Hackett Group research suggests that application portfolio management is the key to a number of good things you want from IT, including improved effectiveness, cost reduction, and better partnering with the business. The trick lies in reducing the number of applications in the portfolio.

Top-performing IT organizations, according to Hackett, operate with nearly half the applications per thousand end-users of typical companies. You can find the study here.

Gartner suggests that IT application portfolio management is particularly useful in the current economic climate. In its 2009 project and portfolio management Magic Quadrant, the researchers noted: “Many companies shifted into a cost-optimization mode, looking for ways to cut costs, refocus priorities, and shift spending in many areas, including IT. These companies also sought to apply more accountability and governance to the definition, selection, and execution of strategic as well as tactical IT investments.” Good things to keep doing even as the economy begins to improve.

Hackett identifies three reasons why companies want to measure and manage the size of their applications portfolio:

1. The number of applications per 1,000 end-users serves as a reliable proxy for the complexity of the technology that supports business processes. A high number signifies either a complex technology environment or an undisciplined organization. Each is costly. Too many apps burden IT with the need to deliver too much support while the organization pays for more licenses. Lack of discipline speaks for itself.

2. A high number of applications also hinders IT effectiveness because it takes longer to implement changes in response to business needs and opportunities due to an excessively complicated IT infrastructure. More time and effort gets spent just on maintenance and support, which means less for using IT to advance business objectives.

3. More applications in the portfolio also means a greater likelihood that the company will have difficulty scaling up or down quickly in response to changes in the business environment. In addition, project implementation takes longer, and there is a greater risk of unintended effects, which increases risk, further slows things down, and increases costs.

International Data Corp. (IDC) quantified the benefits from application portfolio management in an IT portfolio management survey. For example, the number of projects undertaken increased 35 percent, while the cost per project fell 37 percent and the number of redundant projects dropped 78 percent. IDC also found staff productivity increased 14 percent while project failures dropped 59 percent. The bottom line on application portfolio management came to $83,500 per 100 users for a payback in 7.4 months. Find the IDC report here.

As Hackett notes, “the economic crisis tested companies’ ability to take out G&A costs (including IT) commensurate with revenue declines. This was a test that most companies failed, some miserably so.” By managing application portfolios with the goal of reducing the number of applications per 1,000 users, companies can start redeeming themselves.

The Gartner Magic Quadrant identifies tools for application portfolio management. Tools alone, however, are not enough. You need management discipline, or the tool becomes yet another application. ###