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Is It Time to Rethink Your Enterprise Application Portfolio Strategy?

by Dennis Gaughan  |  June 29, 2010  |  4 Comments

I recently spent a few days in Chicago (well, in Rosemont, to be precise) with the Gartner/AMR Research SAP and Oracle Peer Forums at their semi-annual summit. It’s always great to participate in these events and network with some of the top SAP and Oracle customers. We used the opportunity to discuss key initiatives and identify best practices for how to extract the most value out of their application portfolios.

During the sessions, we talked about improving total cost of ownership and how to elevate the role of IT in the business. A lot of the informal conversation was centered on the best ways to extend and evolve application portfolios to meet the changing requirements of the business. Many of the Forum members continually struggle to keep up with these demands because of the inflexibility of the application architecture and the challenges of maintaining one complex application portfolio. A big part of the problem is that many of the systems have been architected to focus on improving internal processes and operations, while much of the business strategy has shifted to a network-based orientation.

Last week I spent two full days with Gartner colleagues Yvonne Genovese, Jim Shepherd and Val Sribar to talk about application research, and we kept coming back to the same question: Do companies need to rethink their application strategies to better reflect today’s collaborative business models? The answer sure seemed like yes, so we thought about the best way to accomplish this.

All Apps Should Not Be Created Equal

The fundamental idea from our discussions is that too many organizations have built their application strategies on a flawed premise: having a single, integrated application portfolio that’s managed against a common set of criteria and evolves on a common timeline. But this has led to the mess many companies are in. Any changes to systems require a tremendous amount of effort because even simple modifications have far-reaching implications to foundational systems.

We identified an approach to reclassify the applications based on the role they play in the organization to help develop a level of abstraction that can accelerate the pace of change for IT:

  • Systems of record — These are the systems that form the foundation for your enterprise and manage the information necessary to run your business. They’re transaction oriented and are core to financial reporting and regulatory compliance. Their pace of change is slow, with their life span measured in decades. They’re most likely delivered on premises.
  • Systems of differentiation — These are the systems that help drive differentiation for your company. They connect to customers and trading partners, as well as help speed time to market and overall agility. They’re more collaborative in nature, and while they leverage data from systems of record, they capture and maintain additional information. They’re relatively stable and have a life span of anywhere from three to 10 years. Many of these systems will be deployed on premises, but some may be delivered as a cloud application.
  • Systems of transformation — These systems create innovation for your organization. They’re often developed out of ad hoc processes and tied to specific initiatives, so they can have very short life cycles. They’re driven, developed and funded out of business budgets. They’re also highly collaborative and involve both structured and unstructured data. The dynamic nature of these applications is well suited for cloud-based deployments.

Applications in the differentiation and transformation tiers will often be funded, created, implemented and managed outside the IT organization (whose role might be to create a platform for that class of application). These application categories should be treated differently because they have different life spans, regulatory implications and change requirements. Unfortunately, many companies have lumped all of them together into one monolithic architecture, which is costly to maintain and hard to change.

The Seeds Have Been Planted

When companies introduce portfolio management discipline, they often start categorizing IT spending across three similar dimensions: run the business, grow the business and transform the business. This categorization gives companies the ability to measure and adjust their IT spending to reflect business priorities. They can also use these metrics as a lever to reduce IT spending on “keeping the lights on” and increase spending for initiatives that will drive revenue growth or margin improvement.

However, it’s not enough to simply track your spending after the fact. Reorienting your application portfolio on these three categories will force a number of changes:

  • Business cases are different because the goals and criteria are different.
  • Ownership and funding models differ at each level.
  • Vendor selection criteria varies significantly.
  • Integration, data and security strategy must reflect different goals.
  • Overall governance strategy changes to support a more distributed model.
  • Application life cycle management differs by category.

More to Come

I believe we’ve hit on an exciting new thread of research that will help customers adjust their application portfolios to better reflect how the business operates and give organizations the power to make IT a truly integrated and differentiated capability. We’re planning a series of research that will help our clients not only understand what these changes mean, but how to make the changes necessary.

Has your organization already made this transformation, or are you in the middle of reassessing your application portfolio? I would love to hear your story at

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Category: applications  enterprise-software  erp  

Dennis Gaughan
Managing VP
3 years at Gartner
18 years IT industry

Dennis Gaughan is a managing VP within the Enterprise Software research team, focusing on enterprise applications. His research focus is on the enabling technologies that support those enterprise applications, including application integration and B2B infrastructure. Read Full Bio

Thoughts on Is It Time to Rethink Your Enterprise Application Portfolio Strategy?

  1. Dennis – I found your post interesting and started wondering how best I’ll apply this philosophy to SCM Applications. I started typing out a few lines and then realized that with its size being what it is, cross-referencing my comment to our practice blog makes more sense. Would request your views and comments.

  2. […] Dennis Gaughan is a managing VP within the Enterprise Software research team, focusing on enterprise applications. His research focus is on the enabling technologies that support those enterprise applications, including application integration and B2B infrastructure. Read Full Bio Coverage Areas: ← Is It Time to Rethink Your Enterprise Application Portfolio Strategy? […]

  3. RAFAEL says:

    Having read the AMR Reserach Executive Supply Chain Conferecne 2010, I would say that most companies define a new application project to be a “differentiation or transformation enabler” and based on that, the investment levels are set; however as the real cost of achiving is known, by over complicated megasuites services proposals, most tend to rest with a “system of record” doing not much than GL and the cost of ownership and return on investment gets hard to be manage.

    Much was written years a go on how much should be invested, as a percent of revenue most of the time, but then the time figure was to be put on the table so that gets harder to balance how much to be invested in a fiscal year timeframe, projects kept their original objectives for years, now the problem is that real life does not wait for you to be enable to differentite or transform

  4. Gene Tanski says:

    I would agree that this is an exciting new thread of research for Gartner/AMR. Fundamentally, I would suggest that the quickest and most sustainable way to align IT portfolios to current and future business requirements is to tie those investments to measurable bottom line results such as increases in EBITDA.

    Until then the age of the integrated application portfolio may not be quite over but perhaps it’s at least going through a major paradigm shift. We see your view of IT transformation playing out every day with our manufacturing and CPG clients. Economic pressures and shareholder expectations are forcing business managers to the matter-of-fact conclusion that they can’t afford NOT to integrate best-of-breed solutions into their cumbersome and often stagnant application portfolios.

    Almost all companies have established, functioning transaction systems.
    Competitive advantage now comes from adding functionality in the form of ‘Systems of differentiation’ to enhance performance. These enhancements include the use of non-traditional data, often unstructured and ad hoc – something you would know from your line days of application development and current research in application integration.

    The key will be to upgrade applications within the lense of measurable ROI until the best practices of today rise up to become the new enterprise portfolio standards of the future. The best place to start? Supply chain management. As your own research shows (AMR) the single most effective investment that almost any company can make to improve the entire supply chain network is to reduce errors and inaccuracies in execution level forecasting.

    Demand Foresight is an effective system of differentiation by operating easily in a variety of traditional ERP environments, while significantly improving demand forecasting performance resulting in improved customer service and more efficient operations (Inventory reduction, improved order fulfillment) leading to improvements in measurable corporate results such as Gross Margin and EBITDA.

    Where I perhaps have some concern is when David suggests how this elevates the role of IT in business. This will certainly happen. But right now, these decisions are being driven by operations managers and the C-level. Though there are many exceptions, IT classically resists in favor of not upsetting the integrated system apple cart- too often in the past, an integrated IT portfolio has mistakenly served as a business strategy. There is hope, however, as more and more pioneering IT departments are willing to adopt best of breed applications into their monolithic portfolios. Keep up the good work in getting IT to cross the chasm and please let us know how we can help.

    Gene Tanski
    Demand Foresight Software

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