Moving from a system of record to a system engagement requires app rationalization

"Crossing the Chasm" author Geoffrey Moore recently asserted that enterprises have extracted 90 percent of the potential value from system of record software such as ERP (enterprise resource planning), and that we need to engage today’s knowledge workers and customers in ways that they are familiar with and prefer. We need to focus energy and money on the system of engagement, the app. This means we need to liberate expenditure from legacy back-office and front-office systems and refocus it on the enterprise system of engagement. However, for most orgs, 70 to 80 percent of IT investment is socked away in these legacy systems that will only derive only 10 percent more value. Unless investment needs to be evaluated and largely refocused, IT organizations will find themselves irrelevant and between the proverbial rock and a hard place when it comes to generating business value and productivity.

 

We believe that today’s IT organizations are at a crossroads. They need to free legacy investment dollars to become relevant to an increasingly “Instant-On” world. Making matters worse, all the easy, “self-inflictable” cost cuts have already been made. The next round requires business restructuring or joint business/IT cost reduction. This means IT needs the business to participate in setting funding priorities. For this reason, the question is no longer whether to transform aging applications and infrastructure, but when to start the process. It is essential that the business and IT gain control over legacy applications, inflexible processes and infrastructure that impede responsiveness and innovation. Getting started involves establishing a clear understanding of the applications portfolio by answering three simple questions:

 

  • What should we keep?
  • What should we change?
  • What should we retire?

In the language of portfolio theory, this is about determining where to invest, grow, maintain and harvest. In organizations that I have talked to, there is not only huge cost tied up in legacy applications, but there are also historical versions of applications being retained and maintained as historical data repositories. At a large insurer, a new version of Siebel was put in 18 months ago. It is running just fine. However, the business asked IT to maintain the prior two versions of Siebel because “there might be some data that they might need in the future.” A major North American bank put it this way: “We never take anything down.” A consulting firm tried to shock its audience recently by saying that 50 percent of applications at the typical multinational could be shut down without the business knowing the difference. It is easy to see why IT costs have become bloated and focused on things that have limited continuing business value.

 

Getting out of the box involves knowing the cost of applications as well as their continuing value proposition. To kick-start this process, IT organizations need to derive their cost per application or service then relate the costs to application utilization and value. Why is this important? With cost and utilization, IT can ask business counterparts why they are continuing to fund specific legacy applications.

 

Proving the business value from application transformation

Many need to go further still. They need to conduct a top-to-bottom analysis of IT investments. To some degree, this is akin to people who seek the assistance of a therapist.

 

Often they are the sanest of all, because after the journey they actually can have their “act together.” In the case of an IT organization, the “therapist” is a consultant who helps IT to determine what is important and how they can measure and demonstrate the value that IT generates. Like other topics that we have discussed in the last few weeks, there are concrete measures that prove the value of the application transformation journey. The typical improvement measures include the following:

 

1) Number of applications by lifecycle category: Later-stage systems of record investments should diminish period over period.

2) Number of applications in portfolio: The number of system of record applications should be consolidated and reduced to make room for system of engagement investment. This should go down period over period.

3) Innovation delivery: The amount of innovation delivery investment should go up as we reduce legacy investment period over period.

4) Percentage invested in strategic projects: The same thing should happen here as in item 3.

5) Percentage of change in service cost. This should go down as investment is consolidated.

 

Conclusion

It is clear that we are moving from a world focused on the data repository to a world focused on the consumption of information. Now more than ever, we need to refocus dollars on how knowledge workers engage the enterprise. We need to proliferate apps rather than new systems of record; doing this requires management and rationalization of existing applications. It is time that we turn some lights off to stay relevant.

 

Related links: Geoffrey Moore – Systems of Record [video]

When IT cleans house, the business cleans up

Solution Brief: Application Transformation       

Solution page:  IT performance management

Twitter: @MylesSuer

Comments
MylesS | ‎08-12-2013 08:39 AM

Jim,

 

I am sensitive to the compliance issue. However, in this case, they succeeded in moving all the data as well to the new app. They were using two versions back as effectively tape backup because they could. If only the business had understood the cost of this choice versus other technical options, they would have then freed investment to extend business competitive advantage elsewhere.

 

Myles

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About the Author
Mr. Suer is a senior manager for IT Performance Management. Prior to this role, Mr. Suer headed IT Performance Management Analytics Product ...


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