IT Strives to Reinvent Itself Despite Budget Restrictions
How much money is your company wasting on application support and maintenance? How many application-related service tickets does your IT operation have to deal with each month? Chances are, the respective answers are “way too much,” and “way too many.”
IT outsourcing companies that provide application support and maintenance, or ASM, obviously have every incentive to keep the percentage of IT budgets that’s spent on ASM as high as they can. According to Vijay Iyer, senior vice president and global head of applications outsourcing at Indian IT outsourcing services provider HCL Technologies, large companies typically spend 40 percent to 60 percent of their IT budgets on ASM. You’d think HCL, which has been in the ASM business since 2001, would be happy with that, right? They’re not. Ideally, Iyer said, that figure should be in the range of 20 percent to 22 percent.
If that seems weird coming from an ASM provider, it gets downright paradoxical. Iyer said 54 percent of HCL’s roughly $5 billion in annual revenue, or $2.6 billion, comes from the applications area. And a hefty chunk of that—60 percent, or about $1.6 billion—comes from its applications support business. And HCL thinks companies’ ASM spending should be lower?
The explanation, according to Iyer, lies in a radically different approach to ASM that HCL is now taking, a managed services framework it calls “ALT ASM.” It was a response to customers’ demands for lower ASM costs—and a lot more.
“Customers were telling us, it’s not good enough just to reduce costs,” Iyer said. “They wanted something more than that—they wanted a managed service approach, with more ownership and accountability to be taken by the service provider.… They were saying, ‘Give me more openness and transparency and visibility into what you’re doing.’ They wanted more control and more value for the money being spent.”
HCL’s response, with ALT ASM, was to “reinvent” its approach to applications support such that reduced ASM costs would be a natural outcome of a more holistic customer relationship.
“It sounds like we’re cannibalizing our own line of business or revenues, but there is no choice today,” Iyer said. “So we want to get into a contractual construct with customers where we’re able to guarantee that reduction, but at the same time guarantee a lot more.” In other words, reduce those costs, and in the process build a relationship that yields revenue in other areas.
Iyer explained the ALT ASM framework in terms of three key elements. First is a focus on being proactive rather than reactive, and the dream of a “zero-ticket enterprise.” He said the focus on ASM service providers has always been on ticket resolution.
“As technology and people’s knowledge got better and better, the focus was around resolving the tickets faster and faster,” Iyer said. “The view we took with ALT ASM is radically different. Yes, we will resolve tickets faster, but I’m now focused on eliminating tickets. Can we have a zero-incident enterprise? It may not be possible to get to zero, but that’s the thought process. You don’t need people to resolve incidents—you need people to maintain a managed environment more proactively, to provide maintenance and support, instead of reactive incident response and resolution.”
The second element, Iyer said, is reduction of total cost of ownership. It’s all about reducing waste—large organizations are paying annual maintenance contract fees in different parts of the world, and in different layers of the business, for applications that aren’t even being used.
“The traditional application support model doesn’t have a methodology to identify that waste,” Iyer said. “When we interviewed a few customers and did an assessment, we found out there were service providers charging the customers for supporting an application that was not being used by anyone in the business. In some cases, the applications were never even commissioned.”
The third element is what Iyer called “incremental value generation.” He explained that several years ago, HCL launched a “democratization of value creation” initiative, under which four or five architects would meet once a quarter to think about what incremental value they could generate for a particular customer. With ALT ASM, this initiative has been expanded to include not just a handful of architects, but theoretically every one of HCL’s 85,000 employees. “Even if it’s just one idea a month per person,” “Iyer said, “you’re looking at 85,000 ideas being generated each month.”
Iyer went on to explain that ALT ASM is technology agnostic, as well as industry vertical agnostic. He added that HCL uses a blended outsourcing model, with work performed at client sites; at centers in U.S. locations that include Raleigh, N.C., Jackson, Mich., and Redmond, Wash.; and offshore at locations that include India, Malaysia and the Philippines.
