Application Portfolio Management (APM) Best Practices

Overview

The most visible portfolio management activities - rationalization, cost management, waste elimination, retirement - address what already exists in the portfolio. But the portfolio’s ability to serve the organization also depends critically on what does not yet exist: capabilities that the business needs but that the portfolio does not currently provide at the level of quality, scale, or sophistication required. Capability gaps - the difference between what the business requires and what the portfolio currently delivers - are as important to portfolio strategy as the management of existing applications, and organizations that focus exclusively on rationalizing what they have while ignoring what they need build an efficient portfolio that is strategically incomplete.

Best Practice

Conduct a capability gap analysis as a standard component of every annual portfolio review cycle, using the business capability mapping maintained in the portfolio as the analytical foundation. Compare the business capabilities the organization requires to succeed in its current and planned strategic direction against the capabilities the current portfolio delivers and at what level of quality and scale. Identify capabilities that are underserved by the current portfolio - business needs that existing applications serve inadequately in their current form - and capabilities that are entirely absent from the portfolio. Prioritize identified gaps by strategic importance and financial impact, and develop investment plans that address the highest-priority gaps through new application development or acquisition, targeted investment in existing applications, or rationalization that redirects resources from low-value to high-value investments.

Benefit(s)

Systematic capability gap analysis ensures that the portfolio investment strategy addresses both the optimization of existing capabilities and the development of new ones that strategy requires. The organization does not discover strategic capability gaps only when transformation programs reveal them or competitive pressures demand responses that the current portfolio cannot support. Investment is directed toward the capabilities that most directly enable organizational strategy. The portfolio evolves proactively toward the capability profile that the business requires rather than reactively in response to capability deficiencies that have already limited organizational performance and created competitive disadvantage.