As the application portfolio matures, some of the older applications start to look out of date. How does an application portfolio manager determine when it's time to cut out the dead weight? How do you drop legacy products or redundant applications without losing value?
The decision to "sunset" a product -- the jargon for stopping the sale or production of a product or service when it has reached its end of life -- should not be based on the age of the product, but rather the desire of the company to continue to address the market needs that the product addresses. A lawn mower will eventually start to look old, but as long as grass is growing in your yard, there's a problem worth solving. When there's no more grass, that's when you no longer need to cut the grass. But it may still be time to replace or refurbish the lawn mower.
Forward-looking investment decisions should be based exclusively on forward-looking costs and benefits.
As long as the market need still exists and the company's strategy still includes addressing it, there will be demand for a relevant product offering. Then the question becomes, "What is the best way to address this need?" It may make sense to continue to serve this market with the current product, or it may make sense to serve this market with a new product. It simplifies the decision process to separate the "Is there a problem worth solving?" question from the "Is this the right product to solve the problem?" question.
Assuming that the problem is still worth solving -- it has value for customers, is financially viable and continues to be aligned with the company's strategy -- we can focus on the question of how the company will address the problem. Continuing to sell existing products is frequently the right answer, but not for the most obvious reason. Most people will mistakenly base the decision to keep a product alive on the amount that was invested in creating that product. This is reasoning based on sunk costs, an economics no-no. Forward-looking investment decisions should be based exclusively on forward-looking costs and benefits.
The decision should be based on the cost-benefit analysis (comparison) of the options that are currently viable. How much would the company have to spend and how much benefit (financial, intangible and so on) would the company realize, given each of the options available? The options are broadly to keep the existing product (fundamentally "as is"), invest in the existing product or serve the market with a new product (bought, built or partnered). How effectively the company can operate with each of those options is a function of how the market needs manifest, what the competition is doing and the capabilities of the company. The existing product may or may not be addressing the needs of the market. When it is, what is the rationale for changing the product? Perhaps a better strategy is to invest in changes in how the product is positioned or marketed in the market.
When a company has multiple products addressing the same need, for the same customers, there is redundancy. The company could reduce the cost of developing, manufacturing, distributing and supporting multiple products. The key to those cost reductions is to minimize the negative impact, keeping customers of the discontinued products as customers of the company. The first question to ask when making this decision is "How much future value for the company (revenue and the like) will the company realize if the redundant application is not discontinued?" Then you can assess the real cost of discontinuing the product, and compare that with the savings from ceasing to invest in the product.
This was first published in August 2013