Amid the whirlwind of healthcare mergers and acquisitions (M&A), it’s easy to overlook the critical early analysis of combined software applications. However, this oversight risks hindering patient care, slowing integration, and inflating costs. Understanding this complex technology ecosystem through application portfolio management — overseeing applications based on value, cost, risk, and performance — and its key component application rationalization — to eliminate unnecessary or risky applications — is paramount during the initial M&A phases.
Proactively leveraging application portfolio management and application rationalization allows healthcare organizations to identify overlaps and inefficiencies, paving the way for faster, more cost-effective integration and mitigating future risks.
The hidden costs of ignoring your application landscape during healthcare M&A
It’s not uncommon for a health system to have 1,000+ unique applications spanning on-premises and cloud-based solutions. Delaying a comprehensive understanding of this intricate digital terrain can lead to the following:
- Slower integration due to unnecessary system complexity
- Higher costs from redundant systems, interfaces, and security patching
- Inaccurate acquisition valuation by overlooking application rationalization savings
- Operational inefficiencies and errors from staff navigating incompatible systems
- Increased security risks from a larger, less understood application footprint
- Lost innovation opportunities due to resources tied to legacy systems
Maximize value creation: Application portfolio management in healthcare M&A
Application portfolio management, especially application rationalization, provides significant opportunities for cost optimization and security enhancement during healthcare M&A, freeing resources for key initiatives. Ideally, hospitals can achieve:
- 20-30% reduction in managed applications
- Standardized enterprise solutions for core functions
- Increased cloud/SaaS adoption for better interoperability and application security
- Improved data governance and unified security
- Optimized IT spending and consistent user experience
| Today | Target state |
| 1,000+ unique applications | 20-30% reduction |
| Annual spend of $X-Y million | 10-20% reduction |
| 10-15% redundancy rate | 60-75% improvement |
| 85-90% integration efficiency | 20-25% improvement |
| 85-90% support efficiency | 15-20% improvement |
To fully realize the advantages of application rationalization, organizations should consider engaging with a trusted partner, like Nordic, who has extensive experience managing enterprise IT application portfolios and relationships with strategic partners like Clearsense to help health leaders make informed decisions on what applications to retire, replace, or retain. This end-to-end expertise empowers health systems to develop, implement, and execute an application portfolio management strategy through modernization, change management, governance, risk mitigation, and performance insights.
5 key stages of application rationalization in healthcare M&A
To ensure a successful application rationalization program during M&A, healthcare organizations should consider a structured approach encompassing people and process transformation, enterprise integration excellence, intelligent data management, risk and compliance assurance, and business value optimization. Here are five key steps to consider at the beginning of your M&A process.
- Phase 0 data gathering: Before analysis begins, understand the current application landscape by collecting crucial information such as financial details, usage statistics, security documentation, and integration maps. This data collection creates the foundation for building a strategic roadmap and all subsequent discovery and in-depth analysis efforts.
- Discovery and analysis: Conduct a thorough review of the existing application inventory, categorizing all applications and specifically identifying dormant applications along with their associated run costs and security vulnerabilities. This phase also includes assessing current interoperability requirements and developing recommendations for application archiving.
- Foundation building: Actions within this stage include executing archival recommendations, developing and supporting expanded data governance, prioritizing the consolidation of applications, supporting change management for users of legacy systems (especially regarding data access), developing ROI measures for retaining legacy apps (considering factors like licensure and data storage), and initiating the technical and operational analysis required for application consolidation.
- Strategic transformation: Execute changes that deliver business value, including initiating change management for consolidating existing applications, performing necessary technical transformations like adjusting interfaces and infrastructure, aligning cost reduction with current contracts, and beginning the shift to a centralized operational model.
- Value creation: Focus on achieving significant operational and financial benefits, such as a 25-30% reduction in application maintenance and support costs, optimization of licensing and infrastructure spending, moving towards a more flexible variable operating model, and an overall 30-40% decrease in the total cost of ownership. These savings are then strategically reallocated to fund innovation initiatives.
Embracing proactive application portfolio management in healthcare M&A
Every decision in the high-stakes world of healthcare M&A has significant and long-lasting implications. By embracing a proactive approach that integrates application portfolio management and application rationalization into the very beginning of the M&A process, healthcare leaders can gain critical visibility into their application portfolio, mitigate clinical, operational, and financial significant risks, accelerate the integration of systems and processes, optimize costs, and ultimately, build a stronger, more efficient, and more patient-centric organization that’s well-positioned for long-term success.
Preparing for M&A and interested in consolidating and optimizing your health IT stack? Download our discussion guide to explore how application portfolio management can help your organization improve efficiency and reduce costs or contact Nordic today to discuss your goals and priorities with our talented consultants.