to
build a business case and roadmap. Steps to
be considered before moving to the final stage
include a review of APR opportunities and then
their rationalizing into projects. This means
identifying similar business and technology
components of each opportunity so that the final
listed opportunities are mutually exclusive and
have minimal duplicate investments.
To arrive at the business case and roadmap,
different scenarios must be considered. The
objectives are to understand implementation costs and business and technical risks, as
well as the opportunity costs associated with
the business and IT benefits for the portfolio
of potential initiatives. These scenarios are
reviewed with the key stakeholders to ensure a
holistic view, and are then narrowed down to a
meaningful subset. Typically, IT benefits alone
cannot cover the implementation costs, and
therefore IT leaders must develop hypotheses
and engage with business and process owners
to quantify the benefits through interviews and
impact workshops. Qualitative benefits such as
customer satisfaction, quality and time-to-market
are more difficult to quantify but, in many cases,
critical for CXO-level commitment.
Building a Successful APR Program
Many APR program outputs risk becoming
shelf-ware and are not executed, or they lack
sufficient funding to take full advantage of the
recommendations. While a large part of the APR
assessment is conducted scientifically, there are
soft sides of the process that can make or break
success. Key success factors include:
• Strong commitment from top management.
Sometimes, an APR program is initiated by IT
alone, without full buy-in from the business.
The reason being that IT simply does not want
to interrupt business owners or does not want
to reveal that IT is trying something that may
affect the business — hoping that the outcome
will be attractive enough to get the business
In addition, alignment with in-flight or planned
enterprise initiatives that could have dependencies or synergies is also necessary. The list will
then be developed into projects or grouped into
programs or initiatives with proper assignment of
ownership.
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Prioritizing the Opportunities
Wave 3: Longer Term
Wave 2: Near Term
2
Wave 1: Immediate
1
Rationale
• Identify “quick wins” in
the application rationalization
opportunities.
• The list of quick wins would
primarily be retirement
opportunities.
3
Rationale
• Identify application rationalization
opportunities that can be achieved
in the near term.
• The list of near-term opportunities
would primarily be integration
possibilities.
Rationale
• Identify application rationalization
opportunities that can be realized
in the longer term.
• The list of longer-term improvement
opportunities would primarily be
technical remediation possibilities,
such as rewrite, replace, etc.
Figure 5
8
onboard afterwards. However, in many
situations, IT hits a roadblock when it enters
the funding stage.
is crucial, therefore, to have APR champions
to provide oversight and change management
communication to ensure proper involvement,
data collection and findings/recommendation
validation activities are executed on time.
• Clear goals and objectives of the assessment.
Defining and communicating clear goals and
objectives — for example, reducing overall
total cost of ownership (TCO) by 20% over the
next three years — helps align the assessment
outcome with management expectations. This
needs to be tracked against impacting business
goals in the long run. Deriving findings from
the bottom up is necessary; however, setting
boundaries and direction from the top down
drives the focus of the analysis and aligns the
outcome with management’s expectations.
• Establishment of solid baseline 80-20 rule.
Since the APR assessment is not intended to
be a detailed planning exercise, business and
IT leaders must understand that not all of the
baseline data needs to be collected for a proper
analysis. Rather, a solid good-enough baseline
is needed for effective decision-making. These
decisions will then be refined in subsequent
phases. For example, usually 20% of the applications consume 80% of the resources — so
identifying critical applications and putting
more focus on them yields better returns than
trying to collect 100% data for all, even small,
applications.
• Identification
of business context and
future state. Formulating the desired future
state business and IT capabilities, which many
companies do not have clearly defined, as
the input for an APR assessment facilitates
the discussion of the “so what,” by which the
connection between recommendations and
the final target is established. This will help
immensely when communicating with top
management and business owners regarding
the value of an APR program.
• Assignment
of champions to coordinate
SMEs. It is not unusual to see organizational fatigue with numerous cost-cutting and
business transformation initiatives. As such,
this makes business leaders somewhat leery of
yet another rationalization exercise. In addition,
when individuals foresee where and how APR
recommendations could impact their daily
lives and jobs, they tend to passively resist. It
cognizant 20-20 insights
Tools and Supplemental Analyses:
Offshoring, Legacy Modernization and
Cloud Suitability
An APR assessment can be accelerated by
leveraging proven tools and accelerators. As a
result of leading successful APR engagements, we
have a wide array of tools and approaches that can
be leveraged to ramp up quickly. In addition, supplemental analyses are offered to the clients that
are interested in furthering their APR assessment
into relevant topics such as offshoring, legacy
modernization and cloud suitability.
Discovery and Data Collection Tools
The size of the application portfolio that an APR
assessment can cover varies. Typically, it ranges
5
Data Collection Tool
Web Data Collection – Data Entry
Web Data Collection – Audit Trail
Figure 6
from less than 100 to several hundred, and
sometimes thousands of applications. Another
variable that affects the complexity of data
collection is the number of application owners,
business units and processes, the number of
geographies, etc. In smaller APRs, spreadsheets
can suffice as a data collection tool. However,
when the number grows, it is very difficult to
monitor progress and manage follow-ups and
validation. We have developed a Web-based data
collection tool that facilitates the process (see
Figure 6). This tool contains standard questionnaires that can be customized to meet most APR
requirements. In addition, since the tool runs
on a relational database, the data can easily be
downloaded to a spreadsheet for analysis, or
the database itself can be migrated to another
database, such as Access, for long-term maintenance. The tool also provides for real-time
progress checks and an audit trail.
Supplemental Analyses
For situations where management is interested
in reviewing sourcing options for application
management, the portfolio is loaded with heavy
legacy platforms or management is looking to
take advantage of the cloud technology, we have
a methodology that provides an extended APR
assessment of these areas. While these extensions
are not always full-scale deep-dive analyses, they
provide the data points that are sufficient for
cognizant 20-20 insights
developing the recommendations and roadmap,
with additional data collection for each area.
Offshorability Portfolio Analysis
Labor costs for development and maintenance
account for the largest part of the IT budget —
typically, between 40% to 50%, and sometimes
even higher. As the application portfolio is rationalized, skill set requirements can be examined
as well. Many of these skills are becoming commoditized, and there are often opportunities to
offshore development and support resources.
In such situations, organizations can reduce the
TCO by reviewing their sourcing options and gauge
the potential benefits and risks. An offshorability portfolio analysis (OPA) can be conducted in
conjunction with an APR assessment for a deeper
dive into current resource allocations and provide
recommendations on possible future direction
with associated benefits (see Figure 7).
Rapid Legacy Modernization Assessment
Many companies that have not refreshed their
technology platforms will experience increasing
complexity over time due to one-off or bolt-on
solutions built over the years to address a specific
need of the business, which leads to longer timeto-market, higher development and maintenance
costs, obsolescence and skill set shortages, and
results in higher risks to the overall application
6
Offshorability Portfolio Analysis Sample
Cost/Benefit Analysis
Transition Analysis
All figures in $ millions
250
Savings
$ 0.50 Million
Steady State
200
FTEs
150
100
50
0
Client FTE
23 (9%)
0.60 0.37
0.70 1.04
Onsite FTE
60 (24%)
Pilot
Phase 1
Phase 2
0.50 Million
3.77 Million
98.2% labor
arbitrage
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Month
Client FTE
Onsite FTE
2.10
Cost
Benefit
Offshore FTE
163 (67%)
1
1.70
Offshore FTE
10.7
10.2
7.9
As is state
Year 1
(transition year)
Year 2
1.8%
efficiency
3.39 Million
94.4% labor arbitrage
5.6% efficiency
8.0
Year 3
Figure 7
portfolio. Leveraging a methodical analysis, modernization recommendations are developed for
relevant applications (see Figure 8).
Cloud Suitability Analysis
As cloud solutions and technology platforms
mature and move into the mainstream,
companies are more comfortable assessing their
operational feasibility and business benefits (see
Figure 9). The “need for speed” can be realized
through an effective cloud strategy, incorporating
multiple perspectives to create consistent future
state solutions. In some cases, this could result
in a breakthrough solution, associated with the
additional benefits of lower cost of operations
through systems and workplace virtualization, easier software upgrades and pay-by-use
commercial models.
ROI of Application Portfolio
Rationalization
Rationalizing an existing application portfolio
can reduce overall costs of ownership and enable
operational efficiency improvement and future
Legacy Modernization Analysis
Sample Modernization Approaches
Re-platform
Sample Output
Re-architect
Move existing
application to execute
on a new operating
system and/or platform.
Forward engineer to
new language and/or
architecture.
Re-platform/Rehost
Reintegrate
Refactor/Enhance
Remove code
anomalies; restructure
and optimize
application code.
Retire/Replace
Decommission
applications; replace
with commercial
package solutions.
780
760
740
720
700
680
660
640
620
600
Re-architect
Reintegrate
Web-enable and/or “wrap” methods and connect
points with standard service-oriented interfaces.
Refactor/Enhance
Figure 8
cognizant 20-20 insights
7
Retire/Replace
Cloud Suitability Analysis
Develop
Migration
Roadmap
Focus Area for
Assessment
Perform
Cloud
Suitability
Analysis
Cloud
Suitability
Assessment
Assess
Vendor
Capability
Select
Service
Model
Select Best-Fit
Deployment
Model
10
Private Cloud – Suitability Score
Perform APR (Rationalized
Set of Applications)
Private Cloud
e
tiv
a
str
Illu
5
App 12
App 14
App 1
App 9
App 10
App 13
App 11
Unsuitable for Cloud
0
App 5
App 8
App 7
App 3
App 2
App 6
Hybrid
Cloud
App 4
0
Public & Private Cloud
Public Cloud
5
10
Public Cloud – Suitability Score
Figure 9
business capabilities (see Figure 10). The key
benefits achieved include:
• Enabling
a shift in IT investments toward
business growth.
• Reinvesting
early savings into more valueenabling initiatives that drive growth and
efficiency.
• Increasing
operational agility and enabling
easier transitions to a more modern technology
architecture.
• Creating a more flexible IT spend profile with
lower fixed and higher variable expenses.
• Reducing
complexity and redundancy in the
application portfolio.
• Achieving faster time-to-market, compliments
of a more aligned and simpler application
footprint.
APR not only reduces the overall IT TCO, but it
also alters the cost structure to free up resources
and funding that can be applied toward valueenabling activities such as launching a project
to implement new business capabilities or
conducting a proof-of-concept on an innovative
Improving Operational Efficiency
Business
Innovation
Optimizing
IT Cost
IT Efficiency
Return from IT
Portfolio
Rationalization
Process
Improvement
Improving
Operational
Efficiency
Ease of
Governance
• Addition of new customers/users.
• Ability to meet current and future functional needs.
• Reduction in time-to-market of new offerings.
• Speed of IT delivery (i.e., development/implementation time,
planned to actual).
• Reduction in transaction time for users.
• Reduction in training effort for users.
• Integration of valuable IT assets.
• Asset utilization (i.e., resources, network, hardware,
software licenses).
• Reduction in duplicate functionality.
• Reduction in project time by reusing existing functionality.
• Reduction in management and documentation efforts.
• Clear definition of IT rules and policies.
• Reduction in processing time.
• Training (prevention costs), review/inspection
(days, cost, rework/retest, failure costs).
• Compliance effort required for meeting IT standards
and frameworks (quality audit).
Figure 10
9
cognizant 20-20 insights
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Redirection of IT TCO to Value-Enabling Activities
Illustrative
10
Variable
Typical IT Expenditure Profile
Value enabling IT
$ New
New
$ Systems
Systems
Legacy
Systems
Fixed
Optimized IT Expenditure Profile
Maintenance
Savings can
be reinvested
to valueenabling IT
Infrastructure
Legacy
Systems
Value Enabling IT
Maintenance
Infrastructure
IT Budget
IT Budget
Time
Time
Figure 11
technology. As the application portfolio becomes
more complex on an existing nonrationalized
landscape, IT costs tend to become burdensome
— in other words, the ongoing “keep the lights on”
type of costs grow and compete with funding for
new projects, further exacerbating cost-cutting
pressures amid ongoing economic uncertainty.
APR provides a new cost structure that delivers
more room to invest in new projects, enabling IT
to better respond to business requests for new
transformative capabilities and innovation (see
Figure 11).
Follow-through and Value Capture
Application portfolio rationalization is not a static
or one-time exercise. No matter how effective
APR is at delivering a plan for a streamlined application portfolio, organizations must work continuously and consistently to ensure that the agreed
upon direction is not only followed but delivers
the benefits envisioned. In an enterprise trans-
cognizant 20-20 insights
formation journey, a great plan can evolve over
time due to a multiplicity of internal or external
factors. However, without a blueprint, progress
can be tough to come by and results difficult to
achieve.
To realize the benefits from an APR initiative, the
first step is to prioritize projects in the enterprise
program management roadmap along with instituting proper governance to capture the value for both
the business and IT. In addition, the governance
model should include an architecture review board
to enforce compliance with the blueprint to avoid
application portfolio deterioration over time.
Lastly, the application inventory that was built
through the APR initiative should be maintained
and refreshed regularly. Too often, companies
belatedly discover that existing inventory is not
up-to-date or reliable, requiring them to start their
portfolio assessment from scratch.
9
About the Authors
Jewoo Cha is a Senior Manager in Cognizant Business Consulting’s Strategic Services Practice. He has
over 20 years of management and technology consulting experience in IT strategy/alignment, IT portfolio
management, cost optimization, process reengineering, enterprise architecture and IT governance. He
can be reached at [email protected].
Harold Albo is a Director in Cognizant Business Consulting’s Strategic Services Practice and has over 25
years of professional experience. His strategy consulting experience includes IT transformation projects,
application portfolio analysis and IT service management and governance. Harold has deep experience
in IT performance and cost optimization. He can be reached at [email protected].
Ramji Mani is an Assistant Vice President in Cognizant Business Consulting and has over 25 years of
professional experience in the manufacturing industry. His experience is across the value chain of “order
to fulfillment” providing IT and business solutions in planning, supply chain, execution, cost optimization
and driving efficiency. He can be reached at [email protected].
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
delivery centers worldwide and approximately 156,700 employees as of December 31, 2012, Cognizant is a member of
the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing
and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
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