The complete guide to software application rationalization
Anna Markowska | OCT 26, 2022
Many organizations rely on SaaS not only to operate, but more importantly to thrive. But while these tools are fast becoming integral to business success, the sheer volume of software applications now being used is becoming increasingly problematic.
Just take the fact that the average 1,000+ employee company uses as many as 177 active SaaS tools, many of which are likely to be draining their resources, budgets and time. This is particularly true for companies that operate a decentralized purchasing model.
But this purchasing model is unsustainable.
Because as department heads and individual employees continue embedding new tools into their day-to-day operations, the organization as a whole risks losing oversight of its SaaS stack. And with loss of oversight comes the risk of wasted SaaS spend, not to mention security issues and potential data breaches.
This is why it’s so important that you’re not only aware of your entire application technology portfolio, but that you’re also streamlining it for maximum cost savings.
Which is where SaaS application rationalization comes into play.
In this guide, we’ll discuss some of the benefits and challenges associated with application rationalization, and present a general framework your organization can use to make the necessary changes to your software stack.
What is application rationalization?
Application rationalization, also referred to as software rationalization or tool rationalization, is the process of assessing which of the different apps used by your business should be retained or retired from your operations.
Modern enterprises employ a breadth of digital tools, used for everything from workflow and customer relationship management, to human resources and budgeting. As a result, application rationalization is far more comprehensive than a quick audit of which software is being used and which isn’t.
Instead, the process involves taking a closer look at your entire tech stack and justifying the use of each of its constituent applications.
Those applications that are determined to be either redundant, duplicate or simply no longer required can then be canceled or the number of licenses amended. At the end of the process, you’ll be left with a lean, productive suite of applications that provide an improved return on investment (ROI) from your SaaS selections.
What are the benefits of application rationalization?
Teams that commit to scrutinizing their tech stack can enjoy a host of business benefits. These include:
While we’ve previously covered a number of ways to optimize your SaaS spend, few are as effective as reducing the number of applications you pay for. Mounting subscriptions and licenses can quickly become overwhelming, and many companies end up paying for tools that go unused, aren’t fit for modern purposes, or haven’t been terminated from past employees.
What’s more, many SaaS applications are going under-utilized, adopted only for a small selection of their features — according to Flexera’s State of ITAM 2022 report, nearly a third of SaaS spend is underused or wasted. This is where it may be beneficial to examine which tools are able to perform a variety of processes that you may use several different apps for, and terminate those that are redundant — therefore consolidating your tech stack.
Application rationalization provides a good opportunity to update your business to modern security and compliance standards. Using legacy applications and older software iterations can leave your organization open to data breaches, which is especially crucial to prevent when dealing with confidential employee or public information.
While assessing your stack, you may also find that a number of your tools are no longer supported by the vendor, perhaps due to an exceeded warranty period or because they have stopped providing maintenance to legacy systems. By trimming any obsolete and unreliable tools from your arsenal, you are ensuring that day-to-day operations can continue to run smoothly, even in the event of technical issues.
Shadow IT elimination
Shadow IT refers to software, services and devices outside of the ownership of the organization that are used for work. Data shows that 80% of surveyed workers admit to using unauthorized IT systems, and while employees are each entitled to their own way of working, these tools present a risk as they aren’t subject to the same scrutiny as an organization’s approved systems.
While there is usually no malice intended, this means that any information exchanged using shadow IT is at risk. What’s more, the use of these systems could cause friction in the workflow if employees are using different tools that aren’t available to the rest of the workforce.
By taking stock of all applications used under your organization and their respective owners, application rationalization can help you to mitigate these risks — and potentially even introduce you to effective new tools that your staff members prefer to use.
Working across too wide a range of digital tools has the potential to cause fatigue in your workforce and harm productivity. One report by Personio found that 37% of workers feel that they have too many applications to manage, and 36% feel that this disrupts their overall workflow.
Streamlining your SaaS stack to avoid SaaS sprawl can help to reduce the amount of time and effort employees divert to context switching between apps. Instead, they can focus and learn their way around the best tools for the job, rather than a sprawl of several that might each serve similar purposes — paying dividends for productivity.
What are the challenges of application rationalization?
While it can offer a range of benefits, there are also a number of obstacles that might slow an organization’s application rationalization efforts.
Effective application rationalization involves examining the functions, usage, ownership, lifecycles and costs associated with each piece of software that your organization uses. In short, it takes time. This is especially true if you’re heading up a larger or older enterprise that may have cycled through various iterations of tech upgrades and digital transformation efforts.
Similarly, the latter steps taken to replace or consolidate terminated licenses can be a drain on time and resources. There is a notorious lack of pricing transparency in SaaS, meaning that researching the most cost-effective applications to streamline your stack can be challenging. However, if it’s done correctly, the time and money that you can recoup in the long term make rationalization worthwhile.
While rationalization can help to reduce internal SaaS fragmentation, it is unable to address the digital habits of external clients and other entities that you may be collaborating with. For example, while you may consolidate your internal video conferencing tools so that each department uses Zoom, your clients might prefer to use other call providers such as Google Meet or Microsoft Teams.
In this case, it’s best practice to factor universal adoption rates into your considerations. Though your organization might be used to one tool, it may prove to be more productive to switch to the most widely-used system to avoid SaaS duplication and obstacles in external collaboration.
When it comes to the tools that they use each day, there’s a good chance that your staff will be unwilling to switch to unfamiliar applications. For the first couple of months, you might find that replacement or consolidation efforts seem to be more trouble than they are worth, thanks to usage errors and slow rates of adoption.
However, it’s your responsibility to ensure that they understand how and why they may need to move their work to new systems. This can be accomplished with a comprehensive onboarding process and regular training sessions.
The application rationalization framework
To help you to structure your process, we have prepared an application rationalization template. While the individual steps that your business will need to take may vary, this is the general framework that we recommend following.
1. Compile an application inventory
The first step of an effective application rationalization process is to assess and make a list of all software applications in use within your organization. This should include all licenses and subscriptions, regardless of whether they’re active or not, along with any free trials being used and tools that have been used in the past and incorrectly retired. If you’re not yet using an automated SaaS management tool that can collate all of this information in one place, you should consider creating a spreadsheet to help you visualize your stack and catalog all of your subscriptions.
For each tool used within your organization, you should try to obtain information such as:
- Cost of the subscription
- Cost of individual licenses
- Length of the contract
- Renewal schedule and clauses
- Purpose of the SaaS application
- Key functions
Keeping these details on file will help you to ascertain the true size of the organization’s SaaS stack, across all departments and all separate offices. To ensure you’re including all applications that are being subscribed to across your organization, follow our SaaS discovery process.
This is the first step to effective governance, ensuring that you have the necessary visibility on the portfolio to make decisions later in the application rationalization process.
2. Assess company utilization and software value
Next, consider the adoption and usage rates among your workforce for each piece of software. To attain comparative data, you may wish to include measures such as usage time and the number of active licenses or daily logins. This can provide you with a baseline understanding of utilization and separate the essential tools from the obsolete.
At this point, you should estimate the ROI taken from each application, based on how much is spent each year and how much net profit is gained from its use. Adoption of an application that provides positive ROI should correlate with a positive business outcome: for example, increased employee productivity or decreased customer acquisition cost.
This should provide an initial indication of which applications may be worth retiring and which play a fundamental role in making the business profit.
3. Consult with employees for further insight
While quantitative data provides an initial look at which software to prioritize, it’s vital to open the conversation up to your staff to learn more about their usage patterns and needs. At this point, you may choose to survey employees regarding what they use each tool for, what they like about them, and what they would like to see improved.
Ask questions such as:
- Which tools do you consider the “must-haves” to complete your work?
- Which tools do you not use?
- Do you feel confident that you are utilizing the software provided effectively?
- Do you feel you would benefit from more training in a specific application?
You can also conduct interviews with members of staff and work backwards from information about their work activities and habits.
Learning about a “day in the life” of members from each team can help to elucidate which applications are used for which operations, which have overlapping functionality, and which provide the stepping stones between tools to facilitate data transfer and communications.
This is useful information, because a tool may just be used for a short while each day, but this doesn’t necessarily mean that it is non-essential — it could just be that it provides a quick, vital function to allow a user’s workflow to continue.
4. Make decisions to retain, consolidate, negotiate or terminate
Considering what you’ve learned from your inventory, usage data and qualitative consultation, the next step is to make decisions about which tools to continue using.
Cutting your tech stack doesn’t have to be black and white, however: think beyond ‘keep’ or ‘delete’ decisions. Instead, also consider whether you can renegotiate the terms of your subscription, or consolidate the functions of several applications with one piece of software that facilitates multiple key processes.
Ask the following questions during your decision-making process:
- Do we have multiple applications fulfilling the same function?
- Does this application meet security and data privacy requirements?
- Is this application widely used in the industry?
- Can we relate the application to positive business outcomes?
- Do our employees find the application user-friendly?
- Is there another tool in our stack that could serve this application’s purpose?
- Is there another tool on the market that would be a better fit?
Inevitably, there will be several tools in your portfolio that you discover are redundant and may wish to terminate. These can typically be categorized into the following groups:
- Under-utilized — software that is not being used for its full functionality, with purposes that could be fulfilled by another application.
- Abandoned — licenses or applications that are no longer used. This may be due to incomplete subscription termination or hidden auto-renewal.
- Duplicated — applications with overlapping functionality that have the potential to be consolidated.
However, when making consolidation or replacement decisions, it’s also important to factor in any financial and productivity costs that could be incurred by switching to a new application.
Before terminating your existing subscriptions, you should be confident that another tool will address the problems you are facing, provide improved ROI, and meet demands further down the line according to company growth forecasts.
5. Implement new rationalization processes and systems
The final stage is to make sure that the changes to your rationalization efforts are sustained. This is the time to set up internal tracking for renewals and new subscriptions, so that you can monitor any changes to the SaaS stack and keep a record of those that are added or terminated. Application rationalization is not a one-time event, but an ongoing practice to ensure that the company’s software portfolio is kept visible and manageable at all times.
This information will also help to inform future software changes, allowing you to see which tools have been used for which purposes at the company and the reasons for termination. In establishing this system, you set a precedent for scrutiny so that the number of SaaS tools in the inventory never again becomes unmanageable.
If you have introduced any new tools in your consolidation efforts, staff must be comprehensively onboarded and trained in these — as well as any applications that were previously going underutilized.
This way, they will be less likely to seek their own software solutions and invest in shadow IT that could proliferate the SaaS stack without the IT department’s knowledge, therefore helping to sustain application rationalization efforts.
Reduce your SaaS expenditure with Vertice
As we head into uncertain economic conditions, profit is never a guarantee. Application rationalization is an essential tool for your business to get ahead and reduce outgoings wherever possible. Though it can seem like an arduous process, there has never been a better time to streamline your digital operations — each day spent paying for unnecessary SaaS is revenue lost. Instead, cut the problem at its root and follow a comprehensive application rationalization template.
When you’re ready to reduce your SaaS expenditure, Vertice can help. We’re on hand to help you to track your tech stack from one single point, consolidate your existing portfolio, and get the best deals on best-in-class SaaS, with access to our comprehensive database of over 13,000 worldwide vendors.