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Outsource magazine: thought-leadership and outsourcing strategy | September 23, 2017

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Software as a Service as a Catalyst for Application Rationalization

Software as a Service as a Catalyst for Application Rationalization
Outsource Magazine

Today many organizations still struggle to simplify their application landscape. CIOs leverage Software as a Service (SaaS) as a catalyst for application rationalization. First, SaaS functionality is well documented. There is no decision-making ambiguity regarding the match of SaaS functionality and the business requirements. Second, SaaS data migration effort is minimal. These two SaaS characteristics are beneficial in obtaining business approval for application rationalization. 

Application rationalization ambitions
Many companies have set stretch application rationalization targets for decades. To say the least, not all organizations have been successful in achieving their targets. In a Dutch survey1 CIOs and their direct reports indicated a 25% reduction of the number of applications in 2021/2022. However, there is a distinct difference in the number of applications of large organizations (revenues over 250m Euro) and small organizations. 
SaaS2colorFigure 1: the expected number of business applications for organizations with revenues over 250m Euro and smaller organizations (N = 58)


1The size of the dataset and the responses of the participants doesn’t provide sufficient basis for a solid statistical analysis. The presented results provide insights in cloud computing and application rationalization.

Chief Information Officers implement SaaS platforms to simplify their application landscape and remove technical debt. This research tested the hypothesis that an increase of cloud solutions will result in a decrease of the number of applications. The results of the survey indeed show a slightly negative correlation for the three two-year intervals (2017/2018, 2019/2020 and 2021/2022) in the period 2017-2022 for organizations with more than 500 applications. Also, the negative correlation for the two-year intervals becomes stronger over time. The implemented SaaS platforms reduced the number of applications and made legacy applications redundant. To ensure a positive business case, it is important to decommission legacy applications. This is often overlooked or delayed. The decommissioning of the legacy systems has to be included as a milestone in the SaaS implementation plan.

Software as a Service on the rise
The pros and cons of SaaS solutions are well known. In the context of an application rationalization program, the clearly described functionality of Software as a Service (SaaS) and the availability of mature data migration tooling are advantages of SaaS solutions. The clarity of the functionality description of Platform as a Service (PaaS) is slightly lower than for SaaS. PaaS includes only building blocks to configure functionality. The implementation roadmap for SaaS solutions is also shorter. Therefore, we expected organizations to invest heavily in SaaS to achieve application rationalization. However, the results of this study are more conservative as the cloud computing budget for more than half of respondents is less than 10% of the total IT budget. Also, in 2016, only 14% of business applications are delivered by SaaS solutions, but this is seen as gradually growing to 35% by 2022. The growth of PaaS from 8% in 2016 to 20% in 2022 is remarkable. A possible explanation for this growth might be the never-ending need for business-specific functionality. As expected, the results of the survey indicate a decrease of the market share for the traditional data center to host business applications. This survey indicates a drop from 66% in 2016 to 29% in 2022. In the future, Infrastructure as a Service (IaaS) solutions will most likely further reduce the data center market share. However, the reduction in the complexity of IaaS transformations will be minimal compared to the transformation to SaaS or PaaS solutions.

SaaS1colorFigure 2: The percentage of applications hosted in a traditional data center and on IaaS, PaaS and SaaS platforms from December 2016 to 2022 (N = 49)

PaaS in 2027
Are PaaS platforms here to stay? The degree of parameterization of SaaS platforms will drive the need for PaaS platforms in 2027 and beyond. Improved parameterization on SaaS platforms will make PaaS platforms redundant as business requirements can be parameterized on SaaS platforms instead of configured on PaaS platforms. SaaS vendors have to put their best foot forward to further enhance parameterization. Simplifying IT will benefit most from SaaS platforms. The availability of functionality in SaaS solutions will drive Chief Information Officers’ platform decisions. 

Conclusion
It’s about time to reduce the number of business applications and remove technical debt by replacing legacy applications with cloud solutions. Chief Information Officers who implement SaaS and PaaS solutions strike a double blow by realizing their cloud computing strategy combined with application rationalization. 


erik profile

Erik Beulen has 22 years of industry experience in information technology services. This spans 15 years supplier side at Atos and Accenture, and 7 years consulting at KPMG and the Boston Consulting Group. Erik published ten Information Technology books and over 100 publications in business magazines and newspapers, online and academic journals. He is also full professor at Tilburg University and Academic Director of the executive MSc Information Management at TIAS, Business School of Tilburg University, NL. Furthermore Erik lectures on disruptive technologies at Manchester Business School, UK and held the Global Sourcing Chair as Endowed Professor at Tilburg University from 2008 -2015.

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