What is Application Portfolio Management?

Applications are what run the business. They need to be aligned with business goals, cost-effective, and risk-free. In a dynamic business environment, good APM means constant assessment, prioritization and cleaning out—all in collaboration with involved and/or affected stakeholders. Done properly, APM ensures:

• Lower costs through consolidation: Rationalizing applications reduces license and maintenance costs.
• Greater agility with a leaner portfolio: A streamlined application portfolio enhances responsiveness and innovation.
• Reduced IT risk due to fewer moving parts: Fewer applications mean fewer potential points of failure and security vulnerabilities.
• Better decision making with data-driven insights: APM provides comprehensive data on application performance, usage and costs, enabling informed decision-making on e.g. investment, retirement and cloud deployment.
• Increased efficiency in complying with regulations: Streamlining the portfolio and identifying compliance-relevant applications make compliance audits a snap.
• Enhanced business and IT collaboration: Collaborative APM provides a shared understanding of application needs and priorities.
  

An APM practice commonly strives to achieve one—or all—of four main goals:

• Support for business strategy
• Reduction of IT costs
• Increased IT and business agility
• Risk management and mitigation

All four will increase a company’s ability to innovate and its market competitiveness. Let’s see how.

If a company can align its application portfolio with business strategies—strengthening those business capabilities in support of those strategies—it will help the business achieve its goals faster. Especially in the age of digital business, a business can have ambitious goals and an aggressive strategy for offering digital products and services, but if end-of-life and poorly performant applications make up most of the portfolio, it’s doubtful the company will make headway fast.

If a company can cut the cost of the applications it runs, it will have more money to fund innovation. Applications cost a lot—to develop, to purchase, to maintain, and even to retire. It’s probably because of this last cost—of retiring applications—that many organizations are loathe to decommission applications. Instead, they opt to tweak poorly functioning applications instead of investing in new ones—adding technical debt. Or they develop or purchase functionally similar applications—adding to costs and complexity. Which brings us to the next reason why APM is important—agility.

If a company can get rid of the complexity in its application portfolio, it will have the agility to get more innovative business solutions out the door. Applications have a lot of interfaces to their environment and each interdependency must be considered when changing something about an application. So, the fewer the interfaces, the quicker the analysis and decision when it’s time to change. And with fewer applications and interfaces, there is also less risk—the fourth core objective for APM.

If a company can lower its exposure to risks there is less chance of disruption—less chance of a disruption disrupting innovation. We all know that all “nice-to-have” projects are put on hold when there is a severe disruption. And we all know that resolving severe disruptions is usually expensive—one other thing to funnel away funding for innovation. Using APM to reduce the amount of applications and their interfaces will significantly reduce a company’s exposure to risk—be it technical, cyber or commercial risk.

Let’s consider these objectives in the context of artificial intelligence—the topic that’s top-of-mind for everyone and causing companies to spend lots in R&D. If AI innovation is the strategic differentiator your organization is after, how fast can you integrate Chat GPT or similar AI tools into your product portfolio? How are you going to fund it? How can you keep crises at a distance to keep AI innovation flowing? A streamlined, well-managed application portfolio will help.

To achieve these core objectives—strategy alignment, cost reduction, increased agility, limited risks—APM must be a continuous and sustainable process—not a one-time exercise. APM processes and responsibilities need to be anchored into the organization’s strategic planning and change management activities as part of the daily analysis and decision-making work done by IT planners, application portfolio managers, enterprise architects and IT finance managers.

Besides the core objectives targeted by APM, you may want your APM practice to focus initially on more specific goals. Here are the most common useful use cases that can be addressed by APM:

Application transparency and governance: Establish a single source of truth as a company-wide baseline for change decisions, and institute clear ownership for organizational and individual responsibility in supporting company strategies and goals with a sound application strategy.

Application lifecycle management: Reliably plan application phase-in and -out by identifying on-boarding, planning (build and deploy), production and retirement phases. Tie these to the processes, business capabilities and strategies they support to avoid lapses in application support.

Application rationalization: Eliminate redundant and low value applications smartly by using meaningful KPIs and dependency analysis to ensure you aren’t retiring something that a critical process or project depends on.

Application risk management: Identify business/IT architectural dependencies and threats to business applications to reduce business risk exposure.

Application portfolio transformation: Keep portfolio transformation in alignment with business strategy by basing decisions on business strategies and understanding which business capabilities need to be strengthened to support those strategies.

Whichever goals are given priority, effective APM requires detailed and many-facetted information on the business alignment, cost, risk and agility of the applications to be able to make informed and sound decisions on portfolio change. This means gathering a lot of intel from a lot of stakeholders. Examples of such questions and the goals they support are: 

Business’ dependency on healthy applications makes it essential to have a robust, effective and efficient APM practice supported by a tool which:

• Provides current and reliable information on applications to the relevant stakeholders. 
• Supports rapid analysis of the application portfolio regarding impact resulting from business events such as acquisitions, divestitures, product launches and entry into new markets. 
• Has the analytical power to support delivery of programs to increase agility, reduce costs, and improve application health.
• Can support IT management processes that require reliable application information, such as IT risk assessments and project design.

Office tools and other IT management tools that are more operational in nature—such as an ITSM or CMDB tool—are inadequate when trying to capture the true make-up and behavior of applications. What is needed to make consistently good, well-informed decisions is a centralized, collaborative platform with a rich repository of application information, and an integrated view into the adjacent portfolios to understand change impact. When application portfolio managers can make the right decisions on the application strategy, regularly as part of an application portfolio management process and ad-hoc as required, they can play a critical role in maintaining competitive advantage and profit margins.

APM doesn’t exist in a vacuum. The Integrated IT Portfolio Management discipline views elements of the enterprise architecture (applications, technologies, processes, projects, capabilities, etc.) as individual portfolios and focuses not only on optimizing the individual portfolios (as we’ve discussed for APM here) but also on their interdependencies to better align portfolio transformation and understand the impact of change. Why take a portfolio approach to managing IT assets?

See the forest for the trees: The path to the digital enterprise is a hard one to navigate given the complexity of today’s IT environments. Portfolio Management equips you with the means to neatly organize the information you need to make decisions on how to evolve the IT landscape. Optimize portfolios to clear the clutter and improve agility.

Portfolio-thinking is business-thinking: Business managers have long learned to observe individual LOB performance, strategies and characteristics against and yet in sync with each other to make investment, divestment and hold decisions. Likewise, IT managers should use a portfolio approach to assess assets, returns and risks in the IT landscape to derive top value from IT investment.

Integrated portfolios enable “whole-view” management: By understanding the interdependencies among the various portfolios—application, project and business capabilities—you can make better-informed decisions on IT change, and enjoy the confidence of being able to estimate the impact on all parts of the enterprise. By associating application and project costs to business capabilities you can match IT spending to business drivers.

Portfolios let you set the pace for change: Different systems have different purposes—whether in support of business innovation, a particular market segment or the back office—each requiring change in its own timeframe. With a portfolio set-up you can group systems as per the needed rate of change and tailor assessment criteria and the resulting handling accordingly.

So we’ve seen how APM on its own delivers significant benefits. It is, however, more effective when integrated with other IT disciplines. For example:

• Project portfolio management (PPM) integration reduces project cost (application re-use) and risk (informed solution design) and ensures projects align to application strategy
• Technology portfolio management (TPM) integration reduces planning errors and facilitates technology standardization
• Demand management integration makes the application requirements transparent and manageable

An APM solution as part of a tightly integrated set of IT portfolios is unbeatable. The next section covers how to achieve this.

The fact that you’re reading this article indicates you have recognized an immediate need in your organization for APM. But maybe you’ve also peered into the future and have created a vision of what you want to achieve in the long run building up to a full-fledged Strategic Portfolio Management discipline. Strategic portfolio management (SPM) is the ongoing process that focuses and aligns a company’s IT resources with its strategic business goals. It is the chain of activities that ensures business strategy is (well) executed on by IT and—supported by an SPM tool—gives you that clear line-of-sight from business strategy to IT execution.

Here are some of the key use cases that SPM helps us address.

• EA Governance
• IT Financial Management
• Business Strategy Development and Execution
• Operating Model Development
• Agile Transformation
• Operational Resilience

But to address these use cases, you need a sound core—a core that consists of an integrated set of portfolios including business portfolios (strategies, capabilities, processes), project portfolios, digital product portfolios, information portfolios, and service portfolios (as discussed previously).

And finally, you need a base to build your foundation on. This is provided by APM followed by Technology Portfolio Management (TPM). You need to start with APM and TPM to achieve quick wins. It‘s where you will be able to quickly show value and get support from stakeholders.

Begin by looking at the enterprise architecture discipline, as the need for APM is often driven from an EA perspective, and most APM tools are part of a suite that focuses on EA. Also—it is the basic essential to moving on into core capabilities and then SPM capabilities.

Above all—start with the end in mind. APM is the beginning of your journey to SPM and SPM will ensure that competitive edge that drives market—and your—success.