Out-Law / Your Daily Need-To-Know

Report: growing popularity in funding IT transformation through the rationalisation of applications

Out-Law News | 07 Mar 2014 | 9:12 am | 3 min. read

Organisations are increasingly funding transformational IT projects by slimming down their existing portfolio of applications, according to a new report by Capgemini.

The technology and outsourcing service provider said chief information officers (CIOs) have previously struggled to get rationalisation projects off the ground because of a difficulty in coming to agreement on the business case for doing so with the rest of the company. 

However, Capgemini said that better mutual understanding between both IT teams and other parts of businesses about the way applications are used can help make the case for rationalisation and, at the same time, help companies fund technological updates. 

"A healthy, mutual understanding between business and IT does not guarantee transformation, but transformation cannot occur without it," Capgemini said in its application landscape report 2014 (40-page / 9.27MB PDF). "Not only is it easier to actually start the application rationalisation process, but our research clearly shows that with better understanding, the resulting funds are also directly injected again into business transformation efforts, creating more value and more innovation from IT." 

"Self-funding rationalisation or support initiatives are becoming more popular, especially in Europe where budgets stall. For one major UK organisation, a self-funded rationalisation program has realised savings of £175 million per annum. Using a small amount of seed-corn funding, they identified sufficient quick wins to fund major modernisation initiatives, switching off 65 applications, decommissioning 1,954 servers, and merging major systems to reduce complexity and overheads," it said. 

Financial services and technology expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com said that there is a growing trend towards the rationalisation of businesses' applications. 

Salmon agreed with the Capgemini report that organisations can make savings by simplifying their IT portfolio but during the process but also said that they are likely to encounter risks, complexities and costs in reducing the number of applications they use. 

"We are seeing an increasing number of businesses wanting to slim down their portfolio of applications," Salmon said. "This is understandable given the benefits that can be accrued, however, before starting the process, those involved making the decision to rationalise must make sure that any applications they wish to remove are not centrally important to any one business function or heavily used by people across the business. They must get a handle on the extent to which the business uses and relies on specific applications, and this demands consultation between IT, legal and end users." 

"When a shared understanding of this nature is achieved across the organisation, the benefit of rationalising a suite of applications can then be better balanced against the cost and risks associated with doing so. After reviewing the relevant supplier contracts a business may find that the difficulties which they will face in exiting from those existing arrangements take away the incentive to rationalise," he said. 

"Exit charges may apply if businesses seek an early termination of existing supplier contracts, and there may be additional costs and complexities involved in migrating data from one provider's system to another. It is not always a straight forward process, so it requires businesses to fully assess the consequences of rationalising their applications portfolio before committing to do so," Salmon added. 

Capgemini's report detailed the results of a survey of more than 1,100 CIOs at organisatiions of various sizes across a range of industries based in Europe, the US, Australia, China, India and Brazil. 

According to the survey, increasing the efficiency of using IT systems, increasing productivity and reducing costs are the three main "strategic IT goals" of businesses. It found that CIOs believe 85% businesses have at least a sufficient understanding of their portfolios of applications. 

Almost half of the respondents (48%) said they believe their company has more applications than it needs, whilst 37% said they have "just the right number of applications". In a 2011 survey by Capgemini on the same topic, just 34% of respondents said they thought their company had too many applications. 

"Apparently, despite all intentions and efforts, few organisations have already managed to retire or consolidate applications; the load of legacy only has become heavier, rather than lighter," it said. "Financial services – traditionally a sector in which many applications have been custom-built and mergers and acquisitions further complicate the portfolio – ranks among the sectors that have most room for improvement." 

Capgemini also asked the CIOs for their views on whether existing applications within the companies share the same functionality. In response, 70% said that at least a fifth of their organisations' existing applications portfolio "could be consolidated by eliminating redundant functionality".