Application Portfolio Management (APM) Best Practices

Overview

Not all applications in the portfolio deserve the same investment strategy, the same governance intensity, or the same protection from rationalization. Some applications are sources of competitive differentiation - they embody proprietary processes, enable unique capabilities, or deliver customer experiences that competitors cannot easily replicate. Others are commodities - they perform standard business functions that dozens of available market solutions perform equally well, and the organization gains no competitive advantage from building or owning a custom version rather than purchasing a standard one. Treating all applications with the same investment discipline wastes resources on commodity applications that should be purchased and standardized, and underprotects differentiating applications that deserve custom investment.

Best Practice

Classify every application in the portfolio on a spectrum from commodity to differentiating as part of the assessment framework. Commodity applications perform generic business functions - expense reporting, HR administration, email and collaboration, facilities management - where the market offers mature, cost-effective solutions and the organization gains nothing from custom development or deep customization. These should be purchased as standard products, minimally customized to protect future upgrade paths, and managed primarily for cost efficiency and vendor risk. Differentiating applications enable capabilities that are unique to the organization’s competitive position, embody proprietary processes or institutional knowledge, or deliver customer experiences that cannot be replicated by standard market solutions. These deserve protection from premature retirement, investment in custom development and evolution, and active product management as strategic organizational assets.

Benefit(s)

Distinguishing commodity from differentiating applications produces a portfolio investment strategy that directs engineering and financial resources to their highest-value uses. Commodity application costs are minimized through standardization, market competition, and disciplined right-sizing at renewal. Differentiating application capabilities are protected and invested in as the strategic assets they represent. The organization stops spending custom development resources on functionality it could purchase for a fraction of the cost, and redirects those resources to building the proprietary capabilities that define its competitive position and cannot be acquired off the shelf.