This article explores leveraging business capabilities for application portfolio rationalization decisions.
Leveraging Business Capabilities for Application Portfolio Rationalization
Application Portfolio Rationalization (APR)
Application Portfolio Rationalization (APR) is a strategic process that helps organizations assess their existing IT application landscape to identify redundancies, inefficiencies, and misalignments with business strategy. As a result, APR aims to streamline and optimize the application portfolio, improve business alignment, reduce complexity, and ultimately drive cost savings.
APR involves a systematic review of the entire application landscape, evaluating applications based on a multitude of factors such as business value, technical health, architectural fit, cost of maintenance, and more. This evaluation helps organizations understand their applications, how well they meet business needs, where gaps or overlaps exist, and what potential risks they carry.
The outcome of an APR exercise typically includes decisions to retain, retire, replace, or consolidate applications. This helps to ensure that the application portfolio remains aligned with the evolving business strategy and needs, reduces complexity and overheads, and allows for more strategic investment in innovation and growth initiatives.
Business Capabilities as a Foundation for APR Decisions
Business capabilities offer a stable foundation for making Application Portfolio Rationalization decisions because they represent the fundamental building blocks of a company’s ability to execute its strategy and create value. In addition, these capabilities – which might encompass aspects like product development, customer service, or supply chain management – remain relatively stable over time, even as specific processes or technologies change.
In contrast, applications and technologies are far more subject to change due to innovation, obsolescence, and shifts in market trends. Thus, by aligning APR decisions with business capabilities, organizations ensure that their IT investments are driven by business needs rather than solely technology-focused.
When the application portfolio is viewed through the lens of business capabilities, it allows for a more holistic understanding of how technology enables the business. It clarifies what capabilities are well supported, where there are gaps or redundancies, and how applications contribute to the business’s strategic goals. This perspective helps organizations make more informed and effective decisions about where to invest, what to maintain, and what to rationalize, ensuring their application portfolio is optimally structured to support their business now and into the future.
Seven Steps for Leveraging Business Capabilities for Application Portfolio Rationalization
- Define a Business Capabilities Model Encompassing All Functions The first step involves defining a business capabilities model that comprehensively includes all functional areas. This is a critical foundation for rationalizing an application portfolio because it determines what the organization requires to function and succeed in its objectives. This model represents the totality of abilities that a company needs to provide value to its customers and stakeholders. It spans sales and marketing capabilities, product development, operations, finance, and HR. This step demands a deep understanding of the organization’s business and its markets so the model truly reflects all the capabilities required to stay competitive and grow.
- Prioritize the Core Business Capabilities Based on a Set of Assessment Criteria Once the business capabilities model is defined, it’s time to assess and prioritize these capabilities based on a predetermined set of criteria. It’s crucial to rank capabilities by their strategic importance, how mature the underlying business processes are, how technologically enabled they are, and whether they are adequately resourced. By this assessment, the organization can identify its core capabilities – critical to its strategic objectives and performance. Prioritizing capabilities ensures that the rationalization effort aligns with the business strategy and supports what is most important for the organization’s success.
- Compile an Inventory of Applications/Systems The technology team should compile an exhaustive inventory of the applications and systems throughout the organization. This includes off-the-shelf software, custom-built applications, databases, cloud-based services, and infrastructure. The inventory should cover application characteristics such as purpose, users, dependencies, data created or used, and costs. This gives a complete picture of the existing application landscape and is a prerequisite for assessing how well the applications support the business capabilities.
- Assess Applications/Systems Once the inventory is complete, each application/system should be assessed based on various criteria, such as its alignment with the enterprise architecture, its technical stack, the extent of technical debt it carries, its maintenance costs, and its overall cost-effectiveness. The goal here is to determine each application’s current and future value, its technical health, and whether it is a drain on resources or a value add to the organization. In addition, this assessment helps inform which applications should be kept, replaced, retired, or consolidated.
- Map Relationships Between Applications and Capabilities This step involves mapping each application in the inventory to the business capabilities it supports and assessing to what extent it does so. This footprint (or toeprint) provides visibility into how applications enable capabilities and where there is duplication, replication, redundancy, and reduced usage. In addition, it gives business leaders a clearer understanding of how technology supports the business and where there are opportunities to streamline and improve.
- Perform Multi-factor Weighted Average Assessment After the application-to-capabilities mapping, perform a multi-factor weighted average assessment that considers the individual evaluations of capabilities and applications, their interrelationships, and additional technical details. The aim is to place applications into different buckets based on their strategic importance, technical health, and cost-effectiveness. For example, the outcome of this analysis could be a classification of applications into categories such as “invest,” “maintain,” “tolerate,” and “eliminate.”
- Create a Phased Sequencing of Rationalization and Optimization The final step involves defining the future of each application based on the assessments and analyses performed. The Application Portfolio Rationalization (APR) team should then plan a phased sequence for implementing these decisions. This plan should consider the impact of changes on business operations, the risks involved, resource availability, and other constraints. The sequencing can range from quick wins, like retiring redundant applications, to long-term plans, like investing in new technology platforms to enable critical capabilities.
Leveraging business capabilities for application portfolio rationalization decisions offers a stable approach to making informed decisions about which applications to invest in, sunset, and maintain.
