Dec 07 2021

After The Merger, Part 1: How Banks Should Modernize Their Applications

Here’s how they can decide what to keep, what to eliminate and how to manage what’s left.

Bank mergers and acquisitions are finally getting back on track. After a pandemic-related slowdown, there were 53 acquisitions on the books through Q2 2021. According to S&P Global, meanwhile, deals finalized in September pushed the total value of M&A over $50 billion this year.

This return to form is good news for the industry, in which M&A activity is a key source of growth and a vital driver of innovation. It also comes with challenges for banking IT leaders, however: Once mergers are complete, how do banks reduce the risk of application sprawl and overspending across the rapidly growing landscape of hybrid work environments?

It starts with application rationalization.

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What Is Application Rationalization?

Application rationalization is the process of evaluating your application inventory to determine which apps need to stay, which can be modified to suit merger goals and which need to be retired.

Chuck Ros, enterprise solutions consultant for SoftServe, a CDW partner, says app rationalization has four steps:

  1. Understand the applications you have.
  2. Secure the applications you need.
  3. Rationalize your systems.
  4. Integrate new and existing IT tools.

Ros also notes that app rationalization falls under the broader heading of infrastructure rationalization. “It’s more than just apps,” he says. “It’s a post-transaction integration framework that highlights the need for fundamental business process changes.”

Step 1: Understand the Applications You Have

Before rationalization, banks need to understand what apps they have, where they are and how they’re being used. It’s also critical to consider hardware, software and network dependencies — how do applications interact across environments? What connections do they need? What data do they access?

Achieving this visibility isn’t always easy. Merged staff may be concerned about their jobs and less communicative as a result. “You have to be methodical,” Ros says. “You need to use tools to figure out what you have. What endpoints exist? What apps and app dependencies?” It’s also crucial to understand app frameworks in the larger IT context: Which ones are slated for end of life? What licenses exist? Where are the shadow IT apps?

WATCH: Learn how to build a digital strategy that works for your organization.

Step 2: Secure the Applications You Need

Security is the next step. Before putting in the work to rationalize applications, banks need to create secure frameworks that protect technology stacks and provide an environment that facilitates changes without introducing risk.

Step 3: Rationalize Your Systems

Equipped with visibility and security, banks can now begin rationalizing their apps. To help facilitate this process, Ros suggests a classification-based approach that assigns apps to one of four categories:

  • These applications provide enough value that they need to remain in place, though they may be in line for upgrades or migration down the line.
  • These apps are both valuable and cost-effective, making them ideal for investment and expansion.
  • Applications are worth migrating if they offer value but aren’t tied to specific operational frameworks.
  • These may include legacy apps that don’t work well in cloud-based environments or those that are outperformed by other, newer solutions.

To determine an app’s classification, banks must assess its value and applicability against its total cost of ownership. Low cost and low value make the case for migration into the cloud, while high TCO and applicability suggest that no immediate change is needed.

Step 4: Integrate New and Existing IT Tools

App rationalization is only the first part of the IT merger process. Banks now need new tools such as robust VPNs, virtual desktop infrastructure and collaboration solutions to ensure staff can work effectively from anywhere. To address the challenge of integrating both existing and new tools into technology stacks at scale, it’s often worth leveraging experienced financial IT consulting and management partners to help streamline the post-merger technology transition.

The bottom line: Successful bank M&A requires effective app rationalization to help limit sprawl, reduce spending and streamline post-merger operations.

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