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Outsource magazine: thought-leadership and outsourcing strategy | April 27, 2015

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IT Applications Services: the challenges today (Part 1)

IT Applications Services: the challenges today (Part 1)
Jamie Liddell
  • On April 22, 2014

A few weeks ago I was privileged to attend a roundtable and dinner hosted by the marvellous Ed Gardner of HCL, at which the IT Applications Services landscape was dissected, analysed and generally mulled over by an assortment of the UK’s finest advisors.

The conversation was – as is the way with such things – extremely wide-ranging and there’s no way all of it could be conveyed in a single article. However, I thought it might be an idea to give Outsource readers at least a taste of some of the discussion, so have shared below some of the attendees’ responses to one of the questions arising…

What do you see as being the main challenges currently facing the IT Applications Services space?

Kit Burden
Partner, DLA Piper

Undoubtedly, the main challenge for supplier of apps-based outsourced services is the ever-increasing momentum towards cloud-based solutions, and particularly those based on shared/one-to-many infrastructures. Such solutions will lack the bespoked/heavily configured elements of the legacy systems in place in many customer businesses, and will so be far less labour-intensive in terms of support and will have reduced scope for individual development … resulting inevitably in reduced workflow and revenues for the supplier community.

It will be interesting to see how the supply community will react, given the growth they have managed to sustain over many years based (in no small part) on the cost advantages of labour arbitrage via offshored service delivery centres. We can expect to see an aggressive refocus upon proprietary product/proposition development, and M&A activity involving companies with exiting products which can be integrated into cloud-based offerings.


William Hooper
Director, Oareborough Consulting

Applications Development, more than any other aspect of IT service, is all about taking the business forward in sympathy with working practice. One of the great challenges for the business is to articulate what they want in the vacuum created by ignorance of what is possible. This has led to the development of iterative approaches such as Agile that progressively develop and allow users to feed-back based on what they see. For this interaction to work well, it must be skilfully facilitated by people who are close both to the business and the developers. Whilst the focus of discussion may initially be the user interface, of greater value is the totality of the user experience.

This has posed many a conundrum when those two communities are separated by miles, culture, language and experience. The best have solved this creatively. The worst have not thought of the issue.


Nicolo Saa
Strategic Sourcing Advisor, Source

Some challenges include:

  • the client still retains core business knowledge and capability (e.g. business analysis) – but again the service provider is becoming a larger part of that team.
  • specific drivers increasingly dictate the level of transformation required: critical business alignment/integration transformations potentially require meaningful risk/reward provisions.
  • a trend moving away from staff augmentation to managed services (driven by a need to secure staff continuity, desire to transfer risk, cost control etc.).
  • clarity of responsibility remains crucial: we all need to better distinguish clearly and contractually between AD and AM services.
  • key activities such as Strategy and Architecture remain client-accountable, but a challenge comes from the fact that the service provider still plays far too big a role here.

An interesting challenge in the performance management sphere is coming from a definite trend towards governance regimes geared to performance against business KPIs. The question is whether or not contractual remedies are attached to the traditional IT SLAs or the new Business KPIs – Migration towards the latter seems inevitable and represents an interesting challenge.


Manish Khandelwal
PA Consulting

There are four challenges currently facing the IT applications services space.

Firstly, there are a high number of “it-may-be-useful-some-day” applications: large organisations have far too many applications, with many not being put to their intended use, or having passed their “sell-by” date. These redundant applications are still part of the architecture, and need to be closed down – as they continue to eat into app budgets, directly and indirectly. However, many organisations lack appetite for application rationalisation programmes, for various reasons from lack of appetite for business change to plain and simple turf protection. To complicate matters further, organisations that have managed to shut down applications through app rationalisation programmes have soon found themselves chasing a new set of applications that have entered the estate – a typical scenario with organisations that lack strict architectural governance.

There is an issue around the ratio of application development to maintenance budgets. Application development and maintenance compete for the same budgets and as the maintenance budgets grow, development budgets become the natural victim. In that sense, this is related to the first point – that if organisations do not develop the ability to challenge their current application estate, they will eventually struggle to invest in upcoming applications and technology.

Multisourcing versus sole-sourcing is the most difficult challenge to call out, as both multisourcing and sole sourcing have well-documented advantages and challenges. While the former is naturally favoured by the procurement departments, organisations that are ill prepared for multisourcing find themselves in a difficult spot when it comes to managing the OLAs between the various suppliers.

Finally there is channel integration: this is bit of a technical point, but I am raising it for whatever it is worth. With advances into new technologies and channels, such as cloud and digital, application services folks are challenged to maintain the integrity of the applications and data at the back end. Irrespective of the channel and the supporting infrastructure, organisations need to maintain the same level of customer experience and data integrity. With new interfaces such as digital opening up, the app services industry is challenged to ensure that the investments committed in the old and current estate continue to be put to the best use and are in sync with the new initiatives.

To read the second part of this article, click here.

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