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August 2012

Application Portfolio Management: Aligning Applications Portfolios with Business Needs and Strategy

In previous blogs, APM: How Much Are Your Applications Really Costing You? and APM: Why Organizations Don't Understand the TCO of Their Applications, I focused on how organizations can start to determine the technical and business value of their application portfolios. In this post, I would like to focus on how well the application portfolio aligns with the business needs and strategies of the organization.

Aligning Applications Portfolios with Business Needs and StrategyApplication governance processes used to establish and actualize the application strategy must collect fact base data from stakeholders to analyze the current state and use it to maintain, prioritize, and classify applications based on business needs. One way to ensure that the application portfolio is meeting the business needs of the organization is to have frequent communication with the business customers of the application (Swanton, 2012). The needs of the business customer are constantly changing and if they are using applications within the portfolio, the application manager needs to understand those changing needs or requirements. One idea is to survey the application business users twice a year. The survey could include the following questions:

  • Are you having any technical issues with application X? How does the application X make you and the organization more productive?
  • Has your organization changed their business strategy and business processes in the last six months? Is the organization’s business strategy documented? Does application X still align with that strategy and business process?
  • Of all the applications you use in a day, week, month, how important is application X in getting your work accomplished. Would you prioritize application X enhancements ahead of other application enhancements? Why?
  • Do you use two or more applications to perform the same function? If you do, are you migrating off the old application to the new application or are there truly two or more applications that do the same thing?

Effective communication with your business customer is one important aspect of application governance. Answers to these questions and understanding the health and fitness of all the applications within the portfolio, helps the application manager prioritize all the work (projects to enhance the applications) that is connected to the application portfolio. In addition, reducing duplicate legacy applications should allow costs to be reduced or allow organizations to invest in future innovation projects. Finally, the business leaders, customers, and users should be equal partners in this analysis and the communication from IT should be frequent and responsive.

In my next blog, I'd like to discuss the concept of Pace-Layered Application Strategy and ways to continuously update your application strategy as well as how understanding the future application requirements helps the application manager determine future resource skill requirements.

I'd like to hear from you. How are you currently aligning business needs and application strategy? What is your approach to understanding the health of your organization application portfolios? Share your experiences by leaving a comment below.

Swanton, B. (2012). 2012 strategic road map for application strategy. Gartner, doi: G00234745

Related posts: APM: How Much Are Your Applications Really Costing You? and APM: Why Organizations Don't Understand the TCO of Their Applications

Closing the Gap Between Strategy and Execution -- Part 1

How to Use Annual Budgeting to Increase Total Shareholder Return

The link between a company's strategy and the long-range planning process, which culminates in their annual budget, has always been, to put it nicely, a very loose one. For those of us close to the planning process, this has been a well-known problem for a long time. Yet we continue to be surprised when we find that companies cannot seem to execute on their long-term aspirations. A research study featured in the March 2012 McKinsey Quarterly titled, How to Put Your Money Where Your Strategy Is quantifies the impact of the strategy and execution gap and concludes that closing the gap requires more than corporate determination -- it requires the application of analytical insight necessary to make the right decisions.

The problem can be easily summarized. All companies create strategic goals but few companies use their long-range planning process to translate these strategic goals into actionable departmental based budgets. When it comes time to create an annual budget, most companies allocate their resources in roughly the same way they did in the previous year. Over time, this process virtually assures that the company will never meet its strategic aspirations.

This problem is not a secret. I can recall a recent, specific conversation the Planview team held with a prominent analyst who covers software applications used by finance departments. He highlighted this strategy-budgeting gap as one of the major issues facing companies today. I asked him how to go about quantifying the market for solution-based approaches. He started his answer by saying, "Well, just assume that almost every company of a certain size has this problem…" -- a recognition of how truly common this problem is.

The new McKinsey study has quantified the problem and the impact. The authors noted in their summary, "Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance" (2012, p.1). The authors found a few companies that did reallocate their budgets, and then compared the results of those companies with the results of companies who made minor tweaks to their budgets. They found that over time, the companies who made the budget reallocations "earned, on average, 30 percent higher total returns to shareholders (TRS) annually" than those who did not (2012, p.3).

How can a company link its corporate strategies to execution? What can a company do to make more significant and appropriate changes in its annual budgeting process? I found it interesting that the authors recommend that a company should use all available resource reallocation tools (Hall, Lovallo & Musters, 2012). They make the assumption in the article that a company has resource allocation tools available in the first place. And in my experience, most companies do not.

To allocate resources appropriately in an annual budgeting process, the feature required is called "optimization." Finding a tool that performs optimizations of resources according to a firm's strategic objectives is using the right tool for the job. Selecting a tool that enables budget optimization will help a company develop annual departmental budgets that allow a company to execute on its corporate aspirations and realize significantly higher shareholder returns. For further information on this topic read The 15 Pitfalls of Long-Range Planning.

Part II of this series examines the "Optimization" feature in detail, and discusses how to use optimization in your planning process. I'd like to hear from you. How are you closing the gap between strategy and execution? What methods are working and which ones are not? Share your experiences by leaving a comment below.

Hall, S., Lovallo, D., & Musters , R. (2012). How to put your money where your strategy is. McKinsey Quarterly