Maximising ROI through application rationalisation: Optimising costs for software licenses and subscriptions

In our previous article on cloud and data centre cost optimisation strategies, we explored the changing landscape of hosting, ranging from traditional on-premises data centres to multi-tenanted cloud environments, and recommended how to optimise infrastructure costs. 

In this article, we shift our focus to what is hosted on that infrastructure: business applications. These applications, crucial to an organisation’s day-to-day operations, often represent a significant portion of IT spend, especially in software licenses and subscriptions. Major software packages, such as Salesforce, SAP, and others, increasingly promote their proprietary cloud platforms, making it even more complex to manage and rationalise the application estate. This creates challenges in comparing costs by category, as different pricing models and services apply, and integrating a growing number of applications into a cohesive IT landscape. 

Here, we explore the approaches organisations can take to rationalise their application portfolios, manage software licensing effectively, and ultimately maximise ROI.

The escalating cost of IT – and the need for focus

With an estimated 30-45% of IT budgets spent on maintaining and supporting business applications each year, this area of spend demands heightened attention to ensure business value is optimised. According to Gartner Worldwide, software spending is expected to total $1 trillion in 2024, a 12.7% increase from 2023.

Several challenges stand in the way of optimising spend:

• Application proliferation: Over the past decade, the number of applications within organisations has grown exponentially. A study by BetterCloud in 2024 found that the average enterprise uses 112 different Software as a Service (SaaS) applications, up from eight applications in 2015. This explosion in application portfolios is often driven by the imperative to digitise operations, rapidly evolving business needs, and the rise of shadow IT. As a result, many organisations now manage sprawling, complex, and overlapping application portfolios, which increase operational and licensing costs while complicating management.
• Licensing complexity: Many businesses face the challenge of controlling software licensing and subscriptions. Inadequate visibility and management lead to unnecessary expenses, such as paying for unused licenses, negotiating suboptimal contracts, or mismanaging maintenance agreements.

By improving both the architecture and governance of applications and focusing on more effective licensing management, organisations can reduce the number of applications they maintain, eliminate redundant applications, and reduce costs.

Application rationalisation and optimisation

An organisation’s application portfolio is constantly evolving. Growth, mergers, acquisitions, new product launches, or even temporary solutions introduced through shadow IT all contribute to the expansion of the application estate. Unfortunately, without careful governance, this often results in duplication, overlap, and technical debt—each contributing to increased costs and complexity. Over time, many applications continue to be maintained without serving the full needs of the business, or worse, new applications are introduced without decommissioning legacy systems.

These issues are compounded by the hidden costs of a bloated application estate, which extend beyond the direct expenses of hosting, maintaining, and licensing. For example, complicated user journeys and siloed systems can lead to missed revenue opportunities. The technical debt accumulated from managing an overgrown and unstructured application landscape further hinders innovation and agility.

To navigate these challenges, organisations need to take a structured approach to evaluating their applications. One best-practice methodology is Gartner’s TIME framework, which assesses applications based on two criteria: technical fit and functional fit.

• Technical fit evaluates whether the application meets technical standards and is compliant with the organisation’s architecture and supported versions.
• Functional fit assesses whether the application still aligns with business needs, capabilities, and processes.

Based on this assessment, applications fall into one of four categories:

1. Tolerate: Applications with high technical fit but low functional fit. These systems, though technically sound, may not fully serve business needs and should be viewed as medium-term targets for eventual removal.
2. Invest: Applications with both high technical and functional fit. These are core platforms for the business and are strong candidates for further investment, potentially replacing other, less efficient systems.
3. Migrate: Applications with low technical fit but high functional fit. These are candidates for migration to newer technologies or cloud-native solutions, ensuring they remain relevant without incurring excessive technical debt.
4. Eliminate: Applications with both low technical and functional fit are prime targets for immediate decommissioning.

Using the TIME framework, organisations can strategically and systematically assess their application portfolios and determine the best course of action, resulting in a more streamlined and cost-effective application landscape.

Software license optimisation: A key lever for cost savings

Based on our experience, we recommend five key strategies for organisations to bring licensing costs under control, while maintaining the flexibility and functionality needed by end users:

1. Robust endpoint monitoring: Deploy agents to collect data on software usage across devices in the enterprise. By tracking usage patterns, organisations can identify underutilised licenses and safely eliminate them without disrupting productivity. This can lead to significant savings as unnecessary licenses are eliminated across the business.
2. Enterprise app store: Implementing a controlled enterprise app store ensures that only approved software is available to employees. This mitigates compliance risks and reduces unnecessary spending on non-standard software, while also allowing employees to self-serve for required applications. By centralising software distribution, organisations can streamline procurement and maintain better control over software usage.
3. Choosing the right subscription tier: SaaS providers typically offer multiple pricing tiers. Conducting a thorough analysis of actual usage patterns helps ensure the organisation is subscribed to the most cost-effective tier. Overpaying for unnecessary features or services can be avoided by aligning subscriptions with actual business needs.
4. Avoiding vendor lock-In: Switching SaaS providers can be difficult due to data migration challenges, integration issues, and long-term contracts. Vendor lock-in limits the organisation’s ability to negotiate better pricing or adopt more cost-effective alternatives. Choosing vendors that adhere to open standards and APIs allows for greater flexibility and easier migration between platforms, mitigating the risk of lock-in.
5. Contract renewal visibility: Keeping track of contract renewal cycles allows organisations to renegotiate terms or explore alternatives before the renewal date. This proactive approach can yield significant savings, especially when organisations have clear visibility into their usage and knowledge of competitors’ offerings.

In addition to managing the proliferation of business applications, effective management of an organisation's software licensing is imperative. This includes end-user computing and SaaS components, such as Office365. The rise of SaaS and the decentralised ownership of licenses across various departments make license management increasingly challenging.

Optimising licensing spend, particularly for SaaS, is often challenging. SaaS providers typically operate on a subscription-based pricing model. This means organisations pay recurring fees, making it challenging to predict and control costs effectively. The subscription model can lead to a perception that the cost is justified because it is spread over time. Constant monitoring is key with SaaS applications, as prices are highly dynamic—what may be the best offer today could become one of the most expensive tomorrow. Without consistent oversight, organisations risk overspending due to fluctuating pricing models.

Case study: Achieving a 15% cost reduction in licensing

Our team was recently tasked with evaluating a multinational client’s software licensing across various business units and geographical locations. Through a comprehensive review, we identified multiple opportunities for cost savings, ultimately reducing licensing costs by 15%.

Our approach involved two key strategies:

• Centralised software license procurement: By consolidating all software procurement through a single Value-Added Reseller (VAR), the client gained leverage in contract negotiations. This allowed for more competitive pricing and the elimination of non-standard software, streamlining operations.
• Portfolio rationalisation: We recommended rationalising the software portfolio to eliminate redundancy and reduce the total number of licenses. By introducing a Software Asset Management (SAM) tool, the client gained better visibility into license usage and renewal dates, improving compliance and reducing the risk of penalties.

Summary: Take a holistic approach to application and license management

Organisations are under ongoing pressure to optimise their IT budgets, particularly when it comes to business applications and software licenses. A comprehensive application rationalisation strategy is essential to achieve this. This is not just an IT-led initiative; it ensures that business objectives and outcomes remain at the forefront. The approach must be cross-functional, involving close collaboration between business leaders and IT teams to ensure alignment between technological capabilities and business goals. 

By adopting a comprehensive application rationalisation strategy, using frameworks like Gartner’s TIME model, and focusing on robust software license management practices, organisations can significantly reduce costs while driving greater value from their IT investments.

What’s next?

Cost optimisation is an ongoing journey that requires a multifaceted approach. In our next article, Designing an efficient tech operating model: Aligning business and IT for cost optimisation, we will explore how organisations can further reduce costs by improving the alignment between business needs and IT operations through a more efficient operating model.