Industry news

The Department of Justice (DOJ) for the USA has awarded Unisys, the global IT outsourcer, three ‘task orders’ to provide professional and technical services, expanding an existing long-standing arrangement.

Under the contract Unisys will provide investigative services, training, and program analysis – in support of the DOJ Asset Forfeiture Program (AFP). The task orders form part of a $475 million multi-vendor contract awarded in March 2008.

The AFP is a nationwide law enforcement program that manages assets forfeited in the prosecution of criminals and criminal enterprises. As part of the contract Unisys will be eligible to compete for ‘task orders’ to provide a range of services to AFP management and field professionals. These services include investigative and analytical services, consulting, technical services, and case-related professional support during the investigation and prosecution of criminal cases.

Unisys has supported the DOJ on various AFP services since 2002.

CSC announced today that it has signed a new information technology (IT) outsourcing contract with US aircraft manufacturer Hawker Beechcraft Corp. The nine-year agreement is an extension a contract that began in 2002.

Under the new deal, CSC will continue to manage Hawker Beechcraft’s IT infrastructure, including mid-range computers and desktops, help desk operations, IT security, engineering computing, voice and video telecommunications, servers, and local and wide-area networks. CSC will provide these services for Hawker Beechcraft’s operations globally.

Nationwide Building Society has signed a new agreement with BT to manage its networked IT services in an outsourcing deal worth £160 million.

Under the terms of the agreement, lasting an initial seven years, Nationwide will transfer all voice and data networking infrastructure, third party network contracts and in-scope staff to BT.

As part of the contract, BT will deliver a service transformation programme under which they will consolidate Nationwide’s multiple networks onto its industry-leading 21CN Global network which will support both voice and data services on a single converged platform. BT will also deliver enhanced remote access facilities to Nationwide’s non-office based employees. 

The new model will introduce a flexible commercial model providing Nationwide with cost predictability whilst based on industry best practice and a framework of service level agreements (SLAs) at a reduced overall total cost of ownership. 

Traditionally, Nationwide has developed and managed its IT operations in-house and procured point solutions from external suppliers where necessary. This agreement marks a shift towards a preference for a multi-sourcing model for IT services that can provide Nationwide with a reduced overall service cost and with improved service flexibility.

Peter Stafford, Head of IT Infrastructure at Nationwide, said: “Nationwide’s growth in recent years has meant that our IT infrastructure has also had to evolve at an exponential rate to keep up with demand and we must now seek the most efficient and scalable infrastructure service possible to support this. Having worked with BT for a number of years, we are very confident in the team’s ability to fulfil our requirements.”

Under the agreement, Logica will develop and implement a management system for the alliance’s electronic documents across Europe, Turkey and the USA.

Previously, Logica installed a “Document Handling System” (DHS) product for the “NATO Secret” network in ten of the organization’s locations worldwide. By December 2008, DHS is expected to be set up at 14 more locations. Once the project is completed, the majority of NATO’s military community will be using the system.

Prior to the introduction of DHS, NATO was using several separate systems for document management that were closely geared to the individual command centers and institutions of the organisation. With DHS from Logica, NATO employees are now able to access internal documents from any of the organisation’s locations. A powerful search function ensures that documents from a wide variety of different sources can be found quickly and easily.

Steven Janis, Core portfolio coordinator at the NATO C3 Agency, said: “What we wanted from our new document management solution was a user-friendly application that offered our users enterprise-wide rapid access to all appropriate documents stored in the business in a controlled manner, balancing the need-to-know against the need-to-share. Logica has implemented a solution that does exactly that for us”.

The use of global delivery models is now common practice within the business process outsourcing (BPO) market and Latin America is becoming an increasingly popular destination for IT services and BPO vendors who are looking to provide low-cost services to clients, reveals a new report by independent market analysis firm Datamonitor. 

The report, titled “Global Delivery Locations for BPO – Focus on Latin America”, looks at the factors driving this trend, discusses the main players currently active in the market and analyses possible strategies for including Latin America in a coherent global sourcing model. It also investigates the key BPO delivery locations within this region and the main business factors that will help companies choose the destination that best suits their needs.

“The last two years have seen a marked increase in the number of outsourcing vendors utilising Latin America as a low-cost delivery location”, says Ed Thomas, associate analyst for BPO at Datamonitor and author of the report. “Key examples include major players such as IBM, EDS, Tata Consultancy Services and ACS, all of which have significantly increased their presence in the region since 2006, while providers such as Infosys and Cognizant have opened centers in Latin America for the first time.”

Latin America has a competitive advantage due to proximity and linguistics

Due to its geographical proximity, Latin America can be used as a nearshore location to serve customers in the US. This enables client and vendor to maintain a close relationship, including more face-to-face meetings, and also means that problems can be solved in real-time, without the delays that inevitably occur when work from the US is offshored to more distant locations such as India or China.

Operating in Latin America gives clients access to a major pool of native Spanish and Portuguese speakers. Particularly in the case of customer-facing BPO functions, this offers the potential to provide better and more efficient services to the Hispanic community in the US, as well as opening up the Spanish and Portuguese markets in Southern Europe. Providing local language services also improves the quality of services offered to end users, increasing customer retention.

Many vendors are using Latin America as part of a multi-shore delivery model

Thomas points out that, in the past, IT services vendors tended to pick one offshore location, usually India, and deliver a range of services from there. “Now, more and more companies are adopting a multi-shoring strategy, whereby they set up centers in a number of countries in different geographic regions. This not only allows them to provide services from closer to the customer, but also reduces the risks associated with housing all their operations in one location.”

Many vendors have expressed to Datamonitor a fear of ‘putting all their eggs in one basket’, mindful of the chaos that could be caused should India’s economy crash or wage inflation in the country hit new peaks. In this context, Latin America is an attractive alternative location for vendors with an existing presence in India.

Skill shortages and concerns over stability will hinder the region’s growth

One of the main drivers behind the rise of India to its position as the pre-eminent global sourcing location was its vast reserve of skilled labor. Similarly, up-and-coming locations such as China and Russia offer large untapped labor pools, enabling vendors to scale up a delivery center quickly.

Customers may find that Latin American countries are unable to deliver the kind of scale available in these other, more populous regions. This is partly due to simple population size, but it is also the case that regions like India and Russia churn out more technical graduates than their counterparts in Latin America.

Latin American countries can circumvent this potential problem by offering highly skilled services in niche areas. Also, the region’s positioning as primarily a nearshore location necessitates a different operating model from the one utilised in India, for example, in which scale is of lesser importance.

Thomas notes that Latin America also still has some perception challenges to overcome in its development as a sourcing location. “Concerns about stability (both economic and political) and security continue to hang over many Latin American countries, including Brazil, Mexico and Colombia. This may cause vendors to think twice before setting up there.”

The recent activity in Latin America is set to continue

All of the vendors Datamonitor spoke to indicated that they expected the recent expansion of Latin America’s IT services and BPO sector to continue for the foreseeable future, with more vendors moving into the market.

The investment by international IT services and BPO providers has tended to focus around certain countries (most notably Mexico, Brazil and Argentina) and certain locations within those countries (including Mexico City, Monterrey and Guadalajara in Mexico, Sao Paulo and Rio de Janeiro in Brazil and Buenos Aires in Argentina). There are many other cities within those tier one countries which could be tapped, and also many other countries within Latin America which are still to be utilised to their full potential.

The second tier Latin American countries identified by Thomas in the report (including Chile, Colombia, Costa Rica, Panama and Uruguay) in some cases still represent relatively unknown quantities for many within the IT services and BPO industry. These locations each have their own unique set of strengths and weaknesses, but are all viable sourcing locations, many of which have yet to be fully exploited.

Research sponsored by Firstsource, the global business process outsourcing company, indicates that the credit crunch has not yet had a major impact on the consumer debt management industry. More than a quarter of respondents (26 percent) said they had not been affected by the declining economic environment, and over half (53 percent) reported that they had monitored only minimal impact.

The poll covered nearly 1,000 consumer debt managers of companies in the financial services, telecommunications, retail, and utility industries.

However, although debt managers say they have not yet been significantly affected by the credit crunch, the research showed signs that consumers are starting to take longer to pay their bills, and that write-offs of consumer debt are increasing. Twenty-seven percent of respondents said that some consumers are delaying payment of bills by up to three months, and twenty-two percent of debt managers reported that they had increased their write-offs of customer debt in the last 12 months.

In response to the uncertain economic outlook, debt managers expect to outsource more work to specialist collections and recovery agencies to increase their collections levels, reduce defaults, and lower their costs. Sixty eight percent of debt managers said they planned to increase their use of outsourcing within the next year; 27 percent said they would outsource more within the UK, 18 percent reported they would collect more from offshore, and 23 percent expect to outsource more both within the UK and offshore.

Matthew Vallance, Firstsource’s president, said: “Although most consumer debt managers report that they haven’t been rocked by the credit crisis, the trend amongst consumers is towards later payments which will consequently affect cash flow. Therefore debt managers are looking to specialist consumer debt collections and recoveries outsourcers in the UK and offshore that have the expertise and resources to collect more debt, in faster time frames and at lower cost than is possible in-house.”

Debt managers said that the main benefits of an offshore strategy are further cost reduction, the ability to recover more debt, and increased access to talent.

Most of the collections work that has been outsourced to date is debt collection (35 percent of respondents), tracing (identifying and prioritising debtors to contact, 25 percent) and legal collections (24 percent).

The majority of outsourced collections relates to early stage work (debt that is one to 60 days old, 42 percent of respondents), followed by recoveries (six months, 26 percent), late stage (90 to 180 days, 21 per cent), then mid stage (60 to 90 days, 10 percent).

Respondents said that there were many areas where they could see obvious rooms for improvement in their collections strategies. The main failings relate to poor use of technology. Over half of debt managers said greater use of online payment systems would improve their collections levels. Many managers also felt that they should make more use of interactive messaging and interactive voice recognition systems.

Better analysis of customers’ debt levels and internal training were two other key areas identified for improvement.

The annual Black Book of Outsourcing has rewritten the outsourcing industry yet again. The new edition finds the magnetic pull of the US attracting people back towards it, and black marks against the name of offshore providers that forget customer service in the quest for revenues and elitist attitudes.

The Brown-Wilson Group survey of global outsourced service users assesses industry developments (from a solidly US perspective, it must be said) and provides a useful annual snapshot of outsourcing trends as seen from across the Atlantic divide.

Outsourcing models are still evolving and maturing, and change is the constant. Among the 2008 edition's findings are that so-called 'reverse outsourcing' will continue to grow.

With more than 50 percent of many Indian outsourcing firms’ revenue flowing from North American clients, says the report, the apparent movement towards the US as a location is based on “simple supply and demand economics”.

As wages continue to rise in India and the US dollar’s value decreases against the rupee, it becomes expensive for Indian companies to maintain operations solely in India. Not only do US centres provide closer proximity to clients, the facilities also enable Indian outsourcing firms to draw from local talent pools – something that is often overlooked by highly vocal US doom mongers who equate outsourcing with US job losses.

That said, some of the statistics unveiled in the 2008 report confirm that Indian outsourcing providers remain the motive force at work in the centre of the outsourcing industry. The successful Indian companies are striving for an optimal mix of onshore and offshore operations to please clients and drive more business towards them.

Satyam, TCS and Wipro, three successful Indian outsourcing providers with growing North American operations, are among this year’s top honoured suppliers overall, says the report. Also highly placed in several categories are Genpact, Tata, and Cognizant – players that are doing well in the UK and wider European markets as well, as often discussed on sourcingfocus.com.

Indian providers continue to dominate the BPO market, with the 2008 BPO vendor top 10 (in descending order) being: Genpact; Satyam BPO; Wipro; Logica; IBM Global; 24/7 Customer; MphasiS; TechMahindra; and WNS Global. By comparison, the finance and accounting outsourcing top 10 for 2008 is (in descending order) is: Hewlett Packard; Capgemini; Wipro; Accenture; Xchanging; Genpact; BNY Mellon; Infosys BPO; WNS; Steria.

In the category of 'Best Managed Vendor', five Indian providers were lodged high in the top 20 listing. However, one of the Indian market's prime movers, Infosys, tumbled out of the 2008 top 50, with clients reportedly describing “a noticeable shift from customer service to corporate revenue generation, and a corporate culture that has become disappointingly elitist”. If true, the message is clear: remember the principles that made your company successful: US and European clients are perfectly capable of finding remote, revenue-focused and elitist providers much closer to home.

Indicative of the growing re-appreciation of US-centric firms, says the report, is that top honours in this year’s survey went to number one full-service provider overall Hewlett Packard; and then to Perot Systems (2); Computer Sciences Corporation (CSC, 3); Unisys (4), and EDS (5). That top five also forms the top five best managed providers. (Obviously, the survey took place before the industry-shaking merger of HP and EDS, recently approved by the US authorities.)

Generally speaking, the other big approval winners were those vendors that placed a strong focus on verticalisation: outsourcers that adapted to their clients' specific industry demands, rather than applying what the report describes as a “cookie-cutter domain approach”.

Unsurprisingly, the news was not all good for some firms in this year's Black Book. Receiving the most fervent customer disapproval in the US market have been those outsourcing firms that have placed the majority of their company’s workforce offshore without maintaining adequately supported US-based ventures. Five major offshore firms' overall client approval ratings cost them Top 50 positions from last year (Infosys, Hexaware, EXL Service, ICICI Firstsource and Sutherland).

US companies were not immune from criticism: IBM Global, a former Black Book champion, also tumbled in the ratings as users expressed a palpable shift of customer service conduits to centres outside North America, contributing to their frustration and discontent.

Among other trends reported in this year's edition, is that outsourcing is “no longer the refuge of the financially weak or technically deficient enterprise, nor is it a stick to threaten US workers”. Rather, it has become an accepted strategic tool – albeit in a tougher market to navigate successfully. Customers are more sophisticated, and are demanding more flexible contracts, performance penalties, and benchmarking audits – particularly as the economy weakens.

Clients are also placing high value on collective user satisfaction data as a predictor of a supplier’s future performance. That hurts future deals for suppliers whose relationships are not their first priority. Again, the message is clear: in an industry where outsourcing partners are sought to complement the organisation's skills base and core business, relationship building is the key to making the partnership work.

For the second year running, China – which has seen a tremendous increase in outsourcing investment – scored very low levels of satisfaction overall. Latin America and Central and Eastern European suppliers, meanwhile, saw the highest growth in terms of their outsourcing industry with parallel upsurges in client satisfaction scores. Many new vendors from these regions displaced Indian, Philippine, Chinese and Canadian outsourcing suppliers this year on a competitive KPI (key performance indicator) index.

This year's edition also confirms findings that are already familiar to sourcingfocus.com readers: namely, that UK and European customers still view the US as the third most popular destination for offshore outsourcing after India and China. Western Europe tends to prefer regional vendors, while the US is leaning towards western hemisphere providers as likely considered alternatives to China and India next year – the phenomenon of nearshoring, says the report.

Other findings in the report include:

• The Top 10 full service outsourcing advisors for 2008 are In descending order): TPI; Gartner; Hackett Group; Everest Group; Pricewaterhouse Coopers; Booz & Company; 7 Avasant (formerly Stradling); PA Consulting; EquaTerra; AT Kearney.

• The Top 10 boutique outsourcing advisors are (in descending order): Pace Harmon; The W Group; NelsonHall; Hitachi; Vantage Partners; Alsbridge; Global Equations; Ineum Management Consulting; Archstone Consulting; ScottMadden.

• The top 10 document process outsourcing (DPO) vendors for 2008 are: Océ Business Services; Pitney Bowes; RR Donnelley; Innodata; Isogen; Williams Lea; Integreon; Xerox Corporation; Datrose; Merrill Corporation; Lanier.

Organisations have been outsourcing and offshoring business processes for many years now, to take advantage of the lower cost of labour in developing countries such as India or China. Many of these business process outsourcing (BPO) contracts have focused on large scale transaction processing, frequently in 'non-core' processes such as accounting or HR, or in areas of perceived lower value or complexity. Recently this trend has changed.

Low-value, ‘lift and drop’ contracts have run into some severe and well-publicised problems. In the UK, most of us have had or heard about a bad experience with an offshore customer service agent with inadequate language skills or a lack of knowledge. On the other side of the fence, the offshore call centre agents themselves often face daunting overnight shifts (to field daytime calls from the other side of the world) and work offering limited professional challenge for skilled graduates.

Under these circumstances it’s not surprising that offshore staff attrition can routinely be over 50% and sometimes over 100%, and that serious questions around customer satisfaction and operational stability have been raised.

As these problems have hindered the development of offshore call centres and even prompted some organisations to use their relocated, onshore call centres as a selling point, other factors have led BPO providers to offer more complex, knowledge-based services that sit far closer to the core business. These higher-value processes, while still offering reduced cost, also take advantage of the wider availability of very qualified talent in developing countries, exploit the benefits of operating in different time zones and allow added flexibility for ad-hoc or short-term projects.

The issue of global talent is key - onshore availability of skilled graduates is very small compared with a country such as India, where it’s estimated that around 2.5 million new graduates and 500,000 postgraduates enter the job market every year, and the price of offshore talent is far lower. In fact, the wage differential between near and offshore skilled professionals with significant experience is greater than that of the graduates with lower levels of skill and experience traditionally hired into transaction processing operations, meaning that knowledge-based BPO actually presents a better business case than low-value deals, albeit on a smaller scale.

Crucially, higher-value BPO arrangements give offshore workers a far greater degree of job satisfaction and potential for career progression - helping to address the high attrition rates and customer service issues associated with transactional and support processes. Tasks are typically analytical and require staff to be highly qualified, professional and mature.

With many organisations now operating on a global scale, using third-party talent sourced from worldwide locations also means that business can respond and serve customers regardless of the time zone they operate in. The flexibility of using a third-party BPO provider also allows organisations to easily and quickly scale operations up or down in line with seasonal or otherwise predictable peaks.

The cost savings offered by high-value BPO deals are important, but arguably of greater significance are the new results that were not available with onshore fulfilment. Most human-capital-intensive business processes within corporations were designed and based on certain underlying assumptions about the supply, demand and price for talent in the geography where the process needs to be performed. When this underlying constraint is relaxed through global sourcing, the results can be dramatically different.

The basic idea is that by applying new knowledge, skill-sets or business savvy that were not previously affordable or available, organisations can enable new services or capabilities that, in the past, could not be considered feasible, therefore achieving a totally unexpected outcome.

For example, one of our customers in the healthcare insurance industry has been taking advantage of skilled Indian labour to improve the effectiveness and extent of its investigation of fraudulent claims. Previously, with onshore employees the company wouldn’t investigate any cases below $1,000, as the costs involved would outweigh that of the potential fraud itself. Taking advantage of the lower cost of labour has allowed the threshold to be brought down to $500, allowing more leads to be chased and reducing margin leakage.

This KPO approach also has benefits for providers - involvement in these areas of a client’s business brings greater understanding of business issues and the opportunity to serve clients better. For those outsourcing vendors who also offer IT services, there are opportunities to bundle together different services and offer complete packages to their clients, taking increasing accountability for delivering business outcomes.

Cost remains a strong motivator in outsourcing decisions, but the ability to source global talent to deliver business processes brings new challenges and opportunities.

Organisations have to change their decision process to make the most of worldwide knowledge, and ask themselves not how much more cheaply and efficiently a particular process can be done, but why they are doing it in the first place and whether they could achieve a very different customer experience if they had access to skills, expertise and talent at price points which were not previously possible.

Another conference, and another speech by a software as a service CEO forecasting the end of the world as we know it. But if the mid-market is genuinely something that companies can sell into via the Internet, then that undermines the 'big consultancy' model and opens a potentially huge, lower cost market to new players. Will services start to look like software?

What prompts this train of thought is that NetSuite CEO Zach Nelson (yes, it's that man again, bear with me) has forecast a “world of pain” for the traditional services sector over the next five years, as applications delivered over the internet transform the consultancy industry, just as they have the software business this century.

“These are the observations I have to make after 10 years in the cloud,” he said in a speech today in the US – referring not to living in a dream world, as his critics might say, but to his company's adoption of the term 'cloud computing' as a synonym for software as a service, alongside industry peers such as Salesforce.com's Marc Benioff.

Although he has said such things before – as sourcingfocus.com and Editor's Blog have reported – today's speech was significant for outsourcers as Nelson has now honed his attack on the established consultancies and outsourcing suppliers, which he says have no chance of addressing the untapped mid-market in the way they have the Fortune 500 so successfully.

“I really believe that the mid market is the last great software market. The cloud is important in the mid market as it finally makes it economical to reach what I call the 'Fortune Five Million'.

“It's always been difficult to serve and to sell applications to millions of companies around the globe, and the internet and the cloud in particular finally enables you to do that,” he said. “The other thing that makes it possible is Google.” This, he explained, allows customers to find companies such as his.

Nelson's thesis is that, in this new model where the mid market becomes viable (at last) for vendors and the big leveller of the internet changes customer expectations, the consultancy giants are no longer on a sure footing for the future.

“The next big revolution is that the services industry is going to be as affected by the cloud as the software industry has been for the past five years,” he said. “There is a world of hurt coming for traditional services companies, based on the business model of cloud computing, number one, and the expectations of customers, number two. I don't mean web services, I mean services as in consulting services, [such as] Accenture, PwC and the like.

“Someone is going to be the 'Accenture of the mid market', but it isn't going to be Accenture or any of these guys because it's a completely different model,” he said. “I don't believe any traditional consulting company is going to be able to successfully deliver consulting services over the Internet, which you still need.”

The problem, of course, is that traditional VARS are not embracing the SaaS industry as you might expect, because (essentially) there is no profit margin in doing so. This is partly because the mid-market customer mindset – honed to some degree on Facebook, Google and Wikipedia – will not permit an economic model of selling expensive, big-ticket consultancy services on the back of accessible, web-based applications used by small teams of non-expert employees.

Nelson admits that this is true of his own business as well: “We don't run services as a revenue generating business, we see it as an investment in renewal,” he explained. “We're not even trying to make a profit in the services business. It's now going to be about service as software. That's always been the holy grail of services companies: take the implementation they did for that company and use it for this company.”

In other words, contends Nelson, the next generation of mid-market consultancy to emerge over the next five years will be offering formerly one-off services as reusable software modules. Services companies, in short, will begin to look like software companies.

“Why not build the application once and use it over and over again....take customisations from one account and inject it into another account. These are the kinds of applications that are going to enable services companies to head into the cloud.”

However, things are not necessarily that straightforward, even in the web-based applications world where complexity is hidden from the user. To his credit, Nelson accepts this: “People see the cloud and believe that all applications magically work together because they're all delivered from the cloud,” he said. “Nothing could be further from the truth. The web is very good for loosely coupled things but businesses run on very tightly coupled data models.”

In the client/server days it was hard to synchronise applications and data, and so companies ended up standardising on a single ERP system, which meant rebuilding the business around it. That was good news for the Deloittes, Accentures (and its predecessors) and PwCs of the world, as they could bundle multimillion dollar consultancy programmes around huge enterprise implementions. “After six years it worked for about a week,” quipped Nelson, “and then somebody changed a field in Siebel and it all fell apart.”

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.