Application Outsourcing: Achieving Success & Avoiding Risk 1

Introduction to the Summary Report Executive Summary Introduction to the Summary Report This summary report contains sample slides from the full Impact Research Report, “Application Outsourcing: Achieving Success & Avoiding Risk.” The actual report contains 64 slides and provides a full analysis and best practices for achieving success in application outsourcing, as illustrated in the table of contents below. Table of Contents for “Application Outsourcing: Achieving Success & Avoiding Risk” Executive Summary Research Methodology What is Application Outsourcing? Why do Organizations Decide to Outsource Applications? Application Outsourcing for Cost Management Success in Application Outsourcing Addressing Application Outsourcing Concerns & Challenges Choosing an Outsourcing Partner Managing the Outsourcing Partnership Key Conclusions Case Studies

This report on application outsourcing will do the following: Executive Summary Application outsourcing is the customization, development, or maintenance of software by a third-party Application outsourcing is the customization of packaged software, the development of unique applications, or the maintenance of these applications by a third-party organization. The application outsourcing relationship can be characterized by a short-term, vendor-client, single project structure or by a long-term partnership spanning multiple projects. Outsourcing is suitable for organizations of any size, does not require large financial or staffing commitments, and is appropriate for many different types of applications. This report on application outsourcing will do the following: Explain the concept of application outsourcing. Describe the demographics of organizations that engage in application outsourcing as well as the key motivators for application outsourcing projects. Offer recommendations as to how to realize operational success and mitigate challenges. Provide guidance on choosing an outsourcing partner and managing the outsourcing partnership. Detail specific case studies of organizations that have engaged in application outsourcing.

Research Method 4

Research Method Research Method The Impact report study is based on the information collected from 264 different organizations representing all company sizes and major industry segments. 229 respondents completed a comprehensive survey and 35 engaged in a detailed interview process. Make this title Research Method 5

What is Application Outsourcing? 6

What is Application Outsourcing? Application outsourcing is the customization, development or maintenance of software by a third-party Application outsourcing is the customization of packaged software, the development of unique applications, or the maintenance of these applications by a third-party organization. The application outsourcing relationship can be either a short-term, vendor-client, single project structure or a long-term partnership spanning multiple projects. Type of Application Outsourcing Description Example of Deployment Packaged Software Customization (44%)* A software package is purchased and customized to address the organization’s needs. An outsourcer configures a newly acquired CRM application to produce custom reports. Custom Application Development (32%) An application is developed from scratch to address the organization’s needs. An outsourcer designs, builds and implements a specialized billing system required by a newly created business unit. Maintenance of Custom Applications or Packaged Software (24%) Bugs are corrected and feature enhancements are added to applications as needed. An outsourcer installs a major upgrade on an existing ERP application. *Percentage of respondents who drew upon this type of project when answering the survey questions.

Why Do Organizations Decide to Outsource Applications? 8

IT Director, Healthcare Application Outsourcing Motivators Access to expertise and faster delivery motivate application outsourcing adoption Respondents rated access to expertise and faster delivery as the main motivators in their decision to outsource. Cost reduction emerged as an important, but secondary motivator. Organizations are sometimes willing to pay more than what they would have to spend internally to gain access to expertise. “If it’s a PeopleSoft thing, we’d probably get either PeopleSoft resources or companies that specialize in that rather than having to train up and plod our way through it. Outsourcing gives you instant access to expertise.” IT Director, Healthcare

Addressing Application Outsourcing Concerns & Challenges 10

Application Outsourcing Concerns Cost and vendor selection emerge as top concerns when deciding to outsource Respondents were most concerned with the cost of application outsourcing and the potential difficulty of finding a suitable outsourcer. A number of clients indicated that while many possible vendors exist, it can be difficult to choose between them. 1. High Concern 1 2 Cost prohibitive Difficulty finding a suitable outsourcer 2. Moderate Concern 3 4 5 Security/intellectual property risks Loss of control over development process Lack of confidence in outsourcer stability 6 Loss of in-house expertise 3. Low Concern 7 Conflicts with in-house staff # = Order of concern

Choosing an Outsourcing Partner 12

Choosing an Outsourcing Partner Many factors influenced vendor selection: Technology the most, location the least Organizations considered many factors when selecting a vendor. Those that placed emphasis on vendor experience and price were more likely to be satisfied than those that were concerned with vendor size and location, which led to more challenges. “The basic factor is whether the outsourcer has the capability to support our technologic footprint. Location is not important to us.” IT Director, Manufacturing

Sample Case Study 14

Case Studies Case Studies Manufacturing company achieves success by keeping management involved in the outsourcing process Industry Manufacturing Total Employees 255 Type of Organization Private IT Employees 2 IT Complexity Complex App/Dev Employees 1 Technology Adoption Leading Edge Revenue $100M-$500M % of App Budget Outsourced 30% Revenue Growth 15%+ Type of App Outsourced Customization of packaged bar coding and production scheduling apps. Trigger for Outsourcing Staffing constraints and lack of expertise. Cost was a secondary driver. Vendor Selection: Conducted a Web conference where vendors gave a presentation and were then provided with a detailed document outlining project requirements. IT director then conducted a follow-up interview with vendors by phone to see who was capable of providing the desired end product. Managing the Outsourcing Relationship: Assigned specific projects to specific staff. All critical projects are assigned to the IT director. Conduct weekly phone call with vendor to keep track of percentage complete and whether project is on course. Once per week the IT director meets with CFO or president to discuss progress. Result and Lessons Learned: This organization reports that their projects have been successful. The IT director believes that the president’s direct involvement in their outsourcing projects has contributed to their overall success, due to the president’s ability to bring their in-depth knowledge of business process and strategy to the outsourcing arrangement. 15