Application Rationalization Guide: Unlock Efficiency in Your SaaS Stack

Introduction

Think about all the different tools you use on a computer or your phone every day. There are apps for talking to friends, watching videos, doing homework, and playing games. Just like you might have many apps on your devices, big organizations also use lots of different software programs, called applications, to help them do their work. These applications can help with everything from managing money to talking to customers.

Organizations end up using many applications for various reasons. Sometimes, different teams within a company choose their own software to solve specific problems. Other times, when companies grow or join together, they might end up with multiple applications that do similar things.

However, having too many applications can create problems. It can become confusing to manage all of them, and it can cost a lot of money to pay for different software licenses. It can also make the organization less secure if some of these applications are not properly updated or monitored.

This is where Application Rationalization comes in. It’s like taking a careful look at all the software an organization uses and deciding which ones are really needed, which ones can be combined, and which ones are no longer useful. By doing this, organizations can save money, make their work processes smoother, and improve their overall security.

This guide will help you understand what application rationalization is all about and why it’s so important for organizations today.

Understanding Application Rationalization

What is Application Rationalization?

Application Rationalization is a process where an organization looks at all the software applications it uses and makes decisions about them to make things better. Think of it like cleaning out your closet. You look at all your clothes and decide what you want to keep, what you can give away, and what might need to be replaced. Application rationalization is similar, but it’s done with computer programs.

The main goals of application rationalization are to:

• Improve efficiency: Make sure the organization is using the right tools for the job without unnecessary clutter.
• Reduce costs: Stop paying for software that isn’t being used or for multiple applications that do the same thing.
• Use resources better: Ensure that the organization’s time and money are spent on the applications that provide the most value.

In simpler terms, application rationalization is about making sure an organization’s software works for it in the best way possible, without wasting money or creating confusion.

Application Portfolio Management (APM) vs. Application Rationalization

You might also hear the term Application Portfolio Management (APM). While it sounds similar, APM is more like a long-term plan for managing all of an organization’s applications. It involves regularly checking, organizing, and making decisions about the entire collection of software an organization uses.

Application rationalization is a key activity within APM. It’s one of the things an organization does as part of its overall APM strategy. So, while APM is the ongoing management of all applications, application rationalization is a specific project or process focused on making the application landscape leaner and more effective. Both are important and should happen regularly.

Why is Application Rationalization Important?

Application rationalization has become very important in today’s world because organizations are using more and more software, especially cloud-based software known as SaaS (Software as a Service). SaaS applications are easy to access and often chosen by individual teams without involving the IT department. This can lead to a large number of applications being used across an organization, many of which might be duplicates or not even known by the main IT team.

Experts are even talking about a “Great Rationalization” era in the software industry. This means that many organizations are now realizing they have too much software and are actively trying to reduce the number of applications they use to save money and simplify their operations.

Just like moving from simply surviving a situation to having a sustainable plan for the future, organizations need to move from just buying software as needed to having a thoughtful strategy for managing their applications. Application rationalization helps them achieve this sustainable approach.

The Benefits of Application Rationalization

Saving Money (Cost Efficiency)

One of the most significant advantages of application rationalization is saving money. This can happen in several ways:

• Reducing licensing fees: Organizations often pay for software licenses for employees who no longer use the software. By identifying and getting rid of these unused licenses, companies can save a lot of money.
• Avoiding costs for duplicate software: When different teams choose their own software, an organization can end up paying for multiple applications that do the same thing. Rationalization helps identify these duplicates so that the organization only pays for one.
• Getting better deals with vendors: By understanding exactly which software is needed and how much it’s being used, organizations can negotiate better prices with software companies when it’s time to renew their contracts.

Improving How Resources are Used (Resource Optimization)

Application rationalization helps organizations use their resources, like time and money, more effectively. This includes:

• Better allocation of licenses: Instead of having licenses spread out unevenly, organizations can make sure that employees who really need a particular software have access to it.
• Improving vendor management: By reducing the number of software vendors they work with, organizations can simplify their relationships and potentially get better support.

Making Work Easier (Enhanced Productivity)

Having fewer, well-chosen applications can make work much smoother and improve how productive employees are. This is because:

• Fewer tools to learn: When employees don’t have to juggle many different software programs, they can focus on mastering the tools they actually need. This reduces confusion and saves time spent switching between applications.
• Streamlined workflows: By getting rid of redundant or unnecessary software, organizations can simplify their work processes. This can lead to less wasted time and effort.
• Focusing on valuable tools: Application rationalization helps identify the software that truly helps employees do their best work. By focusing on these tools, productivity can increase.

Better Security

A smaller and well-managed set of applications is generally more secure. This is because:

• Easier to manage and monitor: It’s simpler for the IT department to keep track of updates, security patches, and potential problems when there are fewer applications to manage.
• Reducing vulnerabilities: Older or unapproved software can have security weaknesses that hackers can exploit. Rationalization helps identify and remove these risky applications.
• Addressing “Shadow IT”: When employees use software that hasn’t been approved by the IT department (“Shadow IT”), it can create security risks because these applications might not meet the organization’s security standards. Rationalization helps uncover this unapproved software so it can be evaluated and managed properly.

Easier to Grow and Adapt (Scalability and Agility)

An optimized application portfolio makes it easier for an organization to grow and change as needed. This includes:

• Simplifying the integration of new technologies: When the existing software landscape is not cluttered with unnecessary applications, it’s easier to introduce and integrate new, beneficial technologies.
• Making updates and changes more efficient: With fewer applications to worry about, implementing updates and changes across the organization becomes less complex and time-consuming.
• Stopping “Software Sprawl”: Without regular rationalization, the number of applications an organization uses can grow uncontrollably (“software sprawl”). This makes it harder to manage costs and maintain efficiency. Rationalization helps prevent this.

The Challenges of Application Rationalization

While the benefits of application rationalization are clear, the process itself can come with certain challenges.

Lack of Teamwork (Collaboration)

Getting everyone in the organization to agree on which applications to keep and which to get rid of can be difficult. If employees are not involved in the process or don’t understand the reasons behind the decisions, they might resist the changes. It’s important to communicate the benefits of rationalization to everyone involved.

Too Many Applications (Bloated Portfolios)

Many organizations have accumulated a large number of applications over time, making it hard to even know what all of them are. Some large companies might have hundreds or even thousands of different software programs. Without a clear understanding of what exists, it’s difficult to start the rationalization process.

Applications That Aren’t Used Enough (Under-utilized Applications)

It’s common for organizations to buy software that ends up not being used much or at all. Identifying these under-utilized applications and the wasted licenses associated with them is a key part of rationalization. Sometimes, people buy tools to solve a problem and then forget about them.

Difficulty in Collecting Data

To make informed decisions about applications, organizations need accurate data on things like which applications are being used, how often, and how much they cost. Gathering this information can be challenging. It can be tough to track down all the applications being used, especially the unapproved ones, and to understand their actual usage. Calculating the total cost of owning and using each application, including hidden costs, can also be complex.

Mergers and Acquisitions

When companies merge or one company buys another, they often end up with duplicate applications from both organizations. Figuring out which applications to keep and which to retire after a merger can be a significant challenge.

A Step-by-Step Guide to Application Rationalization

Now that you understand what application rationalization is and why it’s important, let’s look at the steps involved in the process.

Step 1: Get a Clear View of Your Applications (Complete Visibility/Inventory)

The first step is to create a complete list of all the software applications being used within the organization. This includes both the applications that the IT department knows about and any unapproved software (“Shadow IT”) that individual teams or employees might be using.

• Create a list: Start by documenting every application you can find. This might involve looking at purchase records, talking to different departments, and using discovery tools.
• Use spreadsheets or tools: For smaller organizations with fewer applications, a simple spreadsheet might be enough. However, larger organizations with many applications should consider using professional SaaS Management Platforms (SMPs) or Application Portfolio Management (APM) tools. These tools can automatically find applications being used on the network and can help manage the inventory.
• Identify “Shadow IT”: It’s crucial to uncover applications that employees are using without official approval. This can be done through network monitoring, browser extensions, and by asking employees directly.
• Know your numbers: By the end of this step, you should have a good idea of how many applications are in use across your organization.

Step 2: Understand How and Why Applications Are Used (Usage Analysis)

Once you have a list of all your applications, the next step is to understand how they are being used and why.

• Collect usage data: Use the features of your SMP or APM tools to gather data on how often each application is used, by whom, and for how long. This will help you identify applications that are rarely or never used.
• Gather employee feedback: Talk to the people who are using the software. Ask them which tools are essential for their work, which ones they find difficult to use, and if there are any applications they think are redundant. Surveys and interviews can be helpful here.
• Identify essential and non-essential tools: Based on the usage data and employee feedback, start to determine which applications are critical for business operations and which are less important.
• Look for redundancy: Identify applications that perform similar functions. There might be cases where two or more different software programs are being used by different teams for the same purpose.
• Understand user behavior: Analyze who is using which apps and how frequently. This can reveal trends and potential areas for optimization, such as consolidating licenses or providing better training on underutilized but valuable tools.

Step 3: Figure Out the Costs (Cost Analysis/Total Cost of Ownership)

The next step is to determine how much each application is costing the organization. This goes beyond just the subscription fees.

• Identify all costs: Include the initial purchase price or subscription fees, as well as ongoing costs like maintenance, support, training, and any potential costs related to security or integration.
• Consider hidden costs: Think about less obvious costs, such as the time employees spend learning and using different applications, potential disruptions to productivity if a poorly chosen tool is used, and the resources needed to manage and support the application.
• Track down cost information: Gather information from contracts, invoices, and financial systems to understand the spending on each application.
• Use tools: SMPs and APM tools can often help automate the process of collecting and analyzing cost data by integrating with financial systems.

Step 4: Decide the Value of Each Application (Value Assessment)

With a clear understanding of usage and cost, you can now assess the value that each application brings to the organization.

• Establish evaluation criteria: Decide on the factors you will use to judge each application. These might include how well it supports business goals, its functionality, any risks associated with it (like security issues), and its technical quality (reliability, ease of integration).
• Score applications: You can create a scoring system to systematically compare the value and cost of each application. This will help you see which applications provide a high return on investment and which do not.
• Identify “ROT” applications: Look for applications that are Redundant (doing the same thing as another tool), Outdated (no longer supported or meeting current needs), or Trivial (providing very little business value for their cost). These are prime candidates for retirement.

Step 5: Take Action (Implementation)

Based on your assessment, it’s time to make decisions about each application and take action.

• Categorize applications: Group applications into categories based on your evaluation. Common categories include:
  • Keep: Applications that are essential and provide high value.
  • Retire (Eliminate): Applications that are no longer needed, provide low value, or are redundant.
  • Replace: Applications that address a need but are not the best fit or have better alternatives.
  • Consolidate: Applications that perform similar functions and can be merged into a single tool.
  • Update (Modernize): Applications that are valuable but need to be upgraded or improved.
  • Migrate: Moving users and data from one application to another, often as part of a retirement or replacement.
  • Reward (Expand): Applications that provide high value at a reasonable cost and could benefit from wider adoption or more investment.
• Create an implementation plan: Develop a roadmap for making the necessary changes. This should outline which applications will be addressed first, who will be responsible for the changes, and the timeline for implementation.
• Communicate decisions: Clearly explain the reasons behind the decisions to all stakeholders, including employees and management. This will help manage expectations and reduce resistance to change.

Step 6: Keep Checking and Improving (Ongoing Monitoring and Governance)

Application rationalization is not a one-time project. It should be an ongoing process to ensure your application portfolio remains optimized.

• Continuously monitor: Regularly track how applications are being used, gather feedback from users, and review costs. This will help you identify any new instances of underutilized software or potential redundancies.
• Establish governance: Set up rules and processes for how new applications are requested, approved, and implemented within the organization. This will help prevent future software sprawl.
• Regularly review: Periodically revisit your application portfolio (e.g., every year) to reassess the value of each application and make any necessary adjustments.
• Adapt to change: Be prepared to adapt your application strategy as the organization’s business needs and technology landscape evolve.
• Learn from the process: After each rationalization cycle, review what went well and what could be improved for the next time.

Frameworks for Application Rationalization

To help guide the application rationalization process, organizations can use established frameworks. Here are a few common ones:

The TIME Framework

The Gartner TIME Framework looks at applications based on two main factors:

• Technical Fit: How well the application works with the organization’s existing technology and infrastructure.
• Functional Fit: How well the application meets the needs of the business.

Based on these two factors, applications are categorized into four actions:

• Tolerate: High technical fit, low functional fit (keep for now, but look for alternatives).
• Invest: High technical fit, high functional fit (continue to support and potentially expand).
• Migrate: Low technical fit, high functional fit (plan to replace or upgrade).
• Eliminate: Low technical fit, low functional fit (remove the application).

The 6Rs Framework

The 6Rs Framework is often used when planning to move applications to the cloud. It outlines six possible strategies for each application:

• Rehost: Move the application to the cloud without significant changes.
• Replatform: Make some changes to the application to take better advantage of the cloud.
• Rearchitect: Completely redesign the application for the cloud.
• Repurchase: Replace the existing application with a new, cloud-based SaaS product.
• Retire: Remove the application entirely.
• Retain: Keep the application in its current state (not moving to the cloud).

Application Lifecycle Management (ALM)

Application Lifecycle Management (ALM) is a broader approach that looks at the entire lifecycle of an application, from planning to retirement. While not specifically for rationalization, the different phases of ALM can help in making decisions about which applications to keep or eliminate:

• Plan: Define the business need for the application.
• Develop: Build or purchase the application.
• Deploy: Implement the application for users.
• Operate: Maintain and support the application.
• Retire: Decommission the application when it’s no longer needed.

By understanding where an application is in its lifecycle, organizations can make informed decisions about its future.

The Role of Tools in Application Rationalization

Using the right tools can significantly simplify and improve the application rationalization process.

SaaS Management Platforms (SMPs)

SaaS Management Platforms (SMPs) are designed specifically to help organizations manage their cloud-based SaaS applications. They offer features like:

• Automatic discovery: Identifying all SaaS applications in use, even those not officially sanctioned by IT (“Shadow IT”).
• Usage tracking and analytics: Providing data on how often and by whom each SaaS application is being used.
• Cost management: Tracking SaaS spending, identifying wasted licenses, and helping to optimize costs.

Examples of SMPs include AlphaSaaS, CloudEagle, Torii, and Zylo.

Application Portfolio Management (APM) Tools

Application Portfolio Management (APM) tools provide a broader view of all types of applications used by an organization, not just SaaS. They help with:

• Inventory management: Creating and maintaining a comprehensive list of all applications.
• Value and risk assessment: Evaluating the business value and technical risks associated with each application.
• Visualization: Providing visual representations of the application landscape to help understand relationships and identify areas for rationalization.

An example of an APM tool is LeanIX.

Benefits of Using These Tools

Using SMPs and APM tools can make application rationalization much more efficient and effective. They provide:

• Ease of visualization: Helping organizations see their entire application landscape in one place.
• Access to key information: Providing crucial data on usage, cost, and value to support decision-making.
• Streamlining workflows: Automating many of the data collection and analysis tasks involved in rationalization.

How AlphaSaaS Can Help You Rationalize Smarter

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Conclusion

Application rationalization is a vital process for organizations that want to make their software work smarter. In an era where the use of software, especially SaaS, has grown rapidly, taking a step back to evaluate and optimize the application portfolio is crucial.

By systematically reviewing their applications, organizations can achieve significant benefits, including saving money, improving efficiency, enhancing security, and becoming more agile. While the process may have its challenges, following a structured approach and leveraging the right tools can make it manageable and rewarding.

Remember: Application rationalization is not a one-time task but an ongoing effort.

By making it a regular part of their IT and business strategy, organizations can ensure that their technology investments continue to support their goals effectively and efficiently.

🎯 So, take the first step towards a smarter software landscape and begin your application rationalization journey today!

🚀 Ready to Rationalize?

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