What is application rationalization?

Written by Anoop Deshpande, Customer Success and Enterprise Architecture Leader at MuleSoft

Every organization is working to deliver compelling customer experiences while improving support for operations, reducing cost, and improving efficiency. To make this possible, IT budgets are usually bucketed in two categories: strategic and maintenance. As a business grows the number of applications increases exponentially if no checks are put in place. Maintenance of these applications gets in the way of achieving strategic initiatives, stifling innovation and decreasing the overall efficiency of the organization.

Gartner defines application rationalization as the radical reshuffling of an application portfolio as part of an application strategy — a plan that implements changes to applications to achieve a business outcome. Application rationalization is a collaborative strategy with both IT and business stakeholders. The process of application rationalization follows these steps: 

• Discovery of all relevant applications in the enterprise and the creation of an application heat map or landscape map.
• Classification of what is in scope and the level of effort required; applications that need to be retired, developed net new, and that need to be updated.
• Definition of a future state technology strategy and enterprise architecture vision that includes a detailed total cost of ownership (TCO) analysis that key business and IT stakeholders align on. 
• Placement of applications — deployment models (cloud, on-prem, hybrid, SaaS), realization of the future state application landscape, and setting up guidelines for the efficient governance of the new portfolio.

A focused application rationalization effort results in substantial cost savings while improving support for line-of-business teams. Additional benefits include a simplified infrastructure and an availability of resources — allowing organizations to focus on value-driving initiatives.

What are the key drivers for application rationalization?

Organizations embark on an application rationalization journey because their leadership is mandating business process optimization and organizational efficiency. Cost reduction by consolidation of applications, retiring older and underutilized applications which impede an organization’s focus on innovation are the starting points. Let's look at the broader reasons to carry out an application rationalization exercise:

• Cloud migration: CIOs are moving their applications to the cloud at such a furious pace — migrating workloads and applications to a public-cloud infrastructure to achieve economies of scale. To modernize legacy applications, IT organizations need to catalog applications and make them cloud ready. In many cases this would entail re-writing the applications and retiring older applications which tend to be extremely time consuming initiatives. 
• Mergers and acquisitions: M&A activities are big drivers for companies to start consolidating their application portfolio. In many cases, the acquired company and the acquiring company will have an overlap of applications and business functionalities. Over a period of time (usually 12-18 months) the joint company has to embark on an effort that includes streamlining processes by reducing duplication of business applications.
• Business consolidation and cost optimization: To keep up with the pace of business and deliver applications with faster time to market, it becomes a necessity to consolidate applications to improve efficiency. Organizations often embark on streamlining the existing application portfolio with an explicit goal of lowering the total cost of ownership (TCO) through various processes. 
• Need to create new customer engagement channels: Organizations, now more than ever, need newer customer engagement channels for a cohesive customer experience — whether it be a website, mobile channel, or chatbot. It’s important that businesses have their applications ready for access across multiple channels and streamline access, end-to-end security, and re-use of APIs.
• Reacting to a catastrophic event: A catastrophic event like the ongoing pandemic forces companies to adapt and get creative in delivering customer experiences through digital transformation. There is constant pressure on application development and integration teams to do more with less. Examples include the restaurant industry — many restaurants have adopted online ordering to sustain their business during the COVID-19 pandemic. Banking, legal, insurance, and organizations in all industry verticals have had to quickly find newer ways to run their business.

What are the challenges faced during a rationalization effort?

Rationalization efforts rely on leadership support and continual engagement with stakeholders to deliver sustainable change. In addition to stakeholder alignment, it requires collaboration between different IT and business teams in charge of the migration of applications to the new portfolio. This poses a few challenges:

• Lack of engagement: Disengaged business stakeholders can completely derail an application rationalization effort. Portfolio rationalization is a significant effort and requires dialogue and alignment around total cost of ownership (TCO). 
• Redundant and bloated application landscape: Shadow IT across line-of-business teams acquiring multiple applications and platforms makes it difficult to identify the applications needed to be in scope for the effort. This application sprawl also makes the discovery process and creation of an application heat map challenging.
• Organizational structure and reporting: Competing priorities amongst different lines of business may cause challenges when agreeing upon an approach for the future state of the enterprise architecture.
• Budgets and costs: A fairly common challenge is committing the budget to carry out a rationalization exercise. How do you know when to embark on a rationalization exercise? How do you prioritize consolidating your portfolio?
• Previous failed attempts: If there have been past attempts at application rationalization that have failed it can make teams hesitant to embark on such an effort again. This inertia is one of the top reasons why rationalization efforts are put on the back burner. 

What are some of the ways to alleviate the challenges?

Since budgets and costs are the key considerations before undertaking an application rationalization exercise, organizations should focus on identifying the right scope (mix of applications) and reducing the overall time and effort required for the endeavor. 

• Focus on value realization: Understanding the true value that each application (existing, custom developed, or yet to be acquired) will have on business outcomes is one way to remove blockers in your rationalization effort. Applications that provide the most value toward the future state of the business should be a higher priority. MuleSoft has a Catalyst Mobilize team of experienced IT and strategy consultants that help businesses identify the value of an integration strategy for an organization. The same strategy can be applied to the other applications within an enterprise. 
• Ensure leadership support and buy in: Before creating a project plan for a rationalization exercise, get buy in from key stakeholders. Organizations that have mandates from leadership to improve business processes and drive digital transformation strategy are more likely to complete a rationalization exercise successfully.
• Don’t boil the ocean: It’s important to be SMART (specific, measurable, achievable, relevant, timely) about what your organization takes on. Think of application rationalization of a specific set of applications that support a business process to drive efficiency and effectiveness. Alternatively, rationalizing all applications within a particular business domain (finance, HR, product, etc.) to achieve consolidation and manageability within that domain is another approach.

Application rationalization requires cross-organizational collaboration and buy-in from key stakeholders, technology staff members, business leads, and end-user communities. If done correctly, it becomes a key driver for streamlined business processes and improved efficiency, ultimately leading to more innovation. 

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