Software’s Place in the Enterprise

Software drives virtually every process in routine business operations—it’s mission-critical in every sense and clearly an executive priority:

• 77 percent of respondents say they are either dependent or extremely dependent on the performance of their business software applications

• 63 percent say business software is important to how they capture emerging opportunities in the marketplace

• 51 percent say the CEO “specifies and determines the priority of which enterprise-wide business applications should be implemented”

• The top three factors at determining the relevance and value of business applications are: 1) how essential and application is to their operations; 2) how great its contribution is to improved productivity; 3) and how much it adds to competitive advantage

(BPM Forum, Software Drain or Business Gain Report)

Application Development Problems

The development process is a potential minefield of problems:

• Nearly 50 percent of software projects run over budget

• 60 percent of software projects are considered failures by organizations that initiate them

• 90 percent of software projects are completed late

• 30 percent of all software projects are cancelled

• 15 to 20 percent of all software defects reach customers, costing the U.S. economy $60 billion annually (The Standish Group)

• Almost 50 percent of software development costs relate to detecting and removing defects injected very early in the design process (DACS)

The Outsourcing Factor

Offshore outsourcing has upended the entire software delivery process, but despite the seemingly endless growth, even this trend is set to undergo change:

• Offshore outsourcing in IT services will hit $12.8 billion in 2008, compared with $7.9 billion last year (IDC)

• The traditional offshore outsourcing model is set to disappear and will be replaced by a global services delivery model, leading to more IT functions being handled overseas (Forrester)

• "The offshore term will become irrelevant and will be presented in a much wider context of global services delivery," said Pascal Matzke of Forrester Research. "You can’t talk of Infosys or Wipro as niche vendors as they’re now roughly the size of LogicaCMG or Siemens Business Services"

• Traditional offshore vendors are starting to set up more offices near their customers and are hiring local consultants — a move that could enhance the popularity of their services across Europe. Meanwhile, international service providers such as Accenture and EDS are building their own offshore centers to protect profit margins (Forrester)

• If you talk about offshoring, you have to change your mindset. It’s not just associated with low-cost in India (Forrester)

Other Changes in Software Economics

• By 2006, 92 percent of software vendors will have some form of license enforcement in place

• The most popular pricing models in use today are “per concurrent user” and “per seat,” but new pricing models based on matrices are rapidly gaining popularity

• By 2006, roughly half of all software companies surveyed expect to offer pricing based on metrics [such as number of uses, transactions, or time used]

(SIIA, Key Trends in Software Pricing and Licensing Report)

Looking Forward…

To take advantage of the changes in the software industry and surrounding enterprise ecosystem, corporations need to have solid processes and measures in place, for everything from requirements gathering and software design to maintenance, upgrades and removal of obsolete applications. In that, there’s room for improvement:

• Many companies recognize that their IT governance processes have significant weaknesses, but have difficulty implementing effective, sustainable improvements (Gartner)

• More than 40 percent estimate unwanted applications consume more than 10 percent of the IT budget (BPM Forum)

• IT departments are under increasing pressure to demonstrate value from IT investments and to improve their alignment with business strategies. Implementing a strategic measurement framework is an effective tool for improving overall IT performance, improving IT/business strategy alignment, and communicating IT value to senior management and business unit clients (Forrester)

• Only 33 percent of respondents indicated that they have adopted a formal IT measurement framework; however, 39 percent stated that they are currently working on developing a framework, and another 15 percent are thinking about it (Forrester)

• Only 13 percent said that they had no plans at this time. If all of the respondents can be believed, 72 percent will have measurement frameworks in place at this time next year (Forrester, July 2005)