Boosting the Information Value Chain through Application Portfolio Rationalization

Two-third of the CIOs in 2007 believed that strengthening the “information value chain” is a key business differentiator. “Information value chain” – this word might appear as a cliché to many of us, but let us analyze it a little further. Does this word typically mean integrating applications and sharing information within the application portfolio? Or does it mean using the existing data of the organization and mining it further to generate information to reveal meaningful growth opportunities?

Ideally, it means both and possibly much more. Considering a typical example of a manufacturing organization, a value chain is composed of a sequence (a chain) of primary activities (like inbound logistics, operations, outbound logistics, Sales & marketing and customer service) and secondary or support activities. Today, with IT being ubiquitous across every organization, it is not about using IT applications to automate or mine data in each of these activities. It is all about identifying the right activity that can be a business driver and optimizing the application portfolio around this activity. That is how we use information to create value along a chain of activities. To comprehend it fully, we actually optimize or let me put it as “rationalize” our application portfolio (which might mean adding functionalities/applications or trimming the existing portfolio) to boost an activity that is a business driver for the organization. That is how we can explain a strategic IT service called “Application Portfolio Rationalization” or to put it conveniently - APR.

Let us comprehend APR and its use by taking a few real-world scenarios. A MNC that is a market leader in the media industry has a high ratio of SG&A (Selling, General and Administrative) as a proportion to its revenue compared to industry standards. A high SG&A: Revenue ratio might imply one of the following two causes: -
1. High marketing and sales promotion costs
2. Overhead employee expenses
In order to cut down on the SG&A expense, as a first step, the organization needs to track its marketing and overhead costs, preferably using IT. On assessing the entire portfolio of applications in the organization across all locations in NA, Europe, APAC and Latin America, we identified a legacy application that is being used in APAC to capture marketing and sales promotion costs. Thus, an ideal APR recommendation would border on the following technical and functional recommendations: -
1. The organization should upgrade the legacy application to architecturally acceptable software.
2. Following the technical up gradation, it should roll this application across all locations and feed the data into the global data warehouse. The global data warehouse should be further optimized to generate management reports that would keep track of marketing costs.

Similarly, a growing organization in the Energy industry firmly believes that expansion through exploration is its primary way ahead and hence has undertaken multiple acquisitions to expand the no of rigs at its disposal. However, owing to its inorganic growth, it is facing a high debt-to-equity ratio, which reflects wrongly in its credit rating. Thus, while performing APR, we would recommend on the following: -
1. Cut down on the redundant IT applications that got absorbed into the organization during the spate of acquisitions.
2. Monitor each activity in the value chain that reduces the cash flow turnaround time (considering a timely accounts receivable being used to fund its accounts payable) using its IT applications. Thus, the applications should be functionally extended to generate alerts following delays in parts supply/repair, gas drilling, gas gathering, refining, distribution, marketing, customer credit checks, and receivables/payables.

Considering the above examples, let us attempt to put together a definition for APR. APR is a collection of diagnostics, tools and methodologies to identify, analyze and restructure the existing application portfolio around the key business drivers of the organization. Thus, it can be used with the following dual intent: -
1. Boost the top line by identifying the business processes that are the growth drivers and optimizing the application portfolio to bolster these processes. This might require adding new functionalities or applications in the existing portfolio. This might also require upgrading existing legacy applications to simplify the data analysis within the business process and to expedite information exchange between these processes
2. Boost the bottom line by consolidating and retiring applications, thereby trimming down the operating expenditure of the organization.

Both these benefits of APR help immensely in optimizing the information value chain and cutting down on any identified inherent redundancies to deliver tremendous overall business value on a continual basis to the organization.

Comments

[GIS Utilities]

Nice informative post.Quite useful to readers. thank you.

Geospatial Utilities

[transpalet]

hii
great information, thank alot