For years now, Applications Management Services (AMS) have been all about cost, driving down the expense base through offshore labor arbitrage. Further cost reductions, however, are getting hard to come by. So, too, are new innovations and process improvements. Fact is, when applications are supported through a low-cost labor pool that is isolated from the business, efficiency, knowledge transfer and automation all tend to suffer. To remedy this, some companies are shifting the focus from service levels to value levels. But, is this a wise decision?

“A better approach is to shift to a focus on business results and outcomes — not just service levels,” said Foutty. “This requires an AMS delivery model designed from the ground up to uncover value opportunities and implement improvements throughout every phase of the application lifecycle. Think of it this way — if the real value opportunities begin to emerge when an application stabilizes, why would that be the time to put that application out to AMS pasture?”

Foutty noted that in practical terms, the difference between a service-levels approach and value-levels approach rests on choices about what to measure. For example, tracking the rate of billing accuracy and improving it from 95 to 98 percent has much more value impact than tracking how quickly a call center answers the phone.

Calabro, Hodgetts and Roma join the debate with perspectives for IT management and ERP, and a specific view on healthcare sector:

* IT Management. Beyond cost and scale, the value-driven approach can provide a vehicle for enabling business results — allowing for resource fluctuations, distribution of risk and a full blend of specialized skill-sets that need to be accessible at any time by the organization.
* ERP. Effective contracts require incentives tied to both business value and services levels. At the high end of the value scale, the simplest and most basic metrics may be grounded in company earnings or stock price. As a more practical matter, however, activities tied to specific operational improvements may make more sense. These include such variables as time-to-close, outstanding payables, and reporting accuracy.
* Health Care. Like other sectors, health care companies moved to an AMS outsourcing model to cut costs primarily. But, what about other benefits, such as infrastructure improvement? In the best case, you may get a year of value-oriented results from your vendor — and when you move on to the next thing, they will likely do so as well. If you’re paying someone to do X and hoping for Y, you’re going to get X. It’s about accountability. If you’re not holding your AMS vendors accountable for anything beyond cost savings, you’re missing half the boat.