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Doing the right things right in IT
Until recently, financial institutions outsourced for one reason: labor arbitrage. As one of the biggest line items in the information technology budget, application development and maintenance has been a central focus for outsourcing.
But labor arbitrage provides a temporary and limited competitive benefit. The decision to outsource today should not be merely about subtracting costs but adding value.
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Accenture's most recent High Performance Business research has found that outsourcing drivers other than cost reduction—delivering more business functionality faster, creating greater value from IT investments and improving customer satisfaction—are more important today than ever.
This new approach to application outsourcing by some financial institutions already has produced 50 percent reductions in total cost of application ownership, productivity increases as high as 60 percent and significant improvements in investment return. Such impressive outcomes have been achieved by:
Industrialization: The Critical Next Step to High Performance
On the surface, industrialization appears straightforward: assemble and apply the best approaches to application development and maintenance. But large financial institutions have multiple divisions and IT organizations, each with its own processes, tools and process owners. Distilling this into a single effective capability can be daunting.
What does Industrialized Delivery look like?
Application management must be delivered as a business service, not just an IT capability, and must encompass people, processes, tools and industry best practices. A service provider must be able to apply standardized tools and processes to deliver application services through a proven global network, not only facilitating better communication, but also enhancing quality and productivity by transferring industry best practices and innovation across all parts of the IT organization. This can help create more satisfied users and lower delivery costs.
Impact of Industrializing Applications Delivery
Accenture research shows that if a $1 billion institution can reduce application costs (which can average 3 percent of revenue) by 40 percent, it can generate as much as a 1 percent increase in operating income. This reduction can be achieved through industrialization, which delivers IT process governance and discipline that can result in lower per-incident costs, greater platform stability, less rework and faster time to market.
Optimizing the Application Portfolio
In turn, Accenture research indicates that application costs and complexities increase as financial organizations grow. The journey to high performance requires ensuring that applications and their supporting infrastructure align with the business, and that the application portfolio is simplified.
Accenture has developed the Service Optimization Framework to guide clients through this process. It includes the Accenture Technology Discovery Suite, which tracks quality and complexity, establishes a baseline for measurement and identifies opportunities for improved functionality at the application level; and the Accenture Technology Rationalization Suite, which streamlines technology and management of the entire application portfolio.
In Accenture’s experience, application outsourcing services and optimization capabilities can help companies achieve and sustain improvements; reduce complexity, risks and costs; and drive innovation by allowing IT executives to maximize their spending in the highest-value areas.
Enabling Business Performance
Accenture's vision for the possibilities of driving high-performance IT through outsourcing encompasses four key dimensions:
In a greatly changed financial services industry, application outsourcing is a way to increase business value. In the past, the primary motive for outsourcing was to lower costs through labor arbitrage. But even in the current climate, most financial institutions have already taken advantage of economies of scale by offshoring back-office processes, so while such cost reductions can bring an institution some relief, they cannot create a competitive advantage.
Today, progressive companies outsource applications to industrialize IT, optimize the application portfolio and enable business performance—in addition to lowering their IT costs. Competitive advantage comes not from doing things cheaper, but from doing things right—and from doing the right things. Efficiency and effectiveness both improve when financial services firms look at application outsourcing strategically. More rational technology platforms, simpler processes and optimized hardware and software assets can enable high performance in good times and bad. The true measure of IT success is not how inexpensively it operates, but how much value it adds to the business.
January 6, 2009
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