How to Build a Business Case for Application Modernization

 
 
By Tim Pacileo  |  Posted 2008-11-30
 
 
 

How to Build a Business Case for Application Modernization


CIOs of large organizations recognize the benefits of modernizing applications and moving away from legacy systems. But starting the process-and justifying the investment needed in an application modernization initiative-can be daunting. And too often, the potential gains of a streamlined environment are deferred in favor of a short-term focus on cost containment through maintenance of outdated, redundant and inefficient legacy applications.

But the hodgepodge of systems characterizing many business operations today represents a house of cards that simply cannot be indefinitely sustained. Top-performing organizations are focusing on immediate, specific actions that yield incremental gains, while at the same time formulating a long-term vision to establish a foundation that enables the enterprise to effectively respond to emerging competitive challenges.

The following are five success factors that characterize an effective approach to planning and implementing an application modernization initiative:

Success factor No. 1: Define the stakes

 

The bottom line is that the mismanagement of application environments is perhaps the single factor most responsible for driving the unconstrained growth of IT spending in business. Over the past 10 years or so, unit costs of IT services have declined substantially. That consistent decline, however, has been more than outstripped by increased demand for IT resources.


 

If this growing demand for IT resources produced a demonstrable business advantage, all would be well. But, in fact, a huge portion of the increased utilization of IT is being wasted on the support and maintenance of outdated legacy applications. Ironically, the cost-conscious mentality that has allowed IT executives to show steady improvements in terms of operational efficiency is directly responsible for the wastefulness and inefficiency of many application environments today.

The cycle begins when a business application is first developed. To contain costs, the application is often not properly scaled to accommodate growth, resulting in performance issues and increased maintenance and support costs. Applications designed to run three to five years end up being used for seven to 10 years (or sometimes even longer). This happens, again, in the interests of "economy."

When implementing an enterprisewide system, meanwhile, many organizations choose to write interfaces between the new applications and the legacy systems, rather than writing additional functionality into the enterprise solution. The rationale: short-term savings on development resources. However, myriad systems, platforms and applications result, each with a unique set of maintenance requirements and costs. Eventually, this approach drives up IT costs further. As a result, the overriding objective of bringing in the enterprise application in the first place is lost.

Again, addressing these problems is seen as too costly and complex, so a mentality of stopgap measures and muddling through prevails. Plans to prioritize applications, complete the transition to a new solution or to an enterprisewide system, and retire legacy applications-while seen as necessary-invariably get pushed to the back burner.

A chargeback model can be a valuable tool to quantify the costs associated with a short-term, penny-pinching approach, and can help CIOs generate the sense of urgency required to take action. Similarly, one must emphasize the risks of being the "last man standing" with a legacy portfolio, and underscore the reality that no silver bullets exist to enable a quick and easy transition.

Communicate the Strategic Benefits


Success factor No. 2: Communicate the strategic benefits

Conversely, focus on the benefits of transition; namely, enabling the enterprise to compete in the 21st century. A streamlined application environment is a necessary foundation to enabling the so-called "agile enterprise," one that can effectively respond to new opportunities to gain a competitive advantage.

Consider the emerging field of "socialprise," which is defined as a new class of applications that link traditional enterprise systems of business intelligence (BI) with social networks (such as Facebook) that provide insight into demographics, personal interests, tastes and relationships. Under this model, a manufacturer of, say, sports energy drinks could benefit from an application that uses data from social networking sites to target teenage boys interested in skateboarding, and to develop and market products to them accordingly.

In making a case for a modernization initiative, CIOs should emphasize the competitive advantage associated with delivering the capability needed to support socialprise applications. Conversely, they should cite the risks of falling behind market rivals who successfully pursue such initiatives.

Self-fund the Initiative


Success factor No. 3: Self-fund the initiative

There's no denying that an application modernization plan requires significant investment.  But allocating the dollars to initiate the process presents a challenge, particularly in today's uncertain economy.

One way to address this challenge is to develop a plan focused on specific steps, resulting in quantifiable savings, and then to reinvest those initial savings to fund subsequent stages of the process. In one real-world example, an organization was spending 40 percent of its application development budget (around $2.5 million annually) just to maintain the interfaces between three disparate systems.

The firm had developed an in-house enterprise solution and then purchased a commercial application to replace it. Over time, the homegrown application was never retired and the vendor no longer supported the commercial application. A third enterprise application was then implemented. But, instead of replacing the two earlier systems, it was simply integrated to work with them. The solution was to consolidate the three systems into one, and to apply the cost savings to the next phase of the transition.

Budget by Phase, Not by Project


Success factor No. 4: Budget by phase, not by project

Positioning an application development modernization initiative as a "project" wrongly implies a beginning and an end to what will, in fact, be a continual process over the long term. This distinction is essential, in part to enable the reinvestment strategy outlined earlier.

In addition to allowing for continued investment, a phase-based approach facilitates a broader perspective. A phase-based approach makes it easier to leverage the benefits of enterprisewide applications as an enterprise resource planning (ERP) solution, or to leverage the benefits of enterprisewide data storage capabilities as a storage area network (SAN) solution-rather than simply focusing on discrete infrastructure operations.

This change in perspective, meanwhile, can allow organizations to transcend the longstanding silo-based model of IT investment, whereby each business unit funds development and support of its own application. This traditional approach often results in redundant capabilities and duplication of efforts, with the IT organization left holding the bag of supporting and maintaining the dysfunctional environment. Application modernization represents an opportunity to break out of this trap and to adopt a more strategic approach to operational management-one that links IT to business requirements and to improving the efficiency of critical business processes.

Think Ahead to the Future


Success factor No. 5: Think ahead to the future

An effective application modernization plan considers alternatives and ensures that the future state achieved through the change plan is appropriate to future business requirements. The ability to evaluate various scenarios over time and to select an optimal approach within the context of existing business realities is essential.

For example, is an in-house custom solution preferable to a commercial, off-the-shelf (COTS) package? While one approach may appear more appealing today, the long-term impact of regulatory requirements, business strategy and potential acquisitions and/or growth must be considered. Relatedly, be sure to balance aggressiveness with caution: Don't rush headlong into change that can prove disruptive but, instead, continue to move forward to avoid slipping back into the trap of reliance on legacy solutions.

A successful application change plan must therefore keep its "eye on the prize," and combine specific actions with movement toward a comprehensive vision. The key lies at the outset of the process, with a baseline assessment of existing conditions and a quantitative analysis of the potential benefit (both immediate and long-term) to be realized. Absent this upfront assessment, the results of the initiative will ultimately be distorted.

Another key element of a future-oriented approach to application management is a framework to measure progress and to gauge benefits as the process progresses. Characteristics include clearly defined "benefit triggers" that track the results of changes, the development of a "benefit engine" to define and track improvements, and the creation of a "benefit manager," whose role is to ensure actions are taken and to quantify the impact of the change initiative in terms of savings and enhanced productivity. 

With these elements in place, the benefit management model can be "wired" to respond to inevitable internal and external changes that will take place throughout the initiative, and to assess the impact of changing conditions on achieved results.  

In conclusion

These five related guidelines can help CIOs address the application management challenge in a scalable manner-one that combines immediate actions that yield improvement with a clearly defined, long-term vision of enabling the agile business enterprise of the future.

Tim Pacileo is a business and IT management consultant at The Board Room Advisors. Tim has 30 years of experience developing and managing a variety of strategic business and IT initiatives. His experience includes IT strategy, architecture design, sourcing, network and telecommunications, IT security, enterprise application selection, implementation and oversight, disaster recovery and business continuity planning, software and hardware evaluation and selection, and infrastructure design, focusing on data center and server consolidation and SANs.

Prior to joining The Board Room Advisors, Tim was an Executive Consultant at Compass. Prior to joining Compass, Tim was a VP at Gartner, where he established the firm's Global Data Center practice. Prior to this, he was global manager of Client Systems for AEI (a global logistics company), where he had responsibility for all client/server applications development, PC hardware and software standards, hardware and software purchases negotiation, network design and configuration, Internet application development, infrastructure design and security, and a Lotus Notes implementation supporting a global sales team of 300 individuals. Tim's experience also includes a stint as an IT consultant, specializing in application selection, and network design and implementation for the health care and mortgage banking industries.

Tim received a Bachelor's degree from Central Connecticut University. He attended graduate school at Fairfield University in Connecticut. He can be reached at TPacileo@TheBoardRoomAdvisors.com.

Rocket Fuel