Why Application Portfolio Optimization Will Be a Top Priority for CIOs in 2025
As we look ahead to 2025, CIOs across industries are facing a significant challenge: how to optimize their organization's application portfolio to drive cost savings and operational efficiency. This task, often daunting due to its complexity and the resources required, is becoming increasingly relevant as businesses look for ways to streamline operations and reduce their overhead.
Having worked on multiple application portfolio optimization programs, I’ve seen firsthand the hurdles and opportunities that come with such an endeavor. For CIOs, the stakes are high, but so are the rewards. Here’s why application portfolio optimization will be one of the most important projects CIOs should focus on - and why it’s not a quick win, but a long-term investment.
The True Potential of Cost Savings
One of the primary drivers for embarking on an application portfolio optimization project is the significant cost-saving potential. When approached systematically, these initiatives can uncover redundant or underutilized applications, consolidate platforms, and streamline processes. The savings from licensing, maintenance, and infrastructure can be substantial, often making the difference between maintaining a bloated budget or freeing up capital.
Important to note ... these savings don’t come overnight. In my experience, and feel free to share your benchmarks in the comments below, organizations can expect a timeframe between 12 to 24 months before they start to see the tangible results of such a program.
It’s not uncommon for the first months to involve a ramp-up phase, which includes a baselining exercise to map out the current state of the portfolio. If an enterprise architecture management tool is not already in place, procuring and implementing this technology becomes a critical early step.
The First Months
This baselining phase is crucial. Without a clear understanding of the existing portfolio, including application dependencies, usage patterns, and costs, it’s impossible to prioritize optimization efforts effectively. During this phase, the organization needs to collect data and establish metrics that will guide decision-making throughout the project.
Once the baselining exercise is complete, the focus shifts to a series of smaller, high-value initiatives. These initiatives drive the optimization flow, targeting low-hanging fruit that delivers quick wins while building momentum for more complex transformations down the line.
Optimizing the Portfolio - The Long-Term Play
For multinational corporations, the scale of these projects can be overwhelming. A recent client of mine dealt with 700 applications across 90 countries. This illustrates just how complex these optimizations can be. By breaking the project down into manageable phases, it becomes possible to tackle the portfolio in chunks, steadily driving efficiency gains and cost reductions.
We have a saying in Germany that applies quite well:
Du musst den Elefanten in Scheibchen schneiden. // You have to cut the elephant into slices.
It’s also important to mention benchmarks that CIOs can expect. While every organization is different, an average multinational company could expect to reduce its portfolio by 15-20% within the first 18 months. The associated cost savings could range from 10-25% of the IT budget, depending on how aggressively the optimization program is executed.
Why is Application Portfolio Optimization in 2025 a Hot Topic?
With economic pressures mounting and the ever-increasing need to drive innovation, the ability to streamline IT operations is no longer a "nice-to-have." It’s a necessity. While the journey may take 12 to 24 months to fully bear fruit, the cost savings and operational efficiency it delivers make it one of the most impactful initiatives CIOs can undertake.
On a personal note: I believe application portfolio optimization offers an excellent way to save costs while improving operational agility - if organizations are prepared to commit to the long-term effort it requires. My experience with large, complex organizations shows that this process can be challenging, but the rewards are more than worth it.
How to plan an Application Portfolio Optimization Program?
- Program Sponsor (Typically the CIO or CTO) The program sponsor ensures executive alignment and provides strategic direction. They’re responsible for securing resources and making key decisions when escalations arise. If the program hasn't been initiated by the CIO > get this person on board as soon as possible.
- Program Manager The Program Manager oversees the overall execution, timeline, and budget. They ensure that milestones are met, track the progress of individual workstreams, and manage interdependencies. This role requires strong cross-functional coordination, given the complexity of multinational environments. This person needs excellent top-management communication skills and needs to be skilled in navigating resistance and politically sensitive topics without causing escalations. The program manager needs to have a technical background with a broad tech stack to navigate complex application landscape discussions.
- Enterprise Architect (EA) The enterprise architect is critical for providing the deeper technical guidance, especially in the baselining phase. They ensure that optimization efforts align with the organization’s overall technology roadmap and enterprise architecture standards. The EA will be closely collaborate with the Program Manager to get-things-done. Sometimes it makes sense to have multiple EAs on the program to get-things-done faster.
- Application Portfolio Lead This role focuses specifically on the rationalization of the application landscape, working closely with business units, the program manager, and the EAs to identify consolidation opportunities, retire redundant applications, and streamline the portfolio.
- Workstream Leads (Finance, Procurement, Security, etc.) These leads manage specific areas within the program, such as procurement of tools, security assessments, or cost analysis. Depending on the size of the organization, these roles may also include regional leads to ensure global coverage.
- Business Stakeholders (from Key Business Units) Involving key business stakeholders is critical because they are the end-users of the applications. Their input ensures that optimization decisions do not negatively impact business operations. They also help with change management and adoption of new tools or processes.
- Change Management Lead This role is essential for addressing the cultural and operational impacts of the program. APO initiatives can lead to significant changes in how teams work and use technology, so having a dedicated lead ensures that training, communication, and adoption strategies are effectively managed.
- Steering Committee This is the highest governance body, typically chaired by the CIO or a senior executive. The committee reviews progress at key milestones, manages escalations, and ensures alignment with broader business goals. It should meet monthly or at critical junctures.
- Technical Advisory Board (TAB) The TAB provides technical oversight and ensures that the optimization aligns with architectural standards, security protocols, and the broader IT strategy. This board reviews technical decisions and ensures best practices are being followed, with meetings as needed during key project phases.
- Operational Review Board This board, often consisting of business and IT leads, reviews progress and addresses operational challenges that arise from the program. It handles day-to-day issues and escalates decisions when needed. Bi-weekly or weekly meetings are recommended.
- Risk and Compliance Board A specialized board focusing on the identification, mitigation, and management of risks. This includes managing compliance with regulatory requirements, especially in multinational environments where legal requirements vary across regions. Meeting frequency can be monthly or aligned with key risk assessment milestones.
8 Key Risks to plan for during an Application Portfolio Optimization Program
- Lack of Executive Alignment One of the biggest risks I encountered in almost all projects i was tasked with to restructure - is a strong misalignment between IT and business leadership. If the program goals aren’t fully supported at the highest level, it can lead to a lack of resources or conflicting priorities. Mitigation involves having clear sponsorship from the CIO and active participation from business leaders on the Steering Committee.
- Resistance to Change (Cultural Risk) Rationalizing or retiring applications often faces resistance from business units that have grown accustomed to their tools and processes. Who wants to change without resistance? No one. Normally only those that are in so much pain by using their existing systems that everything will be from their standpoint a pain reliever. The lack of buy-in can slow down or even derail the program. Change management, communication strategies, and early engagement with stakeholders are key to mitigating this risk.
- Data Quality Issues A common challenge during the baselining phase is incomplete or inaccurate data about the existing application portfolio, including dependencies, usage, and costs. Use - if you can - an EAM tool like LeanIX to get a gold record of all of your systems in one place. The times of Spreadsheet-based APO programs are over. These systems are expensive so be prepared to negotiate. Poor data quality can lead to suboptimal decisions. Mitigation involves ensuring proper tooling (e.g., enterprise architecture management tools) and conducting thorough audits.
- Underestimating Complexity In large organizations with global operations, the complexity of the application portfolio is often underestimated. Integration points, customizations, and region-specific requirements can all lead to delays. To mitigate this, the program should include a detailed scoping phase and adequate risk buffers in timelines and budgets.
- Lack of Clear KPIs and Success Metrics Without clear success metrics, the program’s value can be hard to demonstrate, leading to loss of momentum. It’s crucial to define KPIs upfront, such as application reduction targets, cost savings, or process efficiency improvements, and track progress against them.
- Tooling and Procurement Delays If the organization does not already have enterprise architecture management or application rationalization tools in place, delays in procurement and setup can push back key milestones. Mitigation involves early procurement and establishing a clear timeline for tool implementation.
- Security and Compliance Risks Rationalizing applications can expose security and compliance gaps, especially in regions with strict data privacy laws. A thorough security and compliance review should be built into the baselining phase to avoid issues later on.
- Inadequate Resource Allocation APO programs often compete with other high-priority IT initiatives. If the necessary resources (financial, human, or technical) aren’t allocated from the start, the program can experience delays or scope creep. This can be mitigated by having the Program Sponsor ensure resource availability and prioritization.
Planning an Application Portfolio Optimization (APO) Program for 2025? Bring experts on board. Professionals from top-tier strategy consulting firms are ready to set up your APO program for success. Contact us with details about your program under the subject line 'RFP - APO,' and we’ll schedule a brief initial call to discuss your requirements.
Niklas Scipio is a tier-1 strategy consultant specializing in Tech Value Acceleration for large-scale organizations. He works with senior leaders in both the private and public sectors, focusing exclusively on high-impact transformation programs
If you’d like to explore how we can support your global CIO agenda, contact us at [email protected].
