Two years ago, industry analyst Gartner predicted that, by 2007, “20 percent of large enterprises will implement a disciplined application portfolio management strategy” and that this will significantly reduce IT software portfolio-related expenses. Other industry commentators are also on record agreeing with both the growing trend for Application Portfolio Management (APM) adoption and the significant benefits now being realised, with Forrester citing savings of 20% - 30% on maintenance expenditure.
A more recent report from Gartner in December 2006, entitled “Gartner on Outsourcing, 2006” stated that organisations should seek to analyse their entire portfolio, and implement performance-based management if they are to see greater value coming out of their external application outsourcing work.
Both within the context of outsourcing, and in helping organisations meet the wider challenges facing them today, the need for APM is becoming more fully understood.
Driven by advances in technology the likes of which few people could have anticipated, the business world has changed considerably over the last three decades. Consumer expectation has exploded, demanding that everything be better, faster and cheaper; a truly global economy is now providing unparalleled levels of choice and, for the business, an increasingly competitive landscape. Managing the complex array of business systems upon which an organisation’s competitive advantage depends has never been harder or more necessary.
In the past, conventional wisdom in IT has dictated that new is better than old, with each new wave of technological innovation promising its own version of better, faster, cheaper. Sometimes the goals are realised. But very often the reality falls sadly short, as the complexities of integration with existing systems and business processes introduce costly delays and customer dissatisfaction. What benefits there are, whether they come in the shape of reduced costs or a greater responsiveness to business needs, are often isolated in nature - despite the potential for much wider relevance throughout the organisation.
Experience continues to teach us important lessons on the subject of old versus new, and has brought us to a period of greater pragmatism, with CIOs unwilling to accept the risks, let alone cost, associated with sweeping changes to an IT landscape they do not fully understand. And since it is now an accepted truth that there is no ‘one size fits all’ solution in IT, and that heterogeneity will not, and indeed should not, be eradicated, organisations are now embarking on their greatest period of internal control.
IT governance is firmly at the top of the CIO agenda, both for reasons of compliance and good business sense. The need to reduce the level of risk in any change, and to better manage the process of IT evolution, is paramount; for how can you manage what you do not understand? How can you introduce new technology and expect to fully realise its benefit when you don’t yet understand the benefit of what you already have?
Application Portfolio Management (APM) sets out to deliver that understanding, and enable the creation and continued evolution of an enterprise-wide IT strategy.
Outside the domain of IT, senior management have for many years possessed the tools to provide fact-based decision-making. It would be inconceivable to think of a CFO without access to timely financial reporting concerning the company’s assets and liabilities. Similarly, to consider the job of the COO without real-time access to sales performance figures, described by geography, or line of business, or even by individual sales person, is equally unreasonable.
And yet, despite IT assets comprising some 40% of a company’s capital, and despite organisations’ total reliance on the vital insight provided by its IT systems and the infrastructure that supports it, until recently there has been an alarming scarcity of decision support tools to assist the CIO.
The APM tool market continues to grow, as CIOs realise both the need and availability of such technology in helping them reduce their application maintenance burdens. As much as 80% of the IT budget is spent on maintaining existing applications. APM, both as a discipline and a set of technologies, helps direct investment to where it is most needed, and from which most benefit will be derived.
But what exactly is APM, and how does it provide such insight?
APM is a subset of IT governance; a subset which deals directly with the largest consumer of IT budget - the existing application portfolio. APM provides management insight through the creation of a knowledge base derived from all relevant sources, such as application code, rate of change, operational costs, problem reports and business value.
It enables senior IT managers to answer significant questions of cost and risk before committing further resources to particular applications. How much do we spend on maintaining this application? How frequently is it updated? What are the languages my systems are written in, and do I have the skills in place to maintain them?
APM provides IT managers with visibility into precisely which applications are consuming the bulk of their precious resources, how big or complex they are, where the dependencies or compliance issues lie and so on. This visibility, in the words of Forrester analyst Phil Murphy, “enables IT to communicate true costs back to the business application owners in a language they understand. The common language promotes understanding, which in turn will have a positive impact on IT’s relationship with the business.”
It is in this area of communication that many companies are already seeing tremendous advantages.
As more and more companies seek to outsource elements of their application portfolio, APM is able to provide a level of on-going control and management for the client, while enabling the outsourcer to gain both a comprehensive understanding of the scope and complexity of what they are agreeing to maintain at the start of any engagement, in addition to accelerated understanding of the applications they are maintaining.
HSBC is one company reaping benefits on both sides of the outsourcing equation. When its European IT organisation sought to improve its ability to support the bank’s large portfolio of applications, with a view to releasing resources into new project work, it sought a centralised support team approach. This approach was also expected to enable it to handle the dramatic increase in applications the team was being asked to support at the time. Part of the centralisation involved establishing a support team within HSBC’s Global Technology Centre in India.
One of the major challenges they faced in releasing IT staff for new project work in this way was the amount of time it took to replace their individual expert knowledge. Typically, this process involved bringing people with particular expertise into the central support unit in order to spread their knowledge around the team. Only then would they be made available for new work.
As Andy Givens, Head of IT, mainland Europe, observed, “this obviously took a lot of time.” This is where the use of APM tools helped to reduce their dependence on subject matter experts. Utilising their APM technology’s ability to automatically collect application detail from across the entire IT landscape, regardless of platform, HSBC was able to create an “entry point for its technicians”, resulting in a much faster circulation of knowledge between its globally separate divisions.
Andy Givens continues: “Applications that have been built anywhere in the world can be maintained and supported and changed at any one of our IT centres and the biggest impact that [our APM technology] is going to have for us is about maintaining these systems in a quality way.”
Through its use of APM tooling, HSBC was able to release 30 IT staff into new project work and has seen its ability to develop application understanding within its centralised team slashed from months to weeks. As a result, HSBC is projecting annual savings of 10% on the maintenance of its application portfolio.
Other companies, such as Barclays and Italy’s Banca Intesa, have seen tremendous benefits from their ability to more closely manage their outsourcing contracts. APM has enabled them not only to identify prime targets for outsourcing, based on better understanding of the portfolio, but also manage the ongoing quality of the work carried out. Through the establishment of engagement frameworks and a baseline set of metrics, companies have been able to implement much more rigorous service-level agreements, allowing for a climate of greater and more open communication around the common language that APM provides. Banca Intesa, for example, was able to identify 20% of savings across its multiple outsourcing contracts.
Clearly, these examples illustrate that APM is as much a question of culture as it is technology. To succeed, APM initiatives must be driven from the very top of the organisation, and absolutely not simply be limited to life as an ‘IT project’. APM provides the information, but only through action will the benefits be realised. Only by business and IT working together, setting those actions firmly within the context of business goals and a defined and on-going enterprise architecture roadmap, reviewing progress on a regular basis, can that perennial nirvana of an IT organisation that is truly aligned with the business it serves ever be achieved.
