Tag: ADM

Everest Group Identifies Pharmaceutical Firms Leading the Way in Digital Effectiveness | Press Release

Adoption of digital is creating a new pecking order of technology savvy life sciences firms led by Astra Zeneca, Johnson & Johnson, Novartis, Pfizer, Roche and Sanofi.

Fewer than 15 percent of all life sciences transactions signed in 2015 had an element of digital services in their scope; nevertheless, digital technologies are the pivotal driver for life sciences companies as they restructure to become leaner and pursue agility in operations to drive new product development, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing.

To illustrate this point, Everest Group profiled 15 global pharmaceutical companies regarding their digital functionality and business impact. In “Life Sciences IT Industry: An Assessment of the Market Opportunity and APEX MatrixAssessment,” Everest Group identifies Astra Zeneca, Johnson & Johnson, Novartis, Pfizer, Roche, and Sanofi as industry leaders.

This new research from Everest Group indicates that the key market trends driving digital adoption include the rising number of “born digital” healthcare consumers, the need for operational efficiencies and cost optimization, and the movement towards data-driven, personalized, evidence-based medicine.

The life sciences industry’s data-rich environment (including scientific, clinical and operational data) coupled with its many market challenges make analytics a key lever to provide real-time, actionable insights and improve operational efficiency. Analytics presents value in three key areas for life sciences organizations: cost reduction, top-line growth, and risk and compliance management.

Driven by the focus on analytics and infrastructure services, recent life sciences ITO deals focus on datacenter, end-user computing, and databases/middleware services, as well as application, development and maintenance (ADM) and enterprise resource planning (ERP).

“Most of the 2015 IT outsourcing contracts in the life sciences that did include digital services, did so as an add on to existing contracts, with a focus on remodeling existing ADM agreements,” said Jimit Arora, partner at Everest Group. “Digitally native contracts in life sciences are still a rarity, but we will see an increase in these contracts in the future. In fact, the adoption of digital is creating a new pecking order of technology savvy firms, with those that successfully use digital technology to both drive internal operations and customer-focused channels—i.e., digital for efficiency and digital for growth—leading the way.”

Other key findings:

  • Market imperatives to drive 12 percent CAGR growth till 2020. The life sciences industry is in a “recovery phase” as it grapples with a multitude of challenges that are stifling R&D efficiency, changing the portfolio mix and increasing M&A/restructuring. To address the challenges, market participants are adopting technology as a means to enable quicker product development, better consumer connections and significantly improved time-to-value.
  • Growth is a key driver of digital investment. While efficiency and enablement of digital are aspects gaining primacy, the life sciences industry is focused on driving growth via digital channels, consumer engagement, and healthcare ecosystem collaboration.
  • Analytics and cloud are aspects that will drive most digital investments in the short term. When it comes to enabling a cohesive digital strategy, organizations are going to extensively leverage hybrid cloud models and focus on analytics (both prescriptive and predictive) to get to outcomes quicker

*** Download Complimentary, Publication-Quality Graphics Here ***
High-resolution graphics illustrating key takeaways from this research can be included in news coverage, with attribution to Everest Group. Graphics include:

  • The changing value proposition in life sciences global services
  • On- and nearshore delivery on the rise in life sciences IT
  • IT opportunity in the life sciences industry
  • Digitization in life sciences IT contracts

Sell Digital Services, Not Apps Rationalization | Sherpas in Blue Shirts

After coming back from Nasscom and discussing the inflection change coming to the services industry, I’ve observed a lot of service providers preparing for the shift – especially the apps providers. But I see them making a mistake: putting too much emphasis on apps rationalization and rearchitecting.

It’s not that apps rationalization and rearchitecting isn’t happening. But providers are justifying it as a necessary step for digital readiness, advising clients that they need to do this if they are looking into a digital agenda. I know of a few situations where it was necessary, but I believe those instances will be the exception rather than the rule.

Here’s the issue: If you go to market and emphasize apps rationalization and rearchitecting, you’ll likely end up in – at best – an interesting conversation without sufficient sales coming out of it, for the following reasons.

  • First, for the most part, you don’t have to rearchitect the client’s legacy systems to run a digital agenda, at least not with where the digital agenda currently is. You have to interface the apps, too. So you end up making unsubstantiated, incredible claims.
  • Second, in a world where business stakeholders have greater influence, they don’t want to spend their money and time on rearchitecting old functionality; they want new functionality. They are impatient to get to the benefits of changing their customer experience, and they are far less willing to listen to proposals that involve enduring long timeframes. They expect that their digital revolution will happen quickly, but rearchitecture is a long, three- to five-year journey.
  • Third, rearchitecting doesn’t fit in with the CIO’s agenda; CIOs are trying to rebuild their relevance to their business. It also doesn’t play to the business stakeholders’ agenda.

It’s just not what organizations are buying right now, and it will confuse and slow down your sales process. So my advice is to be very careful about pushing apps rationalization and rearchitecting linked to a digital agenda. I’m not saying that customers won’t ask for it, but it’s likely that they’re really asking for just a connection into digital.

A better story might be:“Let’s drive your digital agenda and connect that back to the apps.”

I think a lot of providers are not resonating with their clients and not getting the kind of growth because they are confusing clients on this issue of apps rationalization and rearchitecting. This may change. But this is my belief about where the market is right now. We’ll keep our eye on it.

Remedying IT Overcapacity | Sherpas in Blue Shirts

Too much. That’s an accurate assessment of IT environments in most, if not all, enterprises. They have more data center space than they need and more servers than they can use at any point in time. They have more software operating systems, middleware, and enterprise licenses than necessary. They also have more of the wrong resources and never enough of the right resources in application development and maintenance. The as-a-service movement seeks to address this, but the journey to get there isn’t as simple as it appears.

So how much overcapacity is present in enterprises? At every level there seems to be a 25-50 percent overcapacity in IT. Since IT varies from 1-7 percent of revenues, the 25-50 percent overcapacity is in the range of 40 percent overcapacity overall.

As we at Everest Group look at applying as-a-service principles into IT environments, we see an opportunity to remove 40 percent of the IT cost by eliminating the wastage in service capacity. But the journey to achieve this as-a-service cost benefit is neither quick nor easy.

Renegotiating enterprise licenses takes time and often requires waiting until they expire. Reconceptualizing the infrastructure and application support is also complicated and requires a resolute effort and substantial patience.

It can take a year to three years to complete the journey. But the benefits are very substantial, starting with a 40 percent cost reduction in IT — a heady prize for the journey. In a future blog I’ll discuss other benefits.

Productivity Improvement or Cost Takeout – Pick Your Battle! | Sherpas in Blue Shirts

I wish I had a dollar – or a couple of aspirin – for every time I heard someone claim “20 percent productivity improvement” when all they had really done was move the work to a less expensive location. When they make these claims, they’re confusing cost takeout and productivity.

Cost takeout certainly has its uses, including:

  1. Moving work to a talent model with a flatter pyramid
  2. Getting fewer people to work faster/harder
  3. Offshoring

But cost takeout is not productivity, which is precisely what enterprises need to start thinking about, as most of them have already done all of the above, and then some.

As discussed in our recently released research report, “In Search of ADM Productivity,” productivity can be about (among myriad other things):

  1. Optimizing shared services organizational structures
  2. Standardizing and automating business processes, toolsets, and technologies
  3. Automating infrastructure and application deployment processes

In essence, productivity is an output-input ratio. Productivity improvement has been described as “doing more with less.” I believe a better definition would be “improved output-input ratio, by virtue of being done differently.”

Think about this distinction. Technology and sourcing leaders often talk about “the need to improve productivity.” And they then promptly start flogging the dead cost takeout horse, with roughly the same return as I get (exactly nothing) from listening to the “20 percent productivity gain from outsourcing” line.

The difference between the two is worth bearing in mind because identifying and focusing on the right productivity initiatives can bear startling benefits. Our research suggests as much as 20-50 percent incremental cost savings. More importantly, the emphasis on productivity can lead to increased agility and a focus on greater functionality as opposed to “managing the mess.”

The first step is to pick the right weapon, for the right battle. Or you could always stock up on more aspirin.

A Cinderella Wish: Why Application Management Needs a Fairy Godmother | Sherpas in Blue Shirts

For a very long time, application management has been the red-haired stepchild of the IT services world. Taken for granted, it has silently done its job without complaint, and essentially remained an IT function, far removed from the hurly burly of what business needs.

However, as the industry evolves to answer increasing business demands, the pressure is on service providers to transform the application management function. The application management system of the future needs to address three key issues faced by CIOs.

  • Productivity: Most large enterprises have exhausted the offshoring potential of application management. The focus has shifted to non-linear cost saving models.

    The application management model of the future must offer industry standard toolsets and automated processes, and identify deviations from coding best practices to enable continuous improvement. It must do so over an industrialized global delivery platform.

  • Business IT alignment: Over the years, large enterprises have tended to accumulate heavy sediments of legacy applications that bloat the portfolio and eat up valuable budgets. The application portfolio now faces ruthless rightsizing, and IT needs to provide full visibility on where business is spending its IT budget.

    The application management function needs to provide usage and billing visibility at multiple levels of aggregation 24/7, on a real-time basis, on desktops and mobile devices.

  • Future readiness: The world is going SaaS in front of our eyes. Application management needs to support this fundamental industry change.The modern application management function not only needs to straddle legacy and SaaS application architectures, but also offer a proactive roadmap to application modernization.

Unfortunately, many enterprises are still missing most of these elements. Contrary to popular opinion, the highest level of application management sophistication is not achieved by offering increased offshoring. Nor is it achieved by migrating from staff augmentation to managed service models.

Application management, just like poor Cinderella, is tired. Is there a Fairy Godmother who can ease its burden and get it the support it needs?


Photo credit: Dayna Bateman

A Clear Sign of Maturation: A Third of All ADM Headcount Serving U.S. Companies Is Now in Offshore Locations | Sherpas in Blue Shirts

Just how mature is the offshore market today? Let’s look at overall headcount worldwide serving the Unites States’ ADM requirements as a gauge.

In 2007, approximately 2.2 million IT staff were delivering ADM services to U.S. companies from offshore locations. In 2008, the sub-prime crisis hit and the economy went into a downward spiral. Discretionary spending on fresh custom application development, consulting services, and large transformational IT projects came to a screeching halt. The mantra was one of survival, yet backed by a readiness to accelerate hard when the economy rebounded. While a full bounce-back is arguably yet to happen, 2010 and 2011 witnessed a partial uptick in corporate fortunes in America, and ADM spending picked up again. However, procurement executives were cautious in their approach, and were mandated to make sure no opportunities for further cost reduction were left untapped. Offshore providers’ margins came under attack, and innovative, client-friendly pricing models replaced old ones that buyers simply would have nothing to do with anymore. Since offshore locations offer lower billing rates courtesy of labor arbitrage, many fence sitters on the topic of offshoring quickly became adopters. Clients already offshoring increased their exposures to lower cost destinations like India. As a result, while the overall IT market had almost negligible growth since 2008, the offshore providers kept growing, albeit at a lower rate compared to pre-crisis days.

Composition of Worldwide ADM Resources Serving U.S. Enterprises 2011

In 2011, the headcount serving U.S. ADM scope stood at close to 2.6 million. Just under half (~1.25 million) account for in-house employees of U.S. corporations, and 10 percent of these are actually in offshore shared services centers. Approximately 1.3 million FTEs of third party service providers serve U.S. ADM scope. More than half of these are employed in offshore locations such as India and the Philippines. In 2007, about 45 percent of third party ADM resources were in offshore locations. So there has been a nine percentage point increase in offshoring penetration in third party ADM resources serving the U.S. since 2007. Approximately 850,000 of these FTEs supporting U.S. organizations were in offshore locations in 2011, resulting in an overall offshore penetration of ~33 percent of all headcount serving American companies for ADM scope. I expect offshoring penetration to keep increasing, at least for the time being.

With the advent of cloud computing, software-as-a-service (SaaS) has grown exponentially in prominence. Many argue that SaaS is likely to cannibalize custom application development and commercial off the shelf (COTS) software sales, thereby impacting third party providers’ revenues accruing from ADM services. While this may indeed turn out to be true in cases in which clients need very limited customization, for all other situations, custom development is still the only approach. With SaaS necessitating development of multi-tenant applications on emerging cloud platforms, and wrapping pay-per-use pricing and remote access layer around them, it certainly seems like scope for custom application development will increase, this time conducted in-house by software vendors. We may also end up witnessing a host of independent software vendors shipping their internal development work to offshore destinations.

Net-net, SaaS may be a threat to overall application outsourcing, but it is unlikely to erode offshore headcounts, namely programmers who sit and develop, debug and maintain programs in places like India. If anything, developments such as SaaS, cloud infrastructure, big data, analytics, RIMO and the uncertain economy spell opportunities for offshore destinations.

Note: ADM services in the context of this blog include application development, maintenance, the custom development portion of system integration projects, and testing, validation and assurance services.

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