How to carry out application rationalization: Guide

If there was a project capable of reducing your total IT budget by 14% within the first year of its implementation, why wouldn’t it become your priority right now? Gartner reports that application rationalization, on average, leads to savings of 20% in application maintenance costs (which accounts for 70% of an average enterprise IT budget) in just the first 12 months, with even greater savings down the line. A comprehensive audit of software solutions is necessary to identify inefficiencies, redundancies, and opportunities for application modernization that align with evolving business and technological needs. Let’s explore how to conduct application rationalization most effectively.

What is application rationalization?

Application rationalization is vital for organizations to adapt to changing business conditions and efficiently manage bug fixes and updates. Each operation relies on hundreds of essential tools such as file storage, cybersecurity, communication, area-specific solutions, and many more. Yet managing these applications and their SaaS subscriptions can be demanding and costly. Eliminating low-value IT projects and optimizing resource usage helps organizations cut costs and streamline IT for better efficiency. Without rationalization, businesses risk missing opportunities and falling behind the competitive market.

Five steps of solution rationalization to maximize value

There are five stages to application rationalization:

Discover the application portfolio

The journey begins with technical due diligence. It is a structured exploration designed to catalog and understand the organization’s current software landscape. Both formally adopted applications and those introduced unofficially need to be surveyed. For example, if an employee has been using AI tools to boost productivity, these tools are now part of the organization’s portfolio.

During this phase, stakeholders from business units and IT teams gather information about each application’s purpose, user base, and technical specifications. They typically document aspects such as licensing details, cost, integration points, performance metrics, and business impact. This data becomes the foundation for informed decisions in subsequent phases, as it reveals where overlap, inefficiencies, or critical dependencies might exist.

Categorize applications by scope and value

After the discovery phase, the next essential step is to categorize the inventoried applications based on their scope and the value they bring to the organization. This categorization forms the foundation of the four waves of modernization, prioritized as follows:

1. The low-hanging fruit: Begin with applications that are critical to a few processes but relatively simple to address. For example, an analytics platform used by a single data science team may have low complexity and interdependencies but deliver a high return on investment. Tackling these first is an excellent way to jump-start the application rationalization process.
2. The heavy lifting: The second wave is the systems of vital importance, such as an ERP that serves nearly every department. These core systems are complex and deeply integrated, but optimizing them can have transformative benefits for the entire organization.
3. Additional optimization: Then, applications with a narrow scope and low value. For instance, an outdated scheduling tool that can be replaced by modern, integrated solutions with minimal effort.
4. Polishing: Finally, applications with a broad scope but low value are up for replacement. For example, a sprawling content management system that is widely used yet underperforms. Reviewing such applications will provide final marginal improvements to efficiency.

Map out the transformation

Large enterprises rely on thousands of applications, and making individual decisions for each one would be impractical. A formal heuristics provides a clear, repeatable methodology to evaluate each application’s value, relevance, and alignment with business objectives. Without it, organizations may struggle with inconsistency, inefficiency, or subjective decision-making. 

The most efficient approach is to define six blueprint scenarios for handling applications and establish clear criteria for categorizing them. This streamlines the decision-making process and ensures consistency across the organization. 

1. Retain. Applications in this category function well and align with current business needs. They do not require adjustments or changes and can continue operating in their current state.
2. Retire. Applications that are obsolete, duplicated, or no longer used. Many organizations are surprised by the number of ghost applications present in their portfolio. 
3. Rehost. This scenario involves moving an application to a different hosting environment without modifications, known as "lift and shift." It is suitable for valuable modern applications that would benefit from more cost-effective or scalable infrastructure. Not all applications can be lifted, but this is the industry standard for designing software with this possibility in mind.
4. Replatform. In this scenario, the application is migrated to a modern platform with slight optimizations to enhance performance or compatibility. For example, an application might be moved to a cloud-native environment with minor adjustments to take advantage of modern computing efficiencies or integration capabilities.
5. Refactor. Applications in this category require more significant modifications to improve their performance, scalability, or maintainability. This may involve re-engineering parts of the application’s architecture or codebase to ensure it meets evolving business requirements or effectively handles increased demand.
6. Reimagine. This most radical scenario involves completely rebuilding or replacing applications that are no longer fit for purpose. The focus is on creating solutions that align with future business needs and strategic goals. This could include designing entirely new systems or adopting cutting-edge technologies to drive innovation and growth.

Execute

Enterprises often struggle to find talent, and internal resources often fall short for large-scale projects. Outsourcing application rationalization taps into professionals with specialized IT knowledge. They offer objective evaluations, best practices, and tools to assess each application’s value, performance, and relevance.

Outsourcing helps organizations save resources, speed up decision-making, and structure the identification of applications to retain, retire, rehost, replatform, refactor, or reimagine. External teams provide experience from various industries, reducing risks and avoiding common pitfalls. It's essential to collaborate with the outsourcing provider to align rationalization with business goals, protect data security, and ensure a smooth transition for users.

N-iX recently received Forrester recognition for its application modernization services, which focus on infrastructure modernization, application retirement, and cloud-native development. This validates N-iX as a trusted partner for innovative software development solutions.

Read more: N-iX recognized in Q4 2024 analyst report: Application Modernization and Multicloud Managed services

We help our enterprise clients transform their legacy systems and solutions for improved efficiency, user experience, and cost optimization. This includes designing and developing new management tools, migrating service databases, modernizing mobile applications, and optimizing platforms. N-iX's team of experts can handle every stage of the process, from cloud readiness assessment and strategy development to infrastructure setup, architecture redesign, migration, and maintenance.

Asses ROI and iterate

After each wave comes the time to evaluate the outcomes of the rationalization efforts for the first wave of applications and use the insights to refine the process for subsequent waves.

Emphasizing ongoing portfolio governance over one-time rationalization is crucial for success. Continuous evaluations of applications based on business needs, performance, and cost-effectiveness keep the portfolio relevant and efficient.

Read more: Application modernization strategy: Executive’s handbook

Wrap up

Application rationalization is an ongoing process that helps organizations streamline their IT portfolios, cut costs, and align software with business needs. It involves structured steps—discovery, categorization, transformation, and execution—and continuous governance for lasting efficiency. Addressing inefficiencies through outsourcing and scenario-based decision-making helps businesses save costs, boost performance, and remain competitive in a dynamic tech landscape.