Application Portfolio Management: The Key to Digital Transformation

Nowadays, digitalization is the norm when it comes to business. In this context, it is important that companies pay special attention to IT, as it is often the most important driver for the success of transformation initiatives. In particular, application portfolio management should play a central role in this, as applications are instrumental in creating the “digital twin“ of an organization. What’s more, a critical look at the application landscape reveals optimization potential and contributes significantly to business innovation.

Starting from applications, the enterprise architecture documentation and the digital twin can be expanded both in the direction of the business architecture and in the direction of the technology architecture. However, the focus should not be primarily on working on the application landscape. Rather, emphasis should be placed on the results of the transformation project and, above all, on their added value for the organization and the users. But what is the added value of the application portfolio management and how can it support transformation projects?

Learn this and more about the importance of designing your application landscape in this blog post. Read on to find out everything you need to know about application portfolio management or APM!

There are hardly any transformation projects that do not require adjustments to the application architecture. Either new applications must be introduced to best support the required changes in the business architecture, or existing applications must be adapted.

Combined with Application Portfolio Management (APM), it is possible to place innovation where it is most needed and not just where it is the easiest to implement. All applications, whether short- or long-lived, innovative or “system-maintaining”, must be managed in the application portfolio for this purpose.

• Which applications exist in the company and who is responsible for them?
• Which application services are provided by an application? Where are they used?
• Are any of the existing applications suitable for providing the application services required by the users?
• In which lifecycle phase is an application and what is the investment strategy for this application?
• What are the current information flows? What interfaces do existing applications offer?
• What are the change cycles of an application? Can it be quickly adapted to changing needs of users?
• Which architectural principles apply? Under which conditions can they be deviated from?
• Which system software is used to implement applications and their interfaces?
• Where are functional redundancies in the application landscape? Can consolidation be an answer?
• How are the applications’ costs, stability, technological fitness evaluated? What measures are possible?

In many industries, functional redundancies often hold a high potential for optimization. The aim, therefore, is to uncover and prevent such redundancies. If the transformation project were to be purely business-driven, such findings would not be possible. Using different applications for the same tasks causes unnecessary costs and often brings no significant added value for the users. Thus, one goal of application management is to reduce this heterogeneity by consolidating and streamlining the application landscape.¹

Experience has shown that companies have very different ideas about what an application is. The term “application” is defined as follows:

Or simply put: A (computer) program that performs a function that is useful for users.

In practice, there are other requirements that an application must fulfill:

• An application maps business logic. An example of this is a function for dynamically calculating the ticket price of a ski resort.
• It is usually not executable without the support of other system software, such as operating or database management systems.
• The application services offered by the application are encapsulated so that both the application itself and its application services are interchangeable. Thus, a (physical) application always has its own life cycle.

“An application portfolio describes the set of existing and planned applications of a company¹. It includes not only a list of applications, but also, in particular, evaluations that make it possible to make decisions on the planned further development of the application landscape.”

In the following, we show a methodical approach for performing APM. This can be adapted individually to the respective company and can be integrated with EA frameworks such as TOGAF®. First of all, the stakeholders and user types usually involved are presented.

Business roles from both business and IT are involved in APM.

The enterprise architect is responsible for documenting and regularly evaluating applications . With the participation of other stakeholders, he/she determines what information is to be collected about the applications and by whom it is to be documented. He/she prepares the evaluation results and is responsible for the evaluation of the portfolio and ensures that potential improvements are documented, evaluated and prioritized in the form of requirements.

Business unit architects take over the tasks of enterprise architects, especially in larger companies, and work closely with them. They coordinate the collection and evaluation of applications and the processing of requirements for their division, ideally for one or more strategic capabilities.

Application owners have primary responsibility over the applications they’re in charge of. This business role corresponds to that of the service manager, which is widely known from the IT Infrastructure Library (ITIL)3. Application owners ensure that service level agreements are adhered to. They act as mediators between the business unit, IT operations and development teams. They are also responsible for documenting the applications for which they are responsible. This role is often split into a person responsible from a business perspective and one from a technical perspective, whereby it is important to ensure that the responsibilities are precisely defined.

Employees from the business departments may provide support in describing the application services. IT operations managers often provide support, particularly in the assignment of the application to the underlying system software and the IT infrastructure components.

Chief Information Officers (CIOs) are primarily the recipients of information. They take the lead in determining which area is to be assessed as part of APM. They provide guidance on the selection of criteria to be assessed on a regular basis. Based on the results presented to them, they have to decide – supported by the enterprise architects – which measures to derive. They define in which cases proposals for transformation projects shall be made.

Increasingly, the role of a CDO (Chief Digital Officer) is also found in many companies. Ideally, they work closely with CIOs and enterprise architects. Together, they drive the digital transformation of the company. CDOs are responsible for innovative projects and transformation plans and coordinate the necessary organizational change. They ensure that the changes made necessary by digitalization are aligned with the operational business, customers, suppliers and products4.

Not to forget the users of the applications, whether they are employees of the organization or customers who use them. Especially when redesigning applications and application services, future users must be involved. In the case of existing applications, user behavior is ideally analysed so that potential improvements can be taken into account directly.

APM can be described as a cyclical procedure model that can be roughly divided into four steps. The steps do not necessarily have to be processed in the order suggested here. In some cases, they also run in parallel:

In the first step, applications must be recorded with the most necessary properties. Here, it is recommended to limit the amount of information to the most essential attributes. Less is more! To capture the applications, an enterprise architecture tool such as our leading enterprise architecture suite ADOIT can be used.

Afterwards, the applications can be evaluated. Here, the criteria to be assessed, such as business or IT fitness, must be defined.  The evaluation itself can then be done with the help of questionnaires. The result of this is an application’s investment strategy. If you would like to read more on the topic of APM investment strategy or application portfolio assessment, we recommend reading our related blog posts.

Based on this assessment and the defined investment strategy, improvement potentials can be identified and analyzed. 

Last but not least, concrete measures can be derived based on the insights from previous steps.

Cyclic APM Procedure Model

Just a few years ago, a common recommendation was to perform annual APM cycles. Today, this no longer seems fitting. In particular, innovative applications, which are characterized by short development cycles so that companies can react quickly to changing market needs, would not even be considered in APM. It is therefore advisable to understand APM as a continuous process, which can have an impact on the investment strategy of the application portfolio.

Key inputs are existing documentation on applications, e.g. in the form of tables, application manuals (text document) or in an EA tool. Key results are the evaluated applications, identified weaknesses and optimization potentials, and the resulting requirements and measures. These in turn trigger transformation projects or are taken into account in ongoing transformation projects.

The central result of APM is the application portfolio. This represents the repository of all current and future applications of the company and should be accessible to everyone in the company. The application portfolio can be evaluated using simple search and filter options.

Example of an application portfolio in the EA suite ADOIT

A time-related view of the application portfolio is often particularly interesting. For transformation projects, it is important to understand how long an application will be in use and when new versions can be expected.

Example of an application roadmap in the EA suite ADOIT

We refer to this as the application roadmap. In this figure, the applications are grouped according to strategic capabilities.

Reports such as the dependency chart are useful for analysing the environment of an architecture element. Such representations show applications and their dependencies within the business and technology architecture.

Example of a dependency diagram in the EA suite ADOIT

As a final example of an APM result type, a so-called cluster map is shown. It shows the applications and the capabilities realized by the applications. Using a so-called heatmap mechanism, the applications are colored based on the criteria defined in the application portfolio. In the concrete example, all applications with insufficient security fitness are highlighted.

Example of a cluster map in the EA suite ADOIT

APM provides fundamental information about applications and their dependencieson each other as well as on dependencies on other architectural elements such as business processes or system software elements. EA scenarios that benefit greatly from this or that do not function or function only to a very limited extent without this information are listed below without claiming completeness.

Application portfolio management is an important management and optimization tool and thus represents a central EA component in every organization. Current transformation projects, as well as other EA scenarios, also benefit greatly from a mature APM.

As one of the most important results of APM, the application portfolio is the hub of changes to the company’s application landscape, in which each application should be documented as part of the digital twin.

However, for this to happen and for the true value of APM to unfold, buy-in from application owners and all stakeholders must be solicited from the executive level. Only this way APM can live in the organization and make a significant contribution to the company’s success.

To gain an even more comprehensive understanding of application portfolio management, we recommend our free Application portfolio management e-Learning  as well as our advanced resources.

Or try our latest user-centric service “Application Investment Planning” – to assess the business and IT fitness of your applications and define the most appropriate investment strategy – now with the free Enterprise architecture tool.