What is Application Rationalization and How to Implement It

Application rationalization is the process of assessing and streamlining an organization's software applications to improve efficiency, reduce redundancy, and optimize resource allocation.

March 31, 2023


Are you tired of managing tons of software subscriptions and struggling to keep track of who has access to what? Do you worry about the security risks of shadow IT and underused applications?

Fortunately, there’s a solution to these challenges: application rationalization and application portfolio management tools. 

In this article, we’ll explore the impact of application portfolio management. Finally, we’ll dive into the benefits of using a tool like Cledara to manage your software subscriptions, streamline your technology stack, and ensure that your organization is up-to-date with modern security and compliance standards. 

We’ll cover:

  • What exactly is application portfolio management
  • The impact of application rationalization across 4 key areas
  • Our six-step application rationalization process
  • Why modern teams rely on application portfolio management tools

If you're ready to simplify your application portfolio management, keep reading!

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What Exactly Is Application Portfolio Management?

In today's fast-paced work environments, it's not uncommon for IT departments (and even individual employees) to get new SaaS applications on impulse. It may make sense to get a new SaaS tool to address an urgent need. But these quick fixes have some long-term implications. 

What happens when these applications accumulate, go unused, or become obsolete? The result is a messy software stack that’s difficult to integrate and prone to redundancies. 

As your team and their tool stack grow, you may find yourself having to manage hundreds or even thousands of applications. And it can look daunting. However, neglecting your application portfolio management can:

  • Put your organization at risk of security breaches and regulatory violations
  • Reduce the efficiency of your software spending
  • Make it harder to track your workflows
  • Make onboarding and offboarding employees harder, slower, and less safe

Unfortunately, disorganized application portfolios are all too common. If you’ve experienced application portfolio chaos and want to avoid it in the future, you’ll need a new, methodical approach. In short, you’ll have to implement application rationalization.

What Is Application Rationalization?

Whether you know it as “app rationalization”, “application portfolio rationalization”, or “tools rationalization”, if you’re looking to optimize your digital toolkit and cut costs, this is something you should know about.

Application rationalization is the process of assessing and streamlining an organization's software applications to improve efficiency, reduce redundancy, and optimize resource allocation. This may involve eliminating, consolidating, or modernizing applications based on their business value, cost, and relevance.

This process usually involves the following steps:

  • Inventorying all applications your business uses
  • Analyzing each application's value
  • Detecting the most valuable applications
  • Removing applications that are no longer useful

The result? A leaner, more efficient software stack that not only saves you money but also has a better ROI. 

However, if you only implement application rationalization once and never think of your SaaS stack again, you may go back to square one sooner than later. Application portfolio management is an ongoing process. While it shouldn’t consume most of your time (and it won’t, if you adopt the right tool stack), it’s far from a one-off project. 

Why You Should Implement Application Rationalization

Application rationalization can help you to:

  • Reduce unnecessary software costs
  • Enhance productivity
  • Get rid of shadow IT
  • Keep your data protected

Let’s dive a little deeper.

Reduce Unnecessary Software Costs

If you're trying to optimize your SaaS spending, you may feel inclined to just cut down on the number of applications you're paying for. But cutting costs in the wrong areas can create more problems than it solves. 

It's not unusual for teams to invest in tools that go unused or underused. These expenses can pile up fast, bringing inefficiency and confusion. But, before beginning to cancel subscriptions, it's key to identify which of your tools aren't making an impact and which are. 

When starting your application rationalization process, you shouldn’t just list your most expensive subscriptions and cancel them all. Application rationalization isn’t just about cutting costs, it’s about cutting the right costs.

Enhance Productivity

Juggling too many digital tools can be tiring for workers and can decrease productivity. In fact, a study revealed that 37% of employees feel that they have too many applications to manage and that it disrupts their workflow. 

By consolidating your SaaS stack to avoid uncontrolled SaaS proliferation, you can help your team concentrate on using just the most suitable tools for the job. This streamlining, done through your application portfolio management tool, has the potential to boost productivity considerably.

Get Rid of Shadow IT

Shadow IT refers to the use of non-approved software, services, or devices for work-related purposes. This can pose a risk to your organization, as these tools are not subject to the same scrutiny as approved systems, and could potentially cause data security and workflow issues. 

Employees may also use different tools that aren’t available to the rest of the workforce, causing friction and confusion.

The first step of any application rationalization process involves listing all the applications used across your organization, including shadow IT, and identifying their respective owners. Empowered by this information, you can make informed decisions about your shadow IT. 

Better Security

Application rationalization provides an opportunity to upgrade your organization's security and compliance standards. 

Continuing to use outdated software and legacy applications can expose your company to data breaches. And an application rationalization process is great for detecting those problematic apps. By removing obsolete, unapproved, or unreliable tools from your technology stack, you can ensure that your day-to-day operations continue to run in a secure and legally compliant way.

Our Six-Step Process to Application Rationalization

Wondering how to actually get started with application rationalization? In this section, we’ll share a process blueprint. 

We recommend:

  • Conducting a readiness assessment and identifying needs
  • Inventorying applications
  • Analyzing the business value and technical fit of each tool
  • Calculating total cost of ownership
  • Scoring each tool
  • Setting actionables for each tool

Let’s dive into each step.

1. Conduct a Readiness Assessment and Identify Needs

Before diving into application rationalization itself, you should build a clear picture of the context you’re working in. Additionally, we recommend talking to key stakeholders and making them part of your SaaS management efforts. 

We recommend:

  • Connecting with key stakeholders to discuss their team’s stack and tool-related challenges
  • Making a business case for rationalizing applications
  • Getting leadership aligned and on board with your efforts

2. Create an Application Inventory

Analyze existing application inventories, if any. Can you be sure about their accuracy? 

Consider sending a survey to your colleagues, asking which tools they use at work regularly. 

You can also ask about:

  • Nonoptimal or hard-to-use tools
  • Favorite or essential tools

We recommend you include a field that allows respondents to specify which team they are in. 

Compile these answers and look for:

  • Different tools that serve the same purpose
  • Tools that were only listed by low numbers of employees
  • Tools that you know that the company is paying for, but that no one listed

If your IT department has an inventory of approved applications, contrast it with your survey’s results. 

3. Analyze Business Value and Technical Fit

When reviewing your survey’s answers, did you find tools that served the same purpose? That may be a case of tool redundancy. Are there tools that almost no one mentioned, but that most employees have a seat in? What are each team’s favorite tools?

Analyze the business value of each application. And then try to figure out how these tools connect with each other. For instance, some of your team members may like a tool that’s not very useful unless it’s combined with another platform. For instance, a library of Webflow resources. Chances are that any team member that listed this library also listed Webflow as one of their favorite tools. But that may not always be the case. 

It’s key to understand how tools connect, so you can optimize spending without disrupting important workflows.

4. Calculate the Total Cost of Ownership

This step of application rationalization involves determining the current TCO (total cost of ownership) of each tool. This can be challenging due to hidden or unknown costs, such as:

  • Projected future costs
  • Depreciated value
  • Convoluted service-level agreements

The real cost of an application cannot be calculated only by looking at the direct costs. So, you’ll need to dive a little deeper. Don’t worry if this step takes some time, it can be key in deciding whether you’re overspending.

5. Score Each Application

Compile all your data into a single score for each application, considering:

  • Business value
  • Technical fit
  • Total cost of ownership

There isn’t a standardized way to classify your tools. So you can get creative. For instance, you can classify your tools across four axes:

  • Friction - Does this tool have a smooth learning curve? Is it easy to integrate with the rest of the stack?
  • Adoption - Has this tool been adopted by the teams that need it most?
  • Impact - Does this tool make a noticeable difference?
  • Cost - Are this tool's costs an outlier?

6. Set Actionables for Each Tool

The last step of our application rationalization process involves determining what to do next with each application. Usually, application rationalization experts put tools into one of five buckets:

  • Keep
  • Replace
  • Retire
  • Reward
  • Consolidate

Those tools that you should keep:

  • Are essential to key workflows
  • Save time and keep your team focused on their priorities
  • Give you a good value for your money
  • Have been happily adopted by your team
  • Include unique features that make a difference

Tools that should be replaced:

  • Target a real pain point 
  • Aren’t a good fit for the team/company
  • Don’t have the features the team needs 
  • Have a low ROI
  • Are redundant

Tools should be retired when:

  • They don’t serve a concrete business purpose
  • They’re outdated
  • They’re redundant 

Tools that should be rewarded (with further investment) already make a difference, but still have potential. For instance, if your CRM has significantly boosted your sales team’s productivity, and you only have an entry-level plan, it may be a good idea to get a higher-tier subscription. 

In some cases, you can optimize your SaaS stack by consolidating tools. Consolidation is all about taking several different applications that serve specific purposes and replacing them with an all-in-one solution. 

What Can an Application Portfolio Management Platform Do for You?

It's estimated that companies allocate 75-80% of their IT budget to managing apps. On the other hand, companies that have implemented application rationalization have reported cost savings of more than $2M. And Gartner found that license optimization can result in a 30% reduction in licensing costs.

Now imagine what could happen if you got rid of all the apps in your stack that you don't even use. But applying an application rationalization process without the right tools can be cumbersome and time-consuming. And if it’s hard to make sense of your SaaS stack, to begin with, staying in control may be even harder. That’s how application portfolio management platforms enter the picture.

A good application portfolio management tool will:

  • Make it easy to visualize your entire SaaS stack
  • Provide you key information about individual tools’ impact and usage
  • Facilitate application rationalization workflows

What’s more, application portfolio management tools can also help you to visualize and optimize:

Streamline Your Application Portfolio Management

As your business grows, keeping track of all the software subscriptions can be overwhelming. Do you know how many subscriptions your company currently has, and whether they are all necessary? Who can access these platforms, and how can you safely offboard them if necessary?

The answer’s Cledara. Cledara is an application portfolio management tool that can help you take control of your software stack in the long run. 

With Cledara, you can streamline your software management processes and ensure that you’re only paying for the tools you need. You can also improve security and compliance by identifying and removing outdated or unreliable software. And that’s just the tip of the iceberg.

With Cledara, you will:

  • Get a comprehensive overview of your SaaS stack
  • Track invoices and manage subscriptions
  • Analyze tool usage and easily manage seats
  • Identify redundant tools and cancel any unnecessary subscriptions with a single click
  • Prevent shadow IT
  • Simplify credential management
  • Visualize how your software spending evolved over time
  • And more

So why wait? Book a Cledara demo today and finally make your SaaS management stress-free.

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