financial models

Applications Calling for Attention

DXC Technology provides financing models that support the business case for application modernisation without up-front investment.

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Digital transformation has reached many companies. To become more agile and to be able to test new customer-focused digital business models, many companies are subjecting their IT environment to major changes. Current digital transformation trends include IoT projects, the migration of cloud services, the introduction of modern workplaces that support employee mobility, and the implementation of rapid data analysis methods based on Big Data. The overarching objective is to accelerate the provisioning of IT services to better meet business requirements.

“The digital transformation tends to focus on the underlying IT infrastructure, while applications are typically neglected”, notes Daniel Amor, Global Application Transformation Lead at DXC Technology talking from experience, he adds, “However, application transformation is key to making full use of the potential.”

This comes as no surprise: According to a 451 Research survey entitled “Application-Centric Transformation for the Digital Age,” commissioned by DXC last year, organisations across the globe – on average – spend 30 percent of their IT budgets on a wide variety of applications, ranging from cloud-base applications to packaged applications or custom-built software developed and installed in-house.

At DXC, application transformation means the further development of an application such that the application is able to leverage the functionality of cloud services. This includes Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS).

“A hybrid application landscape, comprising a mix of legacy and cloud systems, is the new norm,” says Amor. “Most companies are aware of this. Yet many companies ask themselves how they can accomplish this step − in view of the complexities of their historically grown application landscapes. Quite often, organisations fail to consolidate their applications following a merger or acquisition. Consequently, various software products or different versions of a software product may be employed for the same use purpose.”

Funding is the big hurdle

As a rule, companies lack the human resources, the skill base, and the financial means to take on such a modernisation project. This is confirmed by the 451 research survey that addressed 202 companies across the globe. 38 Percent of survey participants see a lack of support by the business and funding issues as the biggest challenge, followed by lack of resources and skills to define and efficiently and cost-effectively implement the desired future application environment. Such caveats are particularly widespread at the C-suite and VP levels, while IT managers are primarily concerned about integration and migration issues.

In the face of these challenges, nearly 40 percent of survey participants stated that they prefer to entrust an external partner with their application transformation. Companies want help in defining and managing their transformation project. “They are looking for support in the stocktaking of their current environment. They need to determine how many applications they have, where these applications run, how these interact, and to what extend their applications are aligned with the company’s strategy”, Amor explains.

“At the C-suite and VP levels, a transformation project that touches on the core processes of each organisation, calls for a clear business case”, says the expert from DXC. Therefore, a potential partner needs to have in-depth experience in such projects in order to minimize the business and technical risks for the company.

No financial risk with Savings-as-a-Service

“On the other hand, the partner is expected to provide support in issues related to finance”, Amor notes. “To address these issues, HPE [now called DXC Technology] has created an innovative financing package that makes the financial side of the application transformation predictable and transparent. At the same time, this package is scalable and can be mapped in a flexible way.” Following the cloud services naming convention, DXC’s Savings-as-a-Service financing model does not require the customer to tie down capital in any up-front investment. The customer will recover the transformation cost via savings achieved through application modernization. In other words: DXC provides the up-front investment.

“Depending on the current state of the application landscape, companies can likely save 30 percent or more through modernisation”, Amor predicts. “These savings are used to pay for the transformation performed by our team.”

He mentions an example: A company used to spend around 500,000 euros per year on the operation of its application landscape. Following the analysis by DXC, this amount was reduced by some 50 percent – due to the consolidation of multiple editions of a content management system to a single edition, a number of software upgrades, the partial migration of software to a public cloud, and the shaping-up of software for DXC Application Management Services. “This can be achieved because we are able to deliver many services in a standardized way right out of our application factories”, Amor explains.

The company mentioned in the above example is able to save some 250,000 euros from the first year following the transformation project. This is the amount the customer pays to DXC – either as a lump sum or in installments over a period of multiple years – and always minus an accrual equivalent to 20 percent of the savings – due following project completion and proof of savings achieved. “This partner model implies that the customer does not bear any financial risk”, emphasises Amor.

DXC has developed a robust Governance & Responsibilities model, mitigating organisational risks during the project.

It all starts with an analysis of the application landscape

The prerequisite for such a partnership is an in-depth analysis of the application landscape by DXC experts. This analysis determines the status quo of the applications, including the costs of maintenance, support, and licensing, etc. To limit the project scope, DXC aggregates the applications in clusters of 20 to 30 software products. Typical examples of such clusters include all applications that run on Windows 2003 or all HR applications. This approach can only be applied to applications that will remain in use for another five years.

“For some applications, it doesn’t make sense to modernise and transform them to a cloud environment”, Amor points out. “In our experience, the Savings-as-a-Service model pays off only for customers who have at least 200 applications in their estate.”

DXC has developed a standardised reference framework for the Savings-as-a-Service model. According to Amor, this framework allows new contracts to be filled quickly and compliantly, based on a modular approach that can be adapted to custom requirements.

Application Transformation Challenges

Sabine Koll is a journalist emphasizing on IT and mechanical engineering – and the intersection Industry 4.0.