The Next Wave of Application Transformation

In a recent webinar given by Pascal Matzke and John McCarthy from Forrester Research on the Future of IT Services, part of their message was that the large scale benefits of labor cost savings through movement of IT services offshore is coming to an end - that new approaches to cost reduction and, business improvement will be needed.

If this is true, then the world of application outsourcing must become the world of application transformation. 

Many firms are facing the combined challenges of needing to improve their performance and lower their costs, and needing to somehow achieve this in the face of an ever-growing collection of software applications that drive their business. 

For those organizations that have grown organically, the sheer inertia of large, aging systems exacts increasing effort to maintain, change or extend those systems and the business functions they support.  If growth has come through mergers and acquisitions, the problem is compounded by the addition of redundant systems that are minimally integrated.  The business ends up saddled with a rat's nest of technologies, platforms, applications, and duplicated data, high operating costs, and an inability to rapidly respond to changing business needs.

In the past, the simple solution was to outsource the applications, which both lowered the costs of maintaining them and freed up key resources to work on higher-value business system enhancements or additions.  But, simple solutions are behind us now...

For the most part, the age of "lift and drop" is over for outsourcing applications to low-cost destinations.  The practice has run its course, and the value it brings has been consumed.  Not only have the offshoring cost benefits been fully realized for most application portfolios, but to some extent, they have been eroding as a result of the red-hot market demand for labor and the bidding up of salaries in those low-cost locations.  "Offshoreability" initiatives may no longer be able to yield what the CFO, CIO and even CEO want to see for improvements. 

So What To Do Next?

Traditional approaches to extracting cost and productivity improvements from IT applications and using them to increase business agility and improve customer experience, frequently entail massive initiatives and distant time horizons to achieve significant results.  Today, such initiatives often cannot get past the business case stage, with business budgets and strategies requiring more agile and iterative approaches to investment.

The time has come for a new approach to optimizing and improving the applications upon which the business depends.  Now it's time to figure out the business value and business performance of what's already in the application asset portfolio and to start using that information to begin the next series of business transformations. 

There are significant opportunities for transformative change through rationalizing and optimizing what you've already got and what it currently does for the business.  Rationalization and optimization involves identifying your IT application assets and pursuing various strategies to retire, retain, improve, or combine them.  In general, getting to fewer, better applications will lead to less redundancy and thereby costs, and can provide greater business agility and flexibility, accelerated time to market, improved customer experience and competitive advantage. 

Know What You've Got

To start, you need to know what you've got - assessing your application portfolio contents for their business performance, business value, efficiency of operation and re-usability potential.   Much like a portfolio of financial assets, IT applications are a collection of assets that are essential to the business and the portfolio needs to be optimized and rebalanced in response to market conditions and changing priorities and goals.  Also like financial assets, application assets have differing characteristics in level of performance, risk, cost, lifespan and return-on-investment.  In order to make the right decisions about portfolio content, you need to identify, understand, evaluate and compare these attributes.

Application portfolio analysis is the first step.  Done properly, it is a structured approach to analyzing and assessing the IT applications on which the business runs in order to identify actionable characteristics.  It provides a means for assessing your "as-is" application estate and identifying opportunities for improvement, also providing valuable insights, such as trends, commonalities and successes worth replicating.

Know What To Do

Once you identify the characteristics, you can evaluate decisions for any number of rationalization actions, including:

• Consolidation of like/overlapping applications
• Retirement/replacement of applications at the end of their useful life
• Technology retrofit for applications that are strong in business value
• Investment/sustenance strategy changes
• Process reengineering/process automation

Any or all of these initiatives can have significant benefits to an organization if the right choices are made for the right reasons.  Decision models can be used to identify candidates for rationalization based on their characteristics and where they fall relative to each other.

Once identified and classified, what options are available for application rationalization? 

A classic approach is to replace or retire applications past their useful life, or with inordinately high maintenance costs, as indicated in Zone I of the diagram.  Such applications are usually easy to find, but the costs for retiring them, and the investments required for replacing them may be significant.

Applications placed in Zone IV are the ideal; they are performing well and provide good value to the organization.  The organization needs more of them!

Applications classified in Zone II, require something more sophisticated, as they have high value but suffer from low efficiency or high costs.  In this case, these applications are candidates for action to "move" them to the right, to a higher level of performance and efficiency through some type of re-engineering or improvement. 

Finally, applications placed in Zone III warrant further investigation, as they are performing well, but they do not provide high value.  Perhaps they provide a model to be used in other areas to increase value, or perhaps their efficiency and performance alone are not sufficient to warrant a future path forward.

Take Applications To The Next Level

The applications in Zones II and III present an extraordinary rationalization opportunity for forward-thinking organizations.  These applications provide a combination of high value and high performance, just not at the same time and not for the same functions.  Along with those applications deemed "healthy", these applications are ripe for identification, harvesting and creation of re-usable business layers and components that can be shared across systems, LOBs, and business functions. 

Think about the benefits of rationalizing these high-value and high-performance portions of the portfolio into a cohesive, integrated and interoperating environment while retiring the poorly performing systems:

• Greater business agility and responsiveness
• Smaller overall footprint - conceivably with less energy, space, equipment, and staff requirements
• More technologically consistent, with more efficient components and code
• A platform that supports future growth

This is a more effective way to rationalize an application portfolio! 

How can this be done?  While portfolio analysis is taking place, in parallel, a core IT asset base is extracted from the portfolio to build a foundation of standardized, extensible platforms.  This enables eliminating redundancy and technology clutter, reducing number of applications and code base size, while ensuring that no useful capabilities are jeopardized.

Other mature industries, such as automotive and manufacturing, have benefited from approaches like this, where they attain significant efficiencies and economies of scale by building several product lines on top of a single shared platform and by reusing a high percentage of the common assets across these product lines. 

So why should software-based "products" or systems be any different?

The concept is illustrated in the following diagram, contrasting the cost reduction and business agility of offshoring vs. rationalization into a platform-oriented approach:

A well-defined and disciplined approach is needed for achieving this, balancing business function understanding, domain knowledge, and technology expertise.  Some of the steps include:

• Assessing existing IT assets to identify 'As‐Is' applications with value
• Creating a core platform of common services to eliminate redundant modules, encapsulate business logic for reuse and simplify and create an abstraction layer
• Identifying recurring design patterns, business process patterns, and user behavior so as to avoid creation of one-off solutions
• Leveraging the core platform by building horizontal modules, layering in vertical applications and re‐using across business units

Pursuing a platform-oriented rationalization strategy does not require a "big bang" approach, either.  Rather, it is a continuous journey towards technology optimization and increased efficiencies, helping the organization evaluate where they are today and how to develop a strategic roadmap and implementation plan to move to next maturity level.

What's Your Plan?

For organizations facing the pressures of cost reduction simultaneously with the need for increased agility, improved customer experience, and maintaining a competitive advantage, the answer lies not in offshoring key business applications, but instead in embarking on a journey of business application transformation, through portfolio rationalization and a platform strategy.

The outcome of pursuing such a strategy will be a set of highly-configurable and reusable applications providing much greater business agility, with much less code and at much lower cost, and the capability  for continuous improvement.

Biography

George Berelson is Director of Business Consulting at Virtusa Corporation. With more than 25 years of experience in information technologies, George is responsible for business consulting, analysis, application portfolio and solution assessment, and providing guidance focused on requirements, roadmaps, customer experience and bridging the technical and business worlds to bring business solutions to clients.