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Its best to be realistic. Everything has an expiry date including the application made for your Fortune 500 client ten years back, which we call legacy today.

The established fact is that all applications have a limited use on RoI or technical life span. Like every company-owned asset, applications have an expiry date and their end must be planned and executed. Legacy applications at some point in their life will stop supporting business objectives, and will require higher costs to maintain, or will present risk of failure with severe consequences. Hence legacy applications present issues and challenges that must be dealt with in a systematic and disciplined manner. If this is not done, it may lead to a glut in operating costs, unproductive employment, misuse of workforce or other resources, leading to lost opportunities for other optimum investments, and experiencing of an untimely and unforeseen application failure with undesired outcomes. Is this the end of it?

No, the problem doesnt end here. To add to the legacy applications, in todays competitive environment, many organizations have aggressively invested in IT initiatives resulting in a large number of applications in their IT portfolio. In the absence of a defined process, the risks and benefits of these applications cannot be quantified with respect to the business objectives. This often results in a situation where identification of redundant IT applications and those that are not aligned to the organizations business strategy becomes difficult. Such applications drag down an organizations bottom line. Lack of quantitative criteria also makes it difficult to decide on new IT initiatives that are in line with the current business objectives.

Rationalization Strategy
The solution to this lies in a portfolio rationalization strategy that is being increasingly offered by Indian IT firms which showcase consulting capabilities in advising clients on which applications are beneficial and which are detrimental to the companys IT architecture. A portfolio rationalization strategy enables the organization to quantitatively measure each initiative along four dimensionsbusiness value, cost, risk, and technologyand then select the initiatives with high business and technology value and low cost and risk.

This results in an execution plan of action for retiring, optimizing, upgrading, innovating or outsourcing applications. Once the strategy is devised, there are four ways to deal with assessed applications.

If the application is useful and delivering on the preset parameters, it is advisable to persist maintenance and small improvements to meet growing business requirements. If the application is not supporting the business objectives, optimum functionality are recommended in the design of original applications. But if the application has ceased to deliver on its business objectives, it should be disposed and replaced with a new application. There are instances when an application is running but the business objective is no longer relevant. In such cases, this kind of application should be withdrawn immediately. It should be outsourced in cases where the cost of running an application is high internally or if the application is not core to the business or IT.

Strong benefits are visible to companies where the portfolio rationalization strategy has been implemented and they have realized significant bottom line gains. Case studies by leading Indian IT players have demonstrated savings in costs and efficiencies in many millions to leading Fortune 500 companies. CIOs should revisit their IT architecture and consider the portfolio rationalization strategy because every million saved is an extra million to the bottom line.

Transformation
The key operative term in a portfolio rationalization strategy is transformation. Transformation in terms of upgrading legacy systems, removing redundant applications, and making processes optimal, as it is critical to an organizations business may not be core to the companys functioning. As a result, what we are increasingly seeing in the market today is transformational offshoring.

When defined in the context of portfolio rationalization, transformational offshoring refers to the offshoring of processes that will ensure that an organizations IT infrastructure and applications are up to date as well as optimized to align with the companys business strategy.

If we look at a typical application portfolio, at one end of the spectrum, there are modern applications that leverage and capitalize on the potential of the Internet, while at the other end there are traditional, close-ended, legacy business systems. In the mid of this technological diversity comes a surprising fact that more than 70% corporate data still resides on legacy systems. The challenge that technology and business leaders have to address is the successful management and re-deployment of legacy systems to meet tomorrows business needs while they are offshore.

Offshoring Strategy
In order to do this, one needs to employ a well thought-out offshoring strategy. This process typically involves:

Decision Phase: This includes zeroing in on the reasons to offshore, the various engagement models, deciding on which processes to offshore as well as selecting an offshore vendor.

Transition Phase: This involves making the actual offshore transition happen, transferring knowledge as well as laying out a clear and measurable plan for transformation

Monitoring and Managing Phase: At this stage, the transformational offshoring strategy is well in place and keeping a tab on developments and measuring progress are the keys.

Broadly, organizations and vendors should evaluate the following parameters to come up with an appropriate roadmap and potential offshore candidates:

Turn-around Time Required: Low turn around time requires high sense of ownership. The timely delivery can have long-term business implications.

Requirement Clarity and Stability: High requirement clarity reduces dependency on selfowned resources. It also helps in ease of transformational offshoring.

Level of User Interaction Required: High user interaction requires faster and robust access to information. Cultural diversity is inversely proportional to the level of interaction required.

Application Complexity: Highly complex applications require long-term planning, skilled resources, and high costs.

Degree of Alignment: High alignment of applications with business processes requires low technological and cultural gap.

Nature and Number of Resources: Availability of adequate resources with right skill-sets reduces dependency.

RoI: Cost of initiating and managing the relationship in a given offshore engagement model and benefits delivered (in the form of cost arbitrage, better quality application leading to lower maintenance cost, better aligned application and productivity benefits) will be key to a final decision to offshore in a particular engagement model.

So, what comes through from all of this is the fact that transformational offshoring is a means to portfolio rationalization. All in all, it provides a wholesome approach to ensure the businesses becoming efficient, ie, critical applications run in tandem with business goals while staying lean by employing an offshore strategy.

Prashant Halari
maildqindia@cybermedia.co.in
The author is head, Center of Excellence for Portfolio Rationalization, Patni

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