OVUM. Douglas Hayward

Comment:

AM has been a huge success story for the Indian vendors this decade, alongside application development. Clients are awarding them increasingly large deals, and the Western vendors have to replicate the Indian strategy of offering low-cost services from offshore locations.

Nevertheless, the AM market in the UK is growing in low single digits, and as the Indian share gets bigger and as the Western vendors fight back with more competitive offerings, TCS finds its AM growth rate starting to slip towards single digits. So, it must find new ways to grow, and that means pushing related services (such as testing) and heading up the value chain.

The latter tactic is complex. Ideally, vendors want to use AM as the springboard for selling higher-value offerings such as application development and consulting, the latter in both IT and business flavours. But there's a feeling that there's room within AM itself to move up the chain. With AM prices under continuous pressure, portfolio management - in which the vendor takes responsibility for AM across an entire estate of applications - is where everyone wants to go.

We like the idea of portfolio management as the next step in AM, but the fact is that few organisations are handing over entire application estates. True, we see some big deals (Unilever with Accenture in mid-2006, for example), but most organisations like to play 'divide-and-rule' and use frameworks to pitch vendors against each other.

Persuading clients that monopoly is better than competition in AM is very difficult, in part because portfolio management is much more 'strategic' in nature than simple AM services. A vendor must have a joined-up story in application development, IT consulting and maybe process consulting, and platform migration to name just a few. It must have a deep understanding of the roadmaps of key software developers (Microsoft, Oracle and SAP etc.) and must talk convincingly about how to map the client's future business needs to roadmap for the application estate.

This is therefore a qualitative leap for a vendor such as TCS. It's not impossible, given that TCS has been strengthening its business-consulting capabilities recently. But it may be that TCS has to take this journey in stages. A role that Saptha says TCS already plays is that of 'catalyst' in managing AM estates: TCS takes the client's application strategy as a given, and concentrates on executing that strategy. That sounds a sensible way into portfolio management.

Differentiation in core AM services is difficult. Going up the value chain is one route to differentiation, but TCS is also rethinking how applications are managed - it is borrowing load-management models taken from network management, for example, to make AM services more predictive and proactive. TCS emerged well from our recent Ovum Navigator: Application Management report, and looks set to defend its powerful position in AM for some time.