Application Management Services: Efficient and cost-effective operation of applications

In our previous post, ‘Smart Sourcing: Application Management Services,’ we described the functional scope of application management services. Taking the following aspects into account can help companies reduce their risks and benefit from the advantages of outsourcing applications.

IT departments in many companies are overburdened with the operation of their applications, because the IT managers there are constantly busy installing updates for these applications, they have to permanently monitor the performance of the applications and react quickly in the event of malfunctions. All in all, a very unsatisfying and tedious job for highly paid IT professionals.

That is why many companies leave this task to specialised IT service providers. They provide these so-called Application Management Services (ASM) routinely and largely automated – at a fraction of the costs that would be incurred internally. The service portfolio of the external IT service provider usually covers all the requirements of an application management service.

For more details on the functional scope of application management services, see the article ‘Smart Sourcing: Application Management Services,’.

Opportunities and risks of outsourcing application management services

Many companies are overwhelmed by the task of managing their applications. They lack the time and human resources for this complex task. Instead, they want to use their limited IT specialists to develop new methods and procedures to further digitise and automate their business processes. Only in this way can these companies use new technology to set themselves apart from their competitors.

Maintaining existing applications is not one of these strategic tasks. Here, companies can fall back on the services of experienced IT service providers who can take over the application management services either fully or partially, thus relieving their customers of tedious, time-consuming and non-strategic tasks.

What are the arguments in favour of entrusting an external IT service provider with the maintenance of existing applications?

The IT service provider knows its customers

The IT service provider has often developed the applications together with the customer, installed them at the customer's premises and integrated them into the internal systems. It therefore makes sense to entrust this IT service provider with the maintenance and further development of these applications.

An outside perspective helps with readjusting the applications

IT service providers who have been under contract with a company for many years know their business processes, routines and workflows. With an external perspective, IT consultants can usually identify areas for improvement faster than the client and can make the necessary software changes.

Synergy effects

Special features in processes and procedures that have already been developed by the development teams during the implementation of an application can be seamlessly passed on to the operating units.

Higher efficiency and lower costs

If the same IT service provider takes on several tasks at once, the company can save costs because it no longer has to coordinate a large number of IT service providers if everything comes from a single source. There are fewer meetings and they are also shorter because the number of people in charge is reduced.

In return, the IT service provider can usually offer a slightly higher discount on its rate card if a company purchases several projects and services en bloc.

If companies want to outsource their application management services (AMS) to an external IT service provider, they should be aware that there may be certain risks involved.

• Dependence on the IT service provider: Over-reliance on a particular IT service provider can restrict the company's flexibility and weaken its negotiating position in the current contract or in further projects.
• Loss of expertise: Complete outsourcing of application maintenance can result in the loss of valuable expertise. Re-acquiring intellectual property at a later date is often a complicated, lengthy and costly process.
• Integration problems: Integrating AMS services into the existing IT landscape can be complex. Companies should not underestimate the effort involved.
• Contract management: Unclear or insufficiently formulated contracts can lead to conflicts. It must always be clearly regulated which persons in the company and which at the IT service provider take on which tasks and also bear the responsibility for them.

The hurdles mentioned above can be easily overcome, however, for example with a clearly regulated allocation of tasks, which is set out in comprehensibly formulated AMS contracts.

Clear definition and delineation of responsibilities

The RACI model has proven effective for assigning tasks and responsibilities in AMS projects. These four letters stand for the four different roles of the people involved in the AMS project:

• Responsible: Who performs the task?
• Accountable: Who is ultimately responsible for the result?
• Consulted: Who needs to be consulted when decisions are made?
• Informed: Who needs to be informed about progress?

In the individual steps of application management services, different roles can be assigned to the responsible parties at the customer and at the IT service provider. For example, the system engineer of the IT service provider will perform a task and assume the role of R (Responsible), while their contact person at the customer is ‘only’ consulted and informed (Roles C & I). For other application maintenance processes, the role assignment may be different. Experienced service providers with a thorough understanding of the respective applications or environments have defined best practices and standards for the delineation of responsibilities that help companies to better evaluate their own responsibilities and describe the service provider's price-performance structure. All of this must then be individually regulated in the contract between the customer and the IT service provider.

The following aspects should be included in a contract for the provision of application management services (AMS):

• The contract should consist of several modules that can be exchanged individually in order to react flexibly to changing requirements.
• The duration of the AMS contract should be defined in such a way that major changes can be implemented quickly and the customer does not feel that they are tied to their AMS service provider for too long.
• Additional services can always be added, such as licence management or testing services.
• Clearly and unambiguously defined service level agreements (SLAs) ensure that the application management services provided by the IT service provider can always be accurately monitored.
• With a well-structured governance model (see RACI model), AMS services can be efficiently controlled and transparently monitored.

Reducing lock-in effects in AMS contracts

To avoid the customer becoming overly dependent on an AMS service provider, both parties should define the following in advance:

• Focus on open interfaces and standards; this ensures that switching AMS service providers is associated with manageable costs.
• Regular review of the contractual conditions; both parties agree to regularly scrutinise the components of the AMS contract and amend them if necessary; this prevents a rushed change of IT service provider.

The ‘chemistry’ must be right

Of course, both the customer and the AMS service provider should always have the agility and flexibility to be able to react just as quickly to the rapidly changing demands of the market. It should be possible to quickly add any additional applications that become necessary to the service portfolio.

This requires a change culture so that changes and additions to the service portfolio do not have a negative impact on the organisation of the customer and the AMS provider.

In any case, there should be a common understanding of the benefits and added value of application management services. And it is a great advantage if the IT service provider is familiar with the customer's industry and has already successfully implemented similar projects for other companies in this industry. With this wealth of knowledge, the IT service provider can operate the associated application management services more efficiently and cost-effectively than an AMS provider from outside the industry.