Optimizing an IT Application Services Environment for a Fortune 50 Energy Company

Executive Summary

When one of Everest Group’s largest clients, a Fortune 50 energy company, wanted to optimize its applications services environment, the company sought assistance in developing a strategy that would provide short-term benefits and ensure long-term service quality and improvements. The resulting strategy enabled the client to reduce its service provider base by nearly 80 percent, and decrease its application development and maintenance (ADM) costs by more than 30 percent, or nearly $500 million. And its new, unified operational delivery model led to greater consistency and higher service quality.

The Client’s Challenge

Over time, the company increasingly relied on external providers for ADM services, with each business unit developing and managing its own contracts. As a result, support of more than 3,500 applications was split among 20 providers and 60 separate support contracts. To improve the quality and cost of the ADM services, and increase the efficiencies of the internal ADM management, the company realized it needed to transform its ADM service environment. Doing so involved uniting the objectives and requirements of six business units in a highly decentralized environment. Adding to the complexity were the scale of the services and the wide variety of delivery models in practice. The scope included more than 2,000 FTEs across more than 10 geographies, and the provider landscape included multiple rate cards, differing pricing models by contract, and a broad spectrum of service levels. To ensure transformation success, the company engaged Everest Group to obtain market research data, industry knowledge, and an objective perspective to support creation of a unified ADM delivery model.

Insight to Action

Everest Group began by ensuring that both the strategy and future delivery model would be based on a solid understanding of the full scope of client’s ADM services. This meant performing rigorous data collection to assess baseline costs, and construct a comprehensive picture of the current application environment. The data collection initiative also included stakeholder interviews to determine current and future objectives, and requirements, for the application services. Everest Group’s next step was building and supporting a robust business case, setting savings and service improvements expectations per its deep experience in the ADM industry. To develop the unified operating model to enable greater consistency, efficiency, and service quality Everest Group created and facilitated a series of workshops. These workshops brought together all key stakeholders from each business unit to achieve agreement on issues including the delivery model, services, service levels, and governance model. To ensure ongoing long-term benefits, Everest Group reshaped the complex estate into “‘lots” designed to balance commercial attractiveness with business requirements. This required strong stakeholder management throughout the subsequent service provider selection and negotiations processes, to maintain communication between traditionally independent entities and fully leverage client scale.

Impact

The company, with Everest Group’s assistance, was able to achieve significant efficiencies, service quality improvements, and cost savings. By developing a thorough understanding of the current application services environment, and gathering the requisite facts and data, Everest Group crafted a strategy that best fit the current environment and future requirements. Everest Group helped the client rationalize its service provider base from 20 to four. Selection of the providers, development of the operating model, and the business case were all supported by original Everest Group research that ensured accuracy and optimized potential results. Everest Group also assisted the clients in reducing ADM costs more than 30 percent, or nearly $500 million, through a combination of rate renegotiations, productivity improvements, additional offshoring, and a variety of other operational improvements. Because the new agreements were implemented with a single, coherent strategy, the unified operational delivery model yielded greater consistency and higher levels of service quality. The delivery model Everest Group designed will ensure the client continues to achieve cost and service improvements over the long term.