Cutting apps by numbers doesn’t compute

Stupid Computer!

This article first appeared in the August/September 2014 issue of Government News by Darryl Carlton, research director, Gartner.

Many government organisations mistakenly believe they can quickly prune their technology budgets through IT-initiated application rationalisation – or reducing the number of software applications you own, manage and use. Application rationalisation is an imperative because organisations can no longer tolerate the drain caused by an expensive and inflexible software portfolio. But it’s impossible to rationalise the application portfolio — the real problem is the business processes.

Eliminating or consolidating applications requires changing business processes, which is costly, risky, and politically difficult. The costs can more than be covered by improving mission efficiency and effectiveness.

Focusing on short-term tactical needs over long-term strategic portfolio planning only makes the expensive and bloated application portfolio worse with every new IT investment.

Here are three common complaints from senior executives when discussing their need for change in how IT works:

  1. “We seem to spend too much of our IT budget simply running the existing systems, and not enough on delivering developments that will help us grow and transform.”
  2. “At a time when we are under immense pressure to move quickly to improve performance, reduce costs, introduce new services, improve customer service, and cope with demands of citizens and regulation, our business applications are very slow to change and very expensive to change. IT applications are becoming the critical path inhibitor to business transformation.”
  3. “Every time we invest in a new application we seem to create a substantial operating cost for operations, support and maintenance that was not correctly predicted in the business case.”

There are two primary causes of these symptoms. The first cause is a bloated application portfolio with a high level of internal application complexity and architectural complexity. The second cause is the set of management and technical governance structures, processes and disciplines that have led to the creation of that bloated application portfolio.

Application rationalisation is a multidisciplinary, multiyear program of work that will tackle both of these problems. An application rationalisation program must change the application portfolio so that it is leaner and fitter, while at the same time changing the management and technical governance structures, processes and disciplines that led to the creation of the bloated portfolio in the first place.

Government application rationalisation efforts can only succeed if mission efficiency and effectiveness is improved by standardizing and streamlining business processes across similar agencies or commands. This is politically difficult to do and requires allying with senior leaders who want change.

Government organisations struggle with application rationalisation because:

  1. There is a mandate to cut IT and business costs, but IT is asked to take the lead while lacking the authority to change business processes.
  2. Across-the-board, cuts to many separate IT budgets compromise mission effectiveness.
  3. Rationalising cannot save enough IT costs to cover the business-IT change costs; thus, the project must also improve business process and/or mission effectiveness.
  4. Different leaders of different agencies or commands must agree on common, improved processes and give up in-house IT capability, control, and sustainment budgets.
  5. Several failed ERP initiatives show the government is bad at large-scale projects requiring this level of agreement.
  6. The root cause is that the government is bad at governance. Agency leaders can’t or won’t agree on and execute a joint plan, and legislative bodies often enforce silos.
  7. A culture of avoiding career risk and accountability, coupled with perceived power based on budget and head count, works against eliminating wasteful spending.
  8. Leaders who are senior and strong enough to overcome this often have other priorities, can’t overcome the entrenched bureaucracies, or change positions with each new election.
  9. IT groups need to find government leaders who want to change the business processes and tie the rationalisation to that effort.

Making changes to processes, and fundamentally changing the culture of application investment decision making, will require a high level of political and interpersonal skills since such changes will need to be negotiated with, and implemented by, many different stakeholder communities. The CIO, the senior IT management team and senior managers must constantly demonstrate complete commitment to this goal of business process standardisation, otherwise the organisation will quickly slide back into the comfortable habits of the past.

First Law of Rationalisation
The first law of application rationalisation states, “You have exactly the right number of applications today to run the business the way that you run the business today.”

Everything that you do in an application rationalisation program is subject to this law.

The corollary of this law is this: If you remove an application from the live portfolio you must somehow be changing how the business works. These changes could be to process workflow, roles, responsibilities or transparency and accountability. There are a very small number of exceptions to this law caused by applications that have absolutely zero use in the business today. But these applications are unlikely to make a significant contribution to costs or to be negatively impacting flexibility.

The fundamental question for an application rationalisation program must be: “Do we have the authority to drive changes in businesprocesses, workflows, roles, responsibilities, transparency and accountability?”

Focus on the Real Goals of Application Rationalisation

The Goals of application rationalisation are:

  • For the application portfolio: To manage the transition to an application portfolio that has measurably lower total cost of ownership than the current portfolio, while at the same time being more flexible and therefore faster and cheaper to change when change is needed.
  • For application governance: To transform the way in which both business and IT stakeholders manage the application portfolio so as to ensure that the bloated and inflexible portfolio does not return.

These goals are not “nice to have” goals for any business — they are a real business imperative. No business can thrive with a bloated and crippled application portfolio.

The most common mistake in establishing an application rationalisation program is to institute a goal of reducing the number of applications. Why is this a mistake? If your organisation starts with 2,200 applications and is given a goal to reduce this to 750, the inevitable tendency is to hit small and insignificant applications. But, looking at the real portfolio goals (described above) of reducing total cost of ownership and improving agility, you run into a real problem if efforts focus on the small fry.

There is a strong Pareto principle in the application portfolio much less than 20 per cent of the application portfolio, by number, accounts for much more than 80 per cent of the application budget. So small applications only account for 10 per cent to 20 per cent of the money. Time spent eliminating small applications almost inevitably transfers workload onto the large applications, making these even expensive and inflexible.

A good metaphor to sell this idea is a zoo. You have 2,200 animals in the zoo and current cost levels are unsustainable; yet the bulk of the problem is big animals, like elephants, represent most of the costs – while mice and gophers hardly feature in the accounts.

So be wary of easy numbers from “quick wins” or “low-hanging fruit” merely create impression of progress rather than achieving it.

Procure Business Engagement
The $64,000 question is: How do we procure business engagement? All too often, business managers perceive application rationalisation to be a problem for the IT organisation to address. They want the problems of the bloated application portfolio and inflexible applications to be addressed by some form of supply-side initiative — “Just make the problem go away.” But the stark reality is that the IT organisation can do very little to reduce the size and complexity of the application portfolio by itself: It needs the active partnership and leadership of business managers to engage in business process standardisation and simplification in order to achieve the goals of the program.

The Way Forward

Identify opportunities for application rationalisation due to redundant systems providing the same business capability to different agencies, departments, or commands. Identify process improvement initiatives affecting those same business capabilities, ideally where there is already some agreement on the need for change. Recruit senior business or political leaders who want process improvements to make government more efficient and effective, and show them how IT changes will catalyse and reinforce the business change. No one said it will be easy, but IT cannot change applications without the support of a business that wants to change.

Darryl Carlton is a Gartner research director based in Melbourne, where he undertakes research into application strategy and governance.

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