1、Should You Step Up to Value-Level Management in Applications Management Services? Deloitte Debates Published 2010 年 2 月 24 日 2010-02-24 00:00:00.0Service-level agreements or value-level management. Which is the most effective approach to applications management outsourcing?For years now, Application
2、s Management Services (AMS) have been all about cost driving down the expense base through offshore labor arbitrage. Further cost reductions, however, are getting hard to come by as are needed innovations and process improvements. When applications are supported through a low-cost labor pool thats i
3、solated from the business, efficiency, knowledge transfer and automation all suffer. To break the logjam, some companies are shifting their focus from service levels to value levels. Is that a wise course of action?Heres the debate.Point CounterpointCost is king and in AMS its the only thing that ma
4、tters. By the time you move an application offshore, it should be stable and mature. Innovation isnt all that important.Cost is a foundational component of AMS, but its only one piece of the AMS solution. When you disconnect AMS from ongoing improvement opportunities, you sacrifice competitive advan
5、tage. Unless “stable and mature” means “static and end-of-line,” even the most mature companies can benefit by improving process and information automation.Dont make it complicatedStick with a service-level orientation.Theres no incentive to add value. AMS is in the expense base. No one is really ex
6、pecting value-add. Let sleeping dogs lie.The shortest and least expensive path to creating new value usually involves leveraging current assets. When you shunt assets off to a dis-integrated AMS function, you can actually incur new costs for integration and knowledge transfer. The business case neve
7、r gets delivered. The vicious cycle continues.Its almost impossible to get significant value-add through an AMS structure using offshore resources.Youre wrong. Getting value is simply a matter of defining it, operationalizing it and then measuring improvements. Do that once and youll have the struct
8、ure you need to extract ongoing value from any part of your technology lifecycle, not just AMS.Point CounterpointThe cost burden of applications management isnt getting any smaller and the current AMS approach leads to an ever-increasing pool of software assets that are disconnected from the busines
9、s. That approach doesnt solve problems, it locks them in.Sorry. I dont have the money or people to take this on. Weve driven costs down to rock bottom. Any new resources will go to new applications.Markets, customers and channels are changing all the time and application portfolios arent keeping up.
10、 Value-level management squeezes more improvements from current assets.Theres nothing new about change and theres nothing new about IT struggling to keep up. Better to isolate management so the best people can focus on new investments.Step up to value-level managementIts not at all complicated when
11、you have the right mindset in place. The business expects more and more from IT, with not much appetite for a lot more spending. The current AMS model is like having one hand tied behind your back as you try to drive improvements.Thats not true. The current model is a proven way to drive down costs
12、which is a big chunk of what matters most these days.My TakeJanet Foutty, Principal, Deloitte Consulting LLPIT landscapes today are large and diverse, trending toward more complexity, not less.That complexity has become costly our research indicates that four out of five IT dollars are now spent mai
13、ntaining existing technology. To control spending, many companies created separate, specialized functions dedicated to managing applications and operations. These have become prime candidates for outsourcing, driving explosive growth in the Application Management Services (AMS) marketplace. Gartner
14、projects operations and maintenance outsourcing revenues combined to reach $97 billion in 2012. Which is all well and good except for one problem. AMS is mired down in a service-level mentality and its starting to hit the wall.Ask any IT executive what matters in an AMS contract and youre likely to
15、hear about the importance of Service-Level Agreements (SLAs). SLAs are essential for tracking vendor performance against technical service requirements and theyre relatively easy to measure. Unfortunately, theyre often not measuring whats most important. Worse still, they can actually lock-in applic
16、ations problems, instead of solving them.When it comes to whats most important, measuring the efficiency of a specific machine on a shop floor is less important than measuring the value of the resulting product in the market. So instead of incenting mean-time-to-recovery for an application outage, m
17、easure the quarterly return of that application on the business. Similar thinking applies to locking in on problems. The easiest approach to bug-fix or break-fix may not be the optimal direction given pending enhancements and release queues. Patch it now and un-patch it later in the new release is a
18、 risky proposition.This shift to a focus on business results and outcomes requires an AMS delivery model designed from the ground up to uncover value opportunities and implement improvements throughout every phase of the application lifecycle. Think of it this way: If the real value opportunities be
19、gin to emerge when an application stabilizes, why would that be the time to put that application out to AMS pasture?In practical terms, the difference between a service-levels approach and value-levels approach rests on choices about what to measure. For example, tracking the rate of billing accurac
20、y and improving it from 95 to 98 percent has much more value impact than tracking how quickly a call center answers the phone. Measuring satisfaction with the resolution of problems taps into a higher value level than measuring the duration of the conversations involved. Until youre able to link kno
21、wledge gained in the back office to the outcomes expected in the corner office, youll never break out of the downward spiral.At a minimum, value level metrics should consider the full scope of value creation within and around the CIO organization not just bug-fix and break-fix. But metrics for some
22、applications will extend even farther, reaching outside the CIOs world to quantify benefits to sales, manufacturing, supply chain, or even direct customers. The role of IT is to enable the business of the business. Lets measure against that goal.As you would expect, value metrics work most effective
23、ly when tailored to specific functions, industries, and IT organizations. For example, measuring performance improvements from ERP applications management would include tracking how quickly the finance organization can close the books. Value metrics for CRM or HR outsourcing, on the other hand, woul
24、d track improvements in customer satisfaction and employee utilization rates.Finally, while value-level management probably makes sense nine times out of 10, there are some applications and companies where theres simply no value gain possible. When applications are extremely stable and mature or whe
25、n no competitive advantage can be squeezed out of the system dont worry about value-level thinking. Just keep your fingers crossed that no competitors are hot on your trail.A view from technology sectorLarry Calabro, Principal, Deloitte Consulting LLPIn my experience, traditional AMS can create isol
26、ation between applications management and the rest of the business. So when an organization finally does get around to looking for improvements, the people and resources arent in place to deliver. They end up shuffling talent, hiring consultants, relearning, and rebuilding. The practical knowledge n
27、eeded to respond quickly to changing business demands is hidden in the heads of a floating labor pool, out of reach except at prohibitive cost.Even worse, when improvements actually do happen, theyre thrown onto the pile of outsourced applications for someone else to manage. Old assets get disconnec
28、ted from new assets and the cycle continues. The minute an existing application enters a stable state, its put out to pasture with a “keep the lights on” mentality. The message to your organization is unmistakable: Anything that is already implemented is “old.”And then theres the traditional AMS bus
29、iness model itself. For the most part, providers have a strategic interest in pure labor arbitrage. Stable processes and more utilization make contracts more profitable over time. Change is a cost, not an opportunity for improvement. Even when implementation and management are bundled for procuremen
30、t purposes, theres no inherent motivation to help customers reduce the cost of ongoing maintenance. When your business depends on throwing an army of cheap talent against every problem, innovations that might shrink the army will be generally unwelcome.Value Level Management can help preserve the ma
31、rket arbitrage benefits for the lower-level operations of any AMS contract. Vendors must continue to match cost structures and service levels as table stakes. But beyond cost and scale, the value-driven approach provides a vehicle for enabling business results allowing for resource fluctuations, dis
32、tribution of risk and a full blend of specialized skill-sets that need to be accessible at any time by the organization.A view from ERPCraig Hodgetts, Principal, Deloitte Consulting LLPCompanies today want maximum flexibility with a minimal term and spend commitment. They want resources to be skille
33、d and cheap and scalable rather than fixed. They also want to be able to do more high-value projects using these low-cost resources. And in the case of organizations who use consulting firms to help them with their large ERP implementations, what they really want is to have those high-value resource
34、s stick around to stabilize the solution by helping to manage through the inevitable productivity dip to realize the benefits from the investment and to enhance those systems at a reasonable cost. Thats where value-driven AMS comes into play.Value-driven AMS provides a mechanism to keep high-value r
35、esources engaged. But it requires moving beyond traditional Service Level Agreements, which are often slanted to suit the outsourcer. Its not uncommon to have a deal where all service levels are being met, but where customer satisfaction is lousy. Thats why the practice of aligning contracts around
36、business value is gathering steam.Effective contracts require incentives tied to both business value and services levels. At the high end of the value scale, the simplest and most basic metrics may be grounded in company earnings or stock price. As a more practical matter, however, activities tied t
37、o specific operational improvements may make more sense. These include such variables as time-to-close, outstanding payables and reporting accuracy.Driving down cost through labor arbitrage is the baseline foundation of AMS, but that is not all you should expect from a multi-million dollar contract
38、that extends over many years. Not anymore.A view from health care sectorPaul Roma, Principal, Deloitte Consulting LLPYou might assume that among health care companies, cost really is the only issue that matters. But talk to the executives I work with every day and youll find a more nuanced view. Sur
39、e, theyre looking for every possible opportunity to reduce costs, including labor arbitrage. But theyre also looking for the higher-order benefits that come from adopting a value-oriented approach to AMS. So why are we still reading about companies that have repatriated AMS outsourcing because theyr
40、e not seeing the value they signed up for?In this case, the devils in the details. Like everyone else, health care companies move to an AMS outsourcing model first and foremost to cut costs. And all those other benefits, like infrastructure improvement? “Our internal leadership is going to manage ou
41、r outsourcing relationships in a way that delivers value beyond pure cost reduction,” theyll say. Thats wishful thinking. In the best case, you may get a year of value-oriented results from your vendor and when you move on to the next thing, so will they. If youre paying someone to do X and hoping f
42、or Y, well, youre going to get X. Its about accountability. If youre not holding your AMS vendors accountable for anything beyond cost savings, youre missing half the boat.Perhaps even worse, your organization could find itself standing still at a time when you need to be constantly innovating and r
43、einventing. Improvement doesnt happen in the margins. It happens when you make it a top priority among your outsourcing relationships. Now is the time to make it happen.Related Content:Library: Deloitte DebatesServices: ConsultingOverview: Technology and Strategy & OperationsIndustries: Technology a
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