An Outsourcing Center White Paper
UNLOCKING VALUE IN APPLICATION OUTSOURCING RELATIONSHIPS
By Patti Putnicki, Business Writer, Outsourcing Center
“There’s an app for that,” has become the catch phrase of tech-savvy consumers everywhere, but it has also become symbolic of enterprise IT. Without question, applications are the lifeblood of today’s business environment, enabling everything from e-commerce to the tracking of energy consumption;
from financial services to customer relationship management and more.
However, too much of a good thing can hurt you.
In recent years, business has been moving at light speed, with consolidations, mergers and acquisitions on the rise. Technology is evolving at an even faster pace, changing the ways many companies conduct business. To keep up with demand, most businesses are pressuring their IT departments to “build, build, build” — to add new applications to meet immediate needs — but often do so without an overall application strategy. This application overload is bringing new pains to IT organizations today — compounded by continual pressures on the CIO to operate lean.
“An unintended consequence of many enterprise legacy applications in production today is that they limit their business’ flexibility. Many times older, legacy apps are slowing productivity down while becoming increasingly expensive to maintain,” explains Jason Quisenberry, Strategic Engagement Executive at CSC. “As a result, companies are facing a trifecta of issues: high support costs, decreased speed to market and a depleted supply of qualified employees to maintain certain types of legacy applications – all of which limits their ability to compete.”
According to Quisenberry, many applications are written in platforms that have become increasingly difficult and costly to maintain. Numerous companies still have critical applications running on legacy systems, which drive up costs at a time when budget cuts are the order of the day. Research indicates that at least 60 percent or more of an IT department’s budget is spent on the maintenance of existing systems. But many businesses are discovering they can’t operate competitively that way anymore, much less have the needed funds for innovation.
“If you’re an IT department with a large legacy footprint, you are very challenged to reduce overall expenses without modernizing,” Quisenberry says. “It’s like having to drive 50 miles to work everyday in a Hummer. Unless you change vehicles, there’s nothing you can do to get your fuel costs down.”
There’s also a direct correlation to application agility and speed-to-market.
Without an optimized enterprise environment, most companies can’t respond as quickly to change, launch new products or offer additional services quickly.
Just as important, these older applications require personnel with unique skillsets for maintenance and support. As these IT specialists retire, move on or change roles, it’s becoming increasingly difficult to replace them — and that’s leaving a gap. The emerging IT labor pool’s expertise centers around current technology, not what was the norm 15 years ago.
So, we have an IT enterprise with a variety of apps, running on multiple platforms, that are too costly to integrate, too slow to respond to business needs, with fewer qualified people to run them. That problem is compounded by increasing cost pressures on a CIO’s budget.
But decision makers must react. In response to these budgetary pressures, many CIOs turn to skilled outsourcing providers to gain the cost efficiencies needed. Although this move does reduce costs, the full answer is more complex. Without ongoing application portfolio management (APM) and optimization efforts along with those outsourcing engagements, companies won’t realize the efficiency gains or make the best, most efficient use of their vital application assets.
Making Application Portfolio Management Part of the Outsourcing Initiative
“Application outsourcing in the past was the means to one end: cutting costs.
Do what I’m doing for less,” explains Durai Velan, Vice President, Financial Services sector at CSC. “Lifting and shifting from onshore to offshore enabled CIOs to deliver savings to the CFO but left them operating with the same inefficiencies that existed in the old environment. Instead of 100 U.S.-based people running the applications, there were now 100 India-based people running it. The only gain was cost of labor. ”
Today, that mindset is shifting.
“In the past six months, I’ve spoken to a dozen CIOs who have tried outsourcing but now are looking for ways to get more value out of that relationship,” Velan says. “They’ve gotten the time and material benefits already. Now they want to move to the next level to find a way to achieve more with less.”
And according to Velan, that’s where application portfolio management (APM) with optimization comes into play.
While it’s true that the concept of application optimization is not new, the way companies approach optimization is shifting. In the past, optimization, if addressed at all, was regarded as a one-time consulting service, handled by an unrelated, third-party vendor. Two or three years into the outsourcing contract, companies brought in an independent
“optimization expert,” made a few changes and probably realized a few efficiencies because of it.
The fact is, application optimization isn’t a “once and done” proposition, or companies won’t sustain the gains. It’s like losing 20 pounds by working with a nutritionist and trainer, then going back to the way you were doing things before. Chances are, you’re going to find yourself right back where you started, particularly if you factor in the speed at which technology moves today.
A better approach is the holistic one — working with a service provider that can deliver APM as a component of its broader application services.
“Instead of one-off projects, we are seeing more APM initiatives intertwined with application management engagements. Most companies do not have the resources or experience to implement large-scale applications optimization initiatives, and they are particularly capitally constrained,”
says Alsbridge Director Tom Glueck. “An outsourcing engagement provides the opportunity to deal with these issues.”
With this model, optimization becomes a continual part of the overall IT strategy, not just a standalone, every-once-in-a-while event. When the same company handles the application portfolio as well as the optimization initiative, it can realize gains, like lower costs and greater productivity, sooner in the process.
“At CSC, we approach APM from a total cost-of-ownership (TCO) perspective. We look at the big picture and help every customer create a strategy that maps to their business objectives,” Quisenberry says.
“These objectives have to map to the portfolio mix and sequencing.
It takes that deep understanding of what exists and what’s possible to achieve the fastest and best results.”
How Optimization Happens
Application optimization can take a variety of different forms, including consolidation, retirement and refactoring, among others. Consolidation is particularly beneficial with companies that have merged, expanded through acquisition or have changed significantly over the past few years. Typically, near-duplicate applications exist across most merged organizations.
Retirement eliminates applications that are no longer necessary, too expensive to run or more trouble than they are really worth. Often, these can be replaced, if necessary, by more agile, cost-effective apps delivered in a virtualized
environment.
Refactoring modernizes existing applications by rewriting them in a way that keeps most of their functionality but reduces software and maintenance costs.
Other strategies and delivery models can also be employed in application optimization efforts.
Typically, it’s a combined approach that produces the best results in
optimization efforts. There’s no one-size-fits-all formula. Everything depends on the environment and the business needs of the company.
However, working with a trusted application services provider that knows and understands your environment and business will deliver the greatest value to your portfolio management initiative. Continual, incremental improvements lower cost of ownership while adding speed and efficiency to your operation.
“Most of these initiatives are expected to be self-funded, and outsourcing is a key method used to generate funds,” Glueck of Alsbridge says.
Applying Industrialization to Get Results Quicker
So, what should a company look for in an applications outsourcing partner?
According to Alsbridge, the key factors are cost, services and performance in application optimization, as well as finding a partner that can deliver an implementation strategy with the best ROI. That outsourcing provider has to have a strong, established practice in application optimization to even be considered.
It’s essential to perform in-depth due diligence that provides an
“apples to apples” comparison of all the appropriate service providers.
Study the providers’ track records and what each has accomplished for other clients.
See where the company is investing its own resources. A customer can only benefit from leveraging what an applications outsourcer is already doing.
That means that provider should continually invest in future technologies, cloud, security and virtualization.
Finally, learn about the company’s optimization methodology.
At CSC, for example, the process starts as the company gains an
understanding of the customer’s current application portfolio in terms of business value, then audits the application infrastructure and platforms to get a complete picture of the existing portfolio. From here, specific focus areas and a roadmap of optimization projects can be created and executed.
“Most customers don’t have a current enterprise portfolio map — nothing to show them a snapshot of what they actually have,” Velan says. “To be effective, this map has to be dynamic, adjusted as apps change. The right service provider will create a living, breathing strategy that incorporates a real-time view of applications and ties these to the business functions they impact. That is the baseline.”
CSC also offers a number of technologically agnostic, transformation
“accelerators” that speed modernization. For example, the company has developed the Quick Transformation Engine, a many-to-many
translator, which converts application systems written in multiple languages to run on different technology platforms, without using middleware.
So, optimization time is…optimized.
“CSC has created an industrialized, factory-driven, repeatable methodology that measurably speeds transformation time while reducing errors,”
Quisenberry says. “As a result, CSC has been able to speed up the delivery of these projects and require 80 percent less staff over manual transformation.
This requires our clients to make a lower investment while realizing their return much faster.”
The Impact of a Holistic Optimization Strategy:
The Success Stories
If companies start approaching application optimization with the right outsourcing provider, how significant can the gains really be?
The experiences of some CSC customers suggest an answer.
It’s important to note that none of these companies took a “once and done”
approach to optimization. Every case involved a “run, transform, run” strategy in which CSC took over support of the applications, made investments with these clients to transform the apps, and continued to run them — with an ongoing goal of driving efficiencies. The outcomes illustrate the benefit of addressing cost reduction and optimization initiatives together to achieve the greatest gain.
One large communications and wireless provider had a 140-application environment supporting its billing; sales and marketing, ordering, provisioning, service and collections functions. The environment had an extremely high TCO, with system capability gaps. Through a large-scale optimization effort as part of its overall application management services, CSC enabled the company to reduce those 140 applications down to 50, cut operating expenses by 80 percent and realize significant productivity gains.
Another case study involved a large, U.S. government organization with 20,000 incompatible, inflexible legacy applications, many of which were running on old mainframe systems that hadn’t been upgraded in 25 years.
For this client, CSC performed a massive, 2,200-app retirement and migration, replacing the legacy system into a fully-managed SAP architecture.
The result? Dramatically improved system availability, performance and response time.
Finally, a nationally recognized insurance company wanted more from its outsourcing partnership. Its executives spent nine months reviewing 20 different service providers, looking for an outsourcing partner that could provide optimization as a part of its APM processes. They were seeking a company that both understood their industry and could bake ongoing optimization into its solution with the goal of reducing the number of applications it took to effectively support its business.
The company went through an intensive due diligence process in which providers were scored on industry knowledge and their ability to proactively bring efficiency to the application environment. In addition, the company looked at different providers’ success rates in the management services sector, then interviewed multiple members of the application team, and scored their knowledge.
CSC scored the highest overall rating.
“Due to the size of this particular customer, its management team wanted to start with a pilot, expand the optimization initiative once the proof-of-concept worked,” Velan says.
And work it did.
“Ultimately, we were able to decrease the number of applications and the number of required processes by 10 percent each, by moving the appropriate apps to a shared services, cloud-based model,” Velan says. “As a result, this customer can now do more with fewer people and at a lower cost.”
This savings is on top of the cost reductions from labor arbitrage and process efficiencies gained through outsourcing with CSC.
Each of these examples proves one very salient point: keeping things the way that they are to reduce spend can cost companies far more in the long run.
The best defense is to work with an applications services provider that makes efficiency part of the outsourcing strategy, without the capital investment. Ultimately, the focus should be total cost of application ownership — what it takes to run, maintain and support that app.
That’s the only real cost barometer.
There’s also a very direct correlation between the efficiency of applications and a company’s ability to effectively compete. Speed, agility and the ability to change as the marketplace changes are also critical factors.
The Optimal Choice for Future-state Gains
To stay competitive, companies can no longer operate like they have in the past, with 100 people managing and maintaining 100 apps. By working with an outsourcing partner with the knowledge and methodology to deliver application optimization in conjunction with APM, companies can operate more efficiently, take advantage of virtualization and gain true business value.
CSC has made the investment in people, technology and methodologies to deliver these cohesive service offerings to bring more value to its customers.
By making APM an ongoing process and relying on an outsourcing service provider who understands those applications, the customer’s business and have the infrastructure in place to facilitate change, companies can not only reduce cost but more readily compete in a business environment that’s moving at light speed.
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