A Case for Simplifying IT

What is the problem?

Many companies are finding that 60-80% of their IT budget is required just to ‘run’ the business. As a result, growth and innovation initiatives struggle to get the required funding. Most CIOs know this high costs is a result of complexity in the IT environment. Because of this complexity, it costs a lot to support current IT, and costs of implementing new projects increase.

Simplifying technology environment is necessary to create the financial capacity to support growth initiatives.

Why is IT so complex?

ComplexityMost CIOs struggle to answer a simple question like ‘how many applications do you have? A typical IT shop can have hundreds of applications.  Large application portfolios result from legacy systems, mergers and acquisitions, organisational silos, urgency leading to tactical solutions, and vendor over promising.

The issue is then further complicated by multiple technology platforms, some new and others legacy. There is usually a proliferation of servers with unique configurations to run these applications.

Strategies such as ‘best of breed’ can also increase complexity. As different solutions from different vendors (using different technologies) are acquired and integrated over time, the overall complexity keeps growing.

Duplicate or multiple systems

Companies go through mergers and acquisitions. Each acquired company brings some unique business processes, and rules and systems, which support these. This invariably creates an increase in applications that do similar functions, but are different or need a different technology platform.  New interfaces are needed to bring the information together from these systems. In these cases getting accurate stock information is very difficult. Complexity thus leads to reduced accuracy.

At other times, different departments have their own sales tracking or customer management systems, which largely do the same function. In large organisations, due to silo decision-making processes there can be multiple such duplications. A company I worked in had 26 different payroll systems.

Obsolete systems

In some companies there are many applications, but only a limited funding for maintenance. As a result of budget and inertia, most applications are not upgraded for years. They become unsupported, and the company must rely on old technologies. By avoiding or deferring the upgrades, we create a ‘technology debt’, which increases over time like a snowball. This means that when upgrades are required (e.g. year 2000) these become expensive. Application functionality also gets out of date and new functionality cannot be quickly leveraged. Newer applications and more interfaces are then created, thus compounding the problem.

Abundance of Interfaces

SpaghettiNo CIO intentionally wants to increase the complexity of IT. New applications are acquired for new initiatives and business expansion. Many start as stand-alone applications, however, over time interfaces are built between new and existing applications.

As the increase in interfaces is proportional to the square of the number of applications, the total number of interfaces quickly multiples. Many of these interfaces are inefficient, as they are trying to connect two systems with different processing rules, data structures. and data meaning. As the number of interfaces increases, their quality decreases further. Daniel Lebeau – Group CIO of GlaxoSmithKline has called interfaces the ‘cancer’ of IT.

High cost of complexity

Other than the high IT cost to run a company’s business, complexity brings about other costs. When business processes are fragmented across multiple applications, it becomes difficult to get right data. Unsupported technologies increase the risks of failure.

Perhaps the biggest cost of complexity is the reduction in a company’s ability to take advantage of new opportunities presented by the new digital economy. Taking advantage of these opportunities needs streamlined business processes, accurate master data, and a robust foundation of systems. An IT environment that is complex and fragmented with a mix of technologies, and applications is vulnerable to hackers.

Complexity can be justified in some cases. It is usually justified when complexity allows the business to differentiate its offerings to create value.

Why simplify?

Three benefits of simplicity include reductions in operating costs, increases in agility, and the lowering of risk. As Tim Schaefer, CIO at Northwest Mutual, explains:

“There are actually three types of value that we are generating out of the simplification effort. First and foremost, we want to create dollars that can be invested in growth opportunities. Second is the value we get around risk reduction, and in particular, how we can increase the agility of the company. Finally, by simplifying our technology environment, we are actually opening up room and capacity for newer technologies.”

Strategies for the Simplification of IT

It is not easy to cut IT complexity, a sustained and multi-pronged approach is needed.  We recommend three key strategies. These are

1)      Rationalisation of applications;

2)      Standardisation of infrastructure; and

3)      Effective governance.

1. Rationalisation of Applications

For many companies scope for application rationalisation is large.  Boston Consulting Group (BCG) estimate that reductions of up to 40% in the number of applications, and 15-20% of IT costs is often possible.

Application rationalisation involves consolidating duplicate/redundant applications and the progressive decommissioning of replaced applications. Without decommissioning, the cost reductions will only be minor.

Successful rationalisation has three prerequisites:

  1. Top team agreement – As the rationalisation is a longer term initiative and not a quick fix, strong commitment from the top team for the simplification agenda is necessary.
  2. Proper funding for the job – Often the business case for the rationalisation does not seem attractive in the short-term. Ensuring proper and sustained funding is necessary.
  3. Tracking progress – Disciplined measurement of progress is necessary to make sure that goals of rationalisation are being achieved. Aligning IT Executive incentives to the reduction in applications is also recommended (e.g.  5% reduction each year).

2. Standardisation of Infrastructure

BCG suggest that reducing “infrastructure patterns” (configurations of software, hardware, and middle-ware) should be reduced to a smaller number of standard configurations.  Typically the patterns can be cut down by more than half. The recent growth in the adoption of virtualization technologies has broken the ‘one application, one server’ rule, which makes the rationalisation process somewhat simpler. Reductions in these patterns cut maintenance costs, enable better deals from the vendors, and cut provisioning time.

BCG reports that one company had 9,000+ applications and over 1,700 technology patterns. All of these required maintenance. This company eventually determined that just 7 patterns would support 80% of the application needs. This level of standardisation enabled cost savings of 40% over three years.

3. Effective Governance

Effective IT governance is needed to make sustained reductions in complexity. If  business units continue to make decisions in a silo way, and little thought is given to impact on other systems or other business units, complexity will start to grow again.

A clear governance framework and agreed blueprint describing target architecture are essential. Simplification principles should become part of this governance framework to prevent building new complexity. Strict governance enables effective portfolio planning and the optimisation of IT architecture. This is a key to reducing complexity in the longer term.

Summary

In most companies IT complexity grows with time. Tactical systems, mergers and acquisitions, and new technologies all lead to a more complex IT environment. The result is fragmented business processes, lack of correct business data, higher costs and risks, and lower agility. The bulk of the IT budget then gets consumed in keeping the business running.

IT simplification is not easy, but the benefits are large. It frees financial resources, reduces risk, and improves agility. Reducing the number of applications in the portfolio and reducing infrastructure patterns will simplify the IT environment. Success depends on a strong commitment from the top team and effective governance.

Written by: Hemant Kogekar

Unlocking value from the applications portfolio

Application analysis

Introduction

In today’s IT dependent world organisations have accumulated an array of applications from the modern to the ancient. Successive mergers and acquisitions have further added to the inventory. What’s more, because they accumulated over time, these IT portfolios are often patchy, redundant and lacking proper management oversight. The resulting IT portfolio has become complex and difficult to manage. According to reports, almost 70% of the IT budget is consumed by sustaining business-as-usual activities. When CIO’s are increasingly being asked to ‘do more with less’, it is necessary to optimise the IT portfolio.

Increasingly executives are using Portfolio Management method to tackle this challenge. IT portfolio management concept is not dissimilar to managing financial assets. In both, the aim is to collect data on the assets to be able to enhance returns and reduce risks. There are two types of IT portfolios, namely, IT asset portfolio and IT projects portfolio. Although the principles of portfolio management are similar there is great deal of difference in the processes used.

Within the IT Assets portfolio, we believe managing the application assets has the greatest upside. In this paper summarises benefits of Applications Portfolio Management and key learning from my experience in implementing APM.

Executive Summary

Organisations are using Applications Portfolio Management (APM) to make rational decisions about reducing the cost of application ownership, improving the functionality and the strategic alignment and reducing portfolio risks. The reason for the rapid growth in the use of APM is that organisations have achieved successes in cost reduction, managing the complexities of hundreds of established assets, and improving budget effectiveness.

Application Portfolio Management is a periodic fact-based assessment of organisations applications. Determining which applications receive same, lower, or increased levels of funding optimizes portfolios over time. The assessment helps refine application management practices, namely, which applications to cut, which to keep, which to renovate. The focus is to make sure that the business value and ownership costs are appropriately aligned and the portfolio is streamlined by rationalizing duplicate or obsolete applications. Over time, the applications portfolios as a whole should show the greatest business value and closest architectural fit with the lowest costs and risks.

APM generally consists of the following elements:

  • Applications Inventory – Identify and catalogue what applications you have and what they do and how much they cost.
  • Applications Assessment – Assess applications in terms of business value, alignment with strategy, technical architecture or standards and cost and ability to support. Identifying cost saving opportunities via removing duplication or overlaps.
  • Recommendations and Roadmaps – Develop changes to the application management strategies and create potential application transformation initiatives or roadmaps. The goal is to get prioritised action plans for tailoring maintenance spending, rationalising or migrating applications and addressing health risks.
  • Portfolio Governance – Assign responsibility for governance including managing the repository and tracking recommendations. Track and communicate the benefits.

Application portfolio management

Figure 1 – Applications portfolio management lifecycle

APM Implementation

APM implementation does not have to be too complex. The focus is on the big picture and identifying aspects that stand out from the norm. First step is the application inventory. Business users, IT support staff, IT architects and IT Managers take part in the data gathering stages. In the second step, gather data on operational performance, fit with the architecture or standards and the known vulnerabilities. This begins to find applications that need further attention. Next step is to analyse the application cost data and compare it with business value from other similar applications. Applications with too high costs or too low costs need further analysis. Final step in the process is to develop recommendations and migration scenarios, engage stakeholders in priority setting and begin detailed business cases for the selected roadmaps.

Where there are many application managers (e.g. in a federated structure), it would be ideal to assign responsibility to a central function such as Head of Architecture for creating uniform application inventory and assessment processes. A common repository would help the identification of duplicate applications across the entire organisation.

Benefits of Application Portfolio Management

APM benefits over time

  • APM improves the understanding of the applications so they can be managed effectively.
  • It helps track and communicate the technical and business health of applications to show problems and take advantage of opportunities.
  • With APM organisations can better align the applications portfolio to the business strategies and the technical architecture, thus improving business value over time.
  • Looking at how the portfolio supports key business processes, creates opportunities to remove the complexities and streamline support.

Over time APM enables focus to shift from application health and costs, to flexibility and responsiveness and ultimately to competitive advantage. By evolving applications in a planned and methodical way, organisations can maximise returns on their existing investments while making steady progress towards a stronger applications environment.

Tips for effective application portfolio management

  1. Executive Sponsor: Project must have sponsorship from the CIO or the Head of Applications. Proper understanding their goals and constraints ensures that the last recommendations can be acted upon.
  2. Engage Business: APM gives an excellent opportunity to tell and engage the business executives. Obtain business value and functional quality data from the real users and owners. Their support is critical for decisions to rationalise the duplicate applications or to adjust maintenance levels.
  3. Be pragmatic: In the first iteration, focus on applications that account for bulk of the costs and business support.  Similarly, in data gathering focus on few important attributes and costs. Where exact data is not available stake-holder/ user surveys can be used.
  4. APM tools: Spreadsheets may be used to record the inventory data. There are a number of third-party tools, which can help manage the applications inventory and the associated information such as costs, business value and risks. Tools would be of benefit for large portfolios and especially to keep inventory up-to-date.
  5. Source code analysis tools: These tools will help analyse the source code of applications and give information about the function points, complexity, etc. This data is valuable for understanding the reasons for complexity and the maintenance cost.
  6.  Assessment: Assessment typically covers business, technical, financial and operational perspectives. The typical questions are:
    1. Business: How well applications support the business process? What synergies we could achieve?
    2. Technical: Are the applications scalable/ extendable/ adaptable/ supportable? Do they fit the architecture?
    3. Financial: Do the applications cost too much to run? Why?  How can costs be reduced?
    4. Operational: Are the applications sustainable? What are the key vulnerabilities? Is the support infrastructure too complex? Can we find the right skills for support?
  7. Analysis: Looking at the data using a variety of criteria from business, technology, operations and financial perspectives would highlight  ‘anomalies’ and areas for actions.  Using a combination of factors would highlight anomalies, such as, if two applications are similar complexity and size but one has high costs, indicates an issue. Some solutions will become obvious when you see the problem, e.g. 17 versions of warehousing applications.
  8. Trend is your friend: Collecting cost and performance trends over time can give you richer insights than just point in time data. 18-24 months data would begin to yield useful information.
  9. Applications portfolio: Typically the assessment results would group each application in one of the four categories. These are Invest, Divest, Re-engineer and Tolerate.Application analysis
    1. Invest – These are applications of high business value and good technical quality
    2. Divest – Low value/ low quality or duplicate applications.
    3. Re-engineer – High business value but low quality applications are candidates for modernisation.
    4. Tolerate – High technical quality but low business value applications are possible candidates for cost reduction.
  10. Ongoing governance: Treating APM as a one time activity is a mistake. Any short-term gains would soon be lost. Assign responsibility for governance and ensuring inventories are regularly updated and assessed and recommendations are followed through. Establish key metrics and scorecards to check progress of the initiatives. Track and publish the benefits.
  11. Link with Enterprise Architecture: APM inventory provides data for the current state and recommendations should be aligned with the Enterprise architecture ‘desired end-state’. Application roadmaps create the migration path between these two states.
  12. Communicate the results:  Widely communicate the logic of the recommendations. Use the application roadmaps with the results of the assessment to tell business executives about the issues/ risks and various choices. This will result in a stronger business agreement.

If you would like further information or help please contact Kogekar Consulting.