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 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. cognizant 20-20 insights may 2013
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 applications, 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 Aging Portfolio Inorganic Growth Description 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. 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 Lack of Business-IT Alignment 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 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 2
Where to Start vs. Where to Invest Application Disposition Evaluation Year 4... Year 3 Good Year 2 High IT Investment Evaluation Consider Technical Health RepositionAsset/ Enhance Functionality/ Integrate Retire/ Consolidate Asset Maintain/ Evolve Asset Reengineer/ Rewrite/Replace Risk Low Discard Long-Term Consider Execute Medium-Term Quick Wins Poor Low Business Value High Low 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 Baseline Analyze Recommend Phases As-Is Analysis & Data Collection Conduct Multidimensional Analysis Define Optimization Opportunities Develop High-Level Implementation Roadmap Key Activities Bottom up portfolio view Top down business view 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. 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. Analyze the value of the applications leveraging the suitable optimization frameworks: > Strategic. > Functional. > Technical. > Financial. Identify potential candidates for cloud and/or legacy modernization. Understand the interdependencies across the optimization opportunities. Define opportunities and conduct a deeper dive to determine: > Overlaps, redundancy, obsolescence. > Opportunities for migration to the cloud. > Opportunities for modernizing legacy footprints. Consolidate opportunities into initiatives/projects. Determine suitable mitigation strategies to align with future business strategy. Define the implementation roadmap. This includes potential optimization opportunities and high-level mitigation strategies to ensure future business capabilities. Develop high-level business case with potential application portfolio optimization savings. Figure 3 cognizant 20-20 insights 3
Data Collection Parameters Usage/ Satisfaction Operational Efficiency Criticality/ Business Risk Regulatory Business Alignment Functional Coverage Scalability/ Flexibility IT TCO Stability/ Volatility Documentation Criticality Security Complexity/ Dependency Availability 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. 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. 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 cognizant 20-20 insights 4
Prioritizing the Opportunities Wave 3: Longer Term Wave 1: Immediate 1 Rationale Identify quick wins in the application rationalization opportunities. The list of quick wins would primarily be retirement opportunities. Wave 2: Near Term 2 Rationale Identify application rationalization opportunities that can be achieved in the near term. The list of near-term opportunities would primarily be integration possibilities. 3 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 onboard afterwards. However, in many situations, IT hits a roadblock when it enters the funding stage. 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. 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 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. 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. 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 cognizant 20-20 insights 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 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 cognizant 20-20 insights 6
Offshorability Portfolio Analysis Sample FTEs 250 200 150 100 50 0 Client FTE Transition Analysis 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1718 1920 21 Month Onsite FTE Offshore FTE Steady State Client FTE 23 (9%) Onsite FTE 60 (24%) Offshore FTE 163 (67%) As is state Cost/Benefit Analysis 0.60 0.37 0.70 1.04 1.70 2.10 Pilot Phase 1 Phase 2 0.50 Million 3.77 Million 98.2% labor arbitrage 10.7 10.2 7.9 1.8% efficiency 8.0 Year 1 (transition year) Year 2 Year 3 All figures in $ millions Savings $ 0.50 Million Cost Benefit 3.39 Million 94.4% labor arbitrage 5.6% efficiency 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 Sample Output Re-platform Re-architect Move existing application to execute on a new operating system and/or platform. Refactor/Enhance Remove code anomalies; restructure and optimize application code. Forward engineer to new language and/or architecture. Retire/Replace Decommission applications; replace with commercial package solutions. Reintegrate Re-platform/Rehost 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 Retire/Replace Figure 8 cognizant 20-20 insights 7
Cloud Suitability Analysis Focus Area for Assessment Perform APR (Rationalized Set of Applications) Develop Migration Roadmap Assess Vendor Capability Cloud Suitability Assessment Select Best-Fit Deployment Model Perform Cloud Suitability Analysis Select Service Model Private Cloud Suitability Score 10 5 Private Cloud Illustrative App 12 App 14 App 4 App 7 App 9 Hybrid Cloud App 1 App 8 Public & Private Cloud App 2 App 3 App 6 App 10 App 5 App 13 App 11 Unsuitable for Cloud Public Cloud 0 0 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. 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. 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. 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 Return from IT Portfolio Rationalization Optimizing IT Cost Business Innovation IT Efficiency Process Improvement 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. Improving Operational Efficiency Ease of Governance 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 cognizant 20-20 insights 8
Redirection of IT TCO to Value-Enabling Activities 10 Illustrative Typical IT Expenditure Profile Optimized IT Expenditure Profile Variable $ New Systems Value enabling IT $ New Systems Value Enabling IT Fixed Legacy Systems Maintenance Savings can be reinvested to valueenabling IT Legacy Systems Infrastructure Infrastructure Maintenance 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 transformation 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. cognizant 20-20 insights 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 Jewoo.Cha@cognizant.com. 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 Harold.Albojr@cognizant.com. 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 Ramji@cognizant.com. 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. World Headquarters 500 Frank W. Burr Blvd. Teaneck, NJ 07666 USA Phone: +1 201 801 0233 Fax: +1 201 801 0243 Toll Free: +1 888 937 3277 Email: inquiry@cognizant.com European Headquarters 1 Kingdom Street Paddington Central London W2 6BD Phone: +44 (0) 20 7297 7600 Fax: +44 (0) 20 7121 0102 Email: infouk@cognizant.com India Operations Headquarters #5/535, Old Mahabalipuram Road Okkiyam Pettai, Thoraipakkam Chennai, 600 096 India Phone: +91 (0) 44 4209 6000 Fax: +91 (0) 44 4209 6060 Email: inquiryindia@cognizant.com Copyright 2013, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.