IT services firms dig in on automated application development and maintenance

Global 2000 firms could save $6.8 billion per year—or $3.4 million per firm on average—on improvements in application support and maintenance, according to a new study from HCL Technologies. Such savings could provide an enterprise with much-needed resources to invest in the transformative technologies that are increasingly required to maintain competitiveness.

CIO cynicism and frustration on ADM

The HCLT study is based on a survey of 300 CIOs in the US and the UK, and some of the results are quite striking:

  • Over the past 12 months, organizations have seen an average 29% increase in support tickets for applications support and maintenance (ASM).
  • ASM now accounts for 38% of large organizations’ over IT budgets.
  • 87% believe budgetary pressures are inhibiting their ability to invest in new technology.
  • 86% don’t expect their existing ASM function (in-house, outsourced or combined) to deliver cost savings over the next three years.
  • 45% manage ASM in-house, 17% completely outsource the function, and 38% have a combined approach.
  • Of those with partial or complete outsourcing, 78% believe their outsourcers could be more innovative, but instead are interested in keeping work and revenue levels high, with 72% believing they keep ticket levels up to maintain revenue flow.
  • Of those managing ASM internally, 92% their teams could be more innovative in transforming the model of ASM.

Enterprises and their servicers are both motivated to find efficiency gains

Outsourcers, especially off-shore specialists, have long focused on reducing development and support costs. But IT salaries in India have been rising up to 8% annually in recent years, and there’s been intermittent talk of U.S. legislation to keep service provider jobs local, so offshorers now have even more incentive to develop ASM efficiencies.

As Francisco D’Souza, the CEO of Cognizant, was quoted this week as stating, “…non-linear models will be an important driver of growth and differentiation and we continue to look for appropriate solutions and opportunities for investment.”

New deals for Infosys and Wipro

Infosys this week announced deals to provide application development and management support to Länsförsäkringar AB (LFAB), a Swedish mutual association of regional insurance firms, and to provide application support to Volvo Cars. Earlier this month Wipro announced a partnership to provide cloud-based product lifecycle maintenance services based on Siemens PLM Software Teamcenter portfolio. The IaaS-based solution will provide applications development services within the electronics and semiconductor industry. Undoubtedly automated services will be a significant portion of these new contracts, with some savings passing through to the customers and some helping to offset the outsourcers’ rising labor costs.

IPsoft partners with major servicers

Among other approaches to the problem, Infosys last spring and Cognizant last summer, as well as Accenture this winter, have formed partnerships with IPsoft to incorporate IPsoft’s autonomics services tools within their services. As Jonathan Crane, IPsoft’s chief commercial officer, sees it, many enterprises will look to gain from autonomics technology use both by their service providers and from direct internal use, particularly in areas where the tools create proprietary data of further use to the company. While the top Indian outsourcers are gaining from new interest in offshoring within Europe, Cygate, a Scandanavian IT services firm, has invested heavily in IT-based efficiencies as an alternative to the offshore delivery model. As we profiled earlier this week, Cygate has deployed IPsoft’s automated services in a growing number of areas, finding that 30-100% of human interventions can be replaced with automation—and some entire departments can be replaced.

Although IT servicers may not be eager to pass the full savings from automation on to their customers, they will by necessity deploy the technology at a high level—and enterprise IT shops, as part of a larger process of systems modernization, should look to doing the same.

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Laura Stuart

Analyst Independent Industry Research

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