More than a decade since I have been associated with global delivery based “Application Management” (read: Application Support) outsourcing, I have seen this service mature and transform.  “Application Management” outsourcing was first among American corporation CIO’s due to relative lower risk and quicker ROI. Among the first focus were; significant cost savings, SLA based services, continuous improvement and best practices to realize efficiencies.  The advent of ERP applications (both for SAP and Oracle Applications) saw benefits beyond  such as  speeding up capital projects implementation and further cost savings with business knowledge gained. The era of “Application Outsourcing” (AO) saw application transformation, optimization and consolidation as major source of efficiencies.

Off late “Revenue Model” coupled with “Application Portfolio Management” is gaining ground in the outsourcing market. This is generally used for support and projects combined.  Let me explain, considering an enterprise IT scenario. (1) Your key applications need a dedicated support. I.e. you’re critical business applications that have highest complexities and larger user base, needs highest level of support and hence a “Dedicated Model” from your service provider is a must to meet your business needs.  (2) Your less complex applications, even if large user base might suffice a “Shared Model”. When managed well, this will provide higher level of efficiencies and greater cost savings. Both these models have been in place for a while, the scope of shared services model has been growing. (3) There is always (small) set of applications that are low in complexities and small user base in most enterprise IT.  These are effective candidate for “Pay-Per-Use” model. I.e. a ticket/transaction based model and one pays for services only when required. Much like our toll roads, you pay when you use. I must warn you though “Pay-Per-Use” term is used in many contexts and generally for projects.

Applications management services are like buying insurance, as contingency. CIOs can now view the entire IT applications as portfolio and divide them to be serviced in “Dedicated, Shared and Pay-Per-Use” model for best efficiencies. The industry should see growing maturity with these offerings in next few years, but this is right time to ask your outsourcer(s). The availability of APM (Application Portfolio Management) tool should further help this cause.

I would love to hear your views or any experience.