Use this same portfolio picture for an analysis of your business applications environment to look for cost savings. The process of identifying application cost savings cannot proceed without a solid understanding of what applications are already in use within the organization, who is using it, where it's being used, for what business purpose, and how much it is currently costing the organization. For significant cost reductions, consider the tactics in this section for changes to the business applications portfolio as shown in Figure 1.
Eliminate Unused Software
It is challenging to reduce costs in the applications area because changes typically take a long time to implement. However, eliminating unused software modules is one of the quick hits that immediately take costs off the budget. Do this by reducing shelf ware. Make sure you are not paying for any unused or unimplemented software. Third-party software inventory and spending audits to validate software licenses frequently find overspending on licenses compared to the frequency of under-licensed software. Retiring unused application software usually results in a reduction in use
of supporting infrastructure items, which you then can also eliminate. For example, one company found an application that had never been deployed. This application had 30 communication lines installed but these lines also were never used. Likewise, consider retiring unused modules or excess users of any in-use application to reduce the maintenance costs relative to those modules.
Consolidate Redundant Applications
Review modules that you have purchased as part of an enterprise system that duplicate functionality provided by silo applications. Consider replacing or removing redundant applications that have overlapping functionality in order to reduce costs. For example, recording and reporting employee time is often part of your payroll system. It might also be contained in your human resource system as well as your shop floor control system and project portfolio system. You might also have departmental silo systems to track and report time. In this example, restructuring your applications so you do all time reporting in a single enterprise application will reduce the cost of providing this functionality. Eliminate all use of duplicate functionality in other systems unless there is a compelling argument to do otherwise.
In the case of an organization with multiple geographic sites, look closely at applications that are deployed in different locations as you might find redundant applications that are ideal opportunities for consolidation.
Replace Applications with High Support Costs
Review your maintenance and support costs as well as your full time equivalent (FTE) personnel needed to support each application. Rank the applications by total cost of ownership. Make sure that the business value received from each application is in proper alignment relative to the costs. Review the support costs by application with each business executive to ensure they feel they are getting comparable value. Relative to the other applications, if an application seems costly compared to the business value, work with the business to consider replacing expensive applications with a more cost-effective solution. In some cases, this more cost-effective solution may be a lean or even manual method.
Assess the business applications to ensure they are providing the desired business value. One company did this by working with the IT steering committee to place each application on a grid indicating value and cost as shown in Figure 2 according to the following actions:
Applications identified in Grid 1 are high-value applications, funding is a priority, and they are generally maintained as status quo unless expenses must increase for some reason.
Applications identified in Grid 2 are also high-value strategic applications, but review them to see if you are able to decrease maintenance costs without negatively affecting value to the business.
Applications identified in Grid 3 are lower-value applications considered for consolidation into higher-value applications with a lower priority as they have a relatively low on-going cost.
Applications in Grid 4 are immediate candidates to review for consolidation, as the costs are significant relative to the value to the business.
Consider Second-Best Applications
When evaluating software options, many organizations implement the best software, best-of-breed, or high-end software. It is like the old saying, "no one ever got fired for going with IBM." In some cases, the second-best software may give you enough functionality to meet the business needs. You may not always need the most high-end software particularly when comparing the price differences. At times, you are able to get 90 percent of the functionality at 60 percent of the cost and that may be sufficient for your needs.
Standardize Application Vendors
If you consolidate the major portion of your application portfolio with one main vendor (e.g., IBM, Microsoft, Oracle, SAP, etc.,) as much as possible, you are able to gain additional discounts due to higher volume purchases, and it will cost less in interfaces and in achieving seamless streamlined processes. Training costs and personnel support costs are also less with a consistent technology stack. On the other hand, be aware that some of your post-purchase leverage is gone with a single vendor approach and a larger footprint has a much higher barrier, or costs, to exit. Therefore, in some instances a series of interfaced niche applications give a company more flexibility and interchangeability, particularly with the use of enterprise architecture and portal technologies.
Consolidate Application Instances
Many large global organizations spend millions of dollars implementing a common Enterprise Resource Planning (ERP) system, but some implement many different application instances to meet the needs of different divisions, locations, or business units. Each separate instance costs additional money for licenses as well as maintenance and support. Whenever possible, try to consolidate application instances into the fewest number for a lower total cost of ownership.
Standardize Development Tools
For both custom development and vendor-supplied packages, standardize on the fewest possible development tools, and classify the ones you retain as primary and special use.Each additional development tool costs the organization money as you need to have trained resources and backup resources that know each language and development tool. Of course, weigh this against the business functionality provided as you do not want to exclude applications that would provide value for the business because they are using a different language.
Identify Gaps in Functionality
As you look at your applications portfolio, contrast it against the business organization and functions. Identify any key missing areas to review for potential benefits from implementing technology. For example, one company did this analysis and found that the company's marketing area did not have automation. The company realized it was because the marketing executive did not have an appreciation of technology and did not drive the need for tools. When looking at the processes in marketing, they found a severe need for improved processes and technology, which, when implemented, resulted in tremendous business benefit.
Give people the tools to foster accountability, efficiency, innovation, and collaboration throughout the organization. Enterprise tools used across the company achieve a significant savings in business costs as opposed to siloed business unit solutions that meet the needs of only one department. One example is implementing a powerful data warehouse and Business Intelligence (BI) system that gets the right information to the right individual faster and cheaper, enabling improved business decisions. Businesses leverage and mine customer data to come up with solutions that allow a business to interact with customers in new ways that drive additional revenue.
Consider using new technology to provide functionality that was not possible in the past. This may help reduce business costs and eliminate other costly IT applications. For example, newer functionality provided with Web 2.0 collaboration products (e.g., blogging, Sharepoint, wikis, and mashups) can be extremely useful.
Use More Functionality
Most companies fail to take full advantage of their enterprise software packages, ignoring important features that drive significant business efficiencies. For example, one retailer created purchase orders to use in planning purchases and shipment timings with its vendors. This resulted in expensive downstream purchase order changes and reconciliations due to subsequent review and feedback from the merchants. When IT instructed the retailer's merchants in the use of purchase requisitions, which was previously an unused function, it significantly reduced time-consuming activities.
Considering both the full range of functionality and potential modules, industry estimates say that companies use 25 percent of the functionality that is available in packages. Work with the business managers and staff at all levels to review additional functionality that you currently own to see if they would benefit from using additional features. Of course, as a company uses additional functionality in existing software, the cost-per-functionality decreases. Payback from software implementations multiplies as the software penetrates more broadly and deeply into the organization.
Also, look at using more of what you own relative to hardware. For example, one company outsourced payroll as they initially did not have the capability to operate it independently. After implementing a secure data center for other needs, they looked at bringing payroll back in-house by using existing capacity, which saved considerable money.
Discontinuing Source Code in Escrow
Some companies regularly subscribe to source code in escrow whenever they license application software. Granted, this is a relatively nominal cost compared to the expense of having to replace an unsupported application. However, all of these nominal costs add up to a sizeable annual expense when a company subscribes
to dozens of escrow agreements. Recognize that many source code escrow agreements are structured such that the only release event is where the vendor goes out of business, which is extremely uncommon. Rarely do vendors release source code without a very expensive and heated legal fight. When push comes to shove, most companies choose to continue operating their relatively stable unsupported applications rather than go to the expense of getting the source code and maintaining it internally. Subscribe to source code escrow only when the application is mission-critical and worth spending the additional tens of thousands of dollars required to get the source code released.
