5 Alternative Ideas for the Future of Application Management

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1 5 Alternative Ideas for the Future of Application Management Issue 1 Executive Summary Alternative IT ALT ASM Proactively reducing ASM and impacting business performance From the Gartner Files: Predicts 2013: Business Impact of Technology Drives the Future Application Services Market 21 About HCL Technologies Featuring research from

2 2 Executive Summary With the continual media focus on Social, Mobile, Analytics and Cloud services (SMAC), IT Executives can be forgiven for forgetting that a high percentage of existing IT spends remains locked in the management of the existing IT estate. If current approaches to managing IT are not transformed, they will continue to remain locked. The only successful strategy deployed by many organizations is to squeeze their IT service providers for incremental discounts. A recent Gartner report report stated that, On Average in 2012, 35% of IT spending was on applications, 55% was on infrastructure, and the remaining 10% was on IT management, finance and administration activities. 1 We ve found that on average, 50 per cent of an application s cost across its life cycle is support and maintenance. Worse, a recent client survey by HCL highlighted that little has changed over the past 10 years when it comes to the philosophy and approach to managing this significant portion of the budget. Our study 300 Global Organisations reveal the future of Application Support and Maintenance conducted in 2013, across 300 large enterprises in the US and the UK showed that 83 per cent of those surveyed expected ASM costs to continue increasing each year. IT leaders are faced with the paradox of shrinking budgets but a business imperative to grow. How can they continue to support such disproportionately large spends for very little value in return? Given that fewer than 20 per cent of organizations have an application services strategy, ASM suddenly becomes a big budgetary blind spot. It can almost be guaranteed that under-management of ASM is leading to either overspending or unmonitored spending. Offshore providers have delivered a `veneer of transformation by lowering labour costs. In truth, the promise of transformation in operational performance continues to be elusive. This is evident from the fact that application counts remain stubbornly high and productivity is seldom understood, let alone measured. Some organizations are still paying their IT service provider per incident, which shows why the number of incidents in those organizations has only gone up and never come down. This not only causes the cost to go up, but also infuriates business end-users as most incidents result in some form of business disruption. Such stagnation might have been annoying but tolerable when IT was merely focused on the cost, but its remit has changed. IT s new focus is on innovation and business transformation. It is imperative that IT must positively impact business performance. For CIOs, this is a significant gear change. Business transformation is now a key part of their role alongside cost reduction. To meet these new expectations, they have to find money to fund transformative projects. This puts IT spend under even more scrutiny. So when it comes to ASM, CIOs are starting to ask five very important questions: 1. Why am I paying the same for application support each year? 2. Why are the incidents growing each year with increasing complexity of the IT environment? 3. Why are IT vendors not innovating in my biggest spending area? 4. Why can t this spending create new value for my business users? 5. In the age of Software-as-a-Service (SaaS), why do I even need application support? Traditional ASM cannot answer these questions. Neither can it provide the high levels of visibility and control that CIOs need in their new role. ASM has arrived at crossroads. It is time to create a new model where incidents are eliminated, costs are reduced and incremental value for the business is generated every day. HCL has created a radical new approach. It has combined various industry-leading best practices, including LEAN Process Management Principles with focused automation and sustained knowledge reuse for the support and maintenance of applications while creating 1 Gartner Inc., IT Metrics: IT Spending and Staffing Report, 2013, G , 1 February 2013

3 3 incremental value for the business every day with guaranteed cost reductions: Alternate Application Support and Maintenance or ALT ASM The concept of ALT ASM is far-reaching, but in truth the basic concepts behind it are tried and tested in other functional areas and industries. In summary, ALT ASM seeks to: Understand the cause of work in Application Support. Stop the work arising in the first instance. Manage the work more effectively when it has arisen. ALT ASM engagements are substantially forward-looking. They continuously monitor applications to identify functional and technical re-engineering requirements. Dynamic business demand for enhanced functionality of legacy applications is met through staffing flexibility. Additionally, we reduce IT complexity by identifying redundant applications for decommissioning. The application portfolio is kept lean and total cost of ownership (TCO) is kept low. More importantly, ALT ASM includes the monitoring of both IT key performance indicators (KPI) and business process KPIs. Using business process and application visibility tools and process watch dashboards, ALT ASM is able to align IT systems to business processes. For ASM, this is a first. Translated, this means priorities can be set on stabilizing activities; change can be managed more effectively; and productivity can be enabled through automation. The impact on operational and business performance is measurable. When adopting ALT ASM services, organizations can expect to achieve upwards of 30 per cent operational gains irrespective of their current application support model be it in-house or outsourced. Source: HCL Technologies

4 4 Alternative IT It is time to re-examine and re-boot the current IT outsourcing (ITO) services proposition to one that provides greater visibility, faster velocity and tangible business value. For several years, HCL has been paving the way with its alternative thinking be it: Alternative management approach of Employee First Customer Second ( an alternative delivery framework of creating value through everyday ideas or Alternative business IT framework where we link the business process with the underlying IT stack or Alternative engagement models like Enterprise Function as a Service (EFaaS) or Alternative commercial pricing models or Alternative IT outsourcing propositions like ALT ASM ALT ASM propagates alternative thinking of proactively reducing incidents and putting Business Processes First. Our service is about delivering simple yet powerful Application Support and Maintenance. It is about changing the mind-set about the mundane, ticket-inticket-out services to one which delivers IT metrics and business value, and constantly focuses on ticket elimination. Irrespective of whether we are supporting ERP applications, custom applications, emerging technology applications, front- or back-office applications, locally or globally, we have the same set of processes governed by our Managed Services framework MaSCoT to deliver IT Service-Level Agreement (SLA) and Business KPI alignment. We target a zero end-user downtime with visibility beyond service metrics and generate guaranteed operational efficiencies using LEAN principles and other innovative delivery principles. 5 Alternative Ideas for the Future of Application Management 1. Zero application incident enterprise Gartner Prediction: By 2016, 25% of external application implementation spending will be on mobility, cloud, analytics and social computing services. 1 It is evident that IT organizations are moving from being a cost centre to impacting revenue. Still, there has to be a radical shift in IT spending to enable this transformation. These are challenging times for CIOs; the Nexus of Forces mandate non-linear operating cost vs growth. The fall out of which is an innovative, yet risk-minimized approach for transferring IT operations budgets to new projects spend. On one hand, IT is being driven by market forces which have increased budgetary pressure combined with demands from IT to impact business performance. On the other hand, there are now practical ways to reduce IT operations spend through cloud and virtualization, which can then be used for new project initiatives. These initiatives are now able to impact the business due to the technological evolution achieved by Big Data, analytics, mobility and other disruptive technology trends. CIOs have an opportunity to reduce IT spending mix and establish IT as a business partner function. However, application management is one area where CIOs are finding it elusive to manage IT spends; the only efficiency that has been derived so far is through off-shoring (a Gen 1 phenomenon). This happens due to various reasons. IT vendors have not been motivated to radically impact this cost because it is a recurring and near permanent revenue. CIOs so far have been only satisfied with the cost savings achieved through off-shoring and headcount reduction/productivity improvements as part of the defined contract. They never had an alternative!

5 5 HCL has created a paradigm shift in application outsourcing through its ALT ASM proposition which basically questions why should there be tickets at all. It is derived from our strategy shift from ticket resolution to ticket removal. Through a combination of initiatives like proactive landscape monitoring, an intelligent alert mechanism and an Integrated Applications and Operations support layer, there have been both financial gains to the customer as well as a more agile support team which focuses on zero down-time. 2. Traditional Application Landscape performance equivalent to SaaS Gartner Prediction: By 2016, the disruptive impact of SaaS deployment on application services providers traditional revenue streams will be less than 4%. 2 While the impact of SaaS on the revenues of traditional IT outsourcing vendors may not be large, it will have a significant impact on the buying behaviour of the CIO. With SaaS implementations, CIOs would expect improved performance, agility and reliability from the existing application environment at a significantly lower TCO. With the pace of business changing rapidly and the ease of adapting to those changes within SaaS models, there is going to be a significantly different expectation from the application support provider. In addition, majority of the resources are used for dealing with incidents and service requests which do not add much value. This can restrict a company s budget for change-the-business initiatives. As part of HCL s ALT ASM methodology, we focus on ruthlessly eliminating waste to: 1. Unlock capital, which can fuel activities that impact business objectives of firms 2. Improve IT agility to stay flexible for business demands of firms 3. Free up the bandwidth of subject matter experts of firms from non-strategic applications Our approach to reducing costs on the ASM side is to look at ways to free up capacity of the level 2/level 3 resources by decreasing the ticket volume and increasing the velocity of resolution using LEAN processes, automated resolution and other innovative principles. 3. Internal crowdsourcing Gartner Prediction: By 2016 application services providers will have replaced 20% of internal staff with crowdsourcing and community sourcing. 3 There is a high demand for cost reduction, driving offshoring but still, expansion in global delivery does not match the global demand in expertise. Moreover, a demand for resources in new technology continues to grow while capabilities are being added through crowd and community sourcing. This is sustainable because of the abundant growth in supply and very granular comparability of resources and global access For Application Development, creating a controlled environment with gamification as the reward and recognition model is happening at a rapid pace. For ASM, communities are possible, but are not getting driven at a rapid pace. This is due to the need for retaining the knowledge on the application environment and business processes, which is essential to maintaining the security of production data, driving efficiencies and reducing cost. We have tried to bring in the benefits from community sourcing in ASM by creating a community within the engagement and within a set of engagements in an industry. An ASM engagement, which is not adaptable enough to provide additional trained resources as required, puts the client at risk rising from changing business needs. Understanding this challenge, HCL offers its customers a flexible staffing model in which ASM resources can also be utilized for change-the-business activities. This completely shifts the risk and associated costs from the customer to HCL. Internally, this opportunity is not only used as a career path for its resources, but it also ensures better governance and creates a transparent and efficient handshake between support and development teams. Our business-aligned target operating model results in a highly cross-skilled workforce because of which, we are able to provide resources that are completely aware of the company s business process and are able to impact new project activities with a quicker turnaround time. HCL promotes internal crowdsourcing at an organization level through its crowning event called MAD Jam or Make a Difference Jamboree that celebrates the most outstanding ideas from 90,000 ideapreneurs. Crowdsourcing is promoted at an engagement level through Value Portal, where ideapreneurs log in value-creating ideas.

6 6 4. Ready-made Solutions for Application Management Gartner Prediction: By 2016, the most profitable application services providers will replace at least 20% of their labor-driven effort with solutions architected from IP assets. 4 Increased focus on developing ready-made solutions for application maintenance from providers reusable IP assets is evidence of a future in which there is a convergence of software and services. The benefits of this pre-built solutions-approach include faster time to market, cost effectiveness and greater efficiencies for buyers. Providers should focus on innovation and software asset strategies. Providers who have a detailed vision on re-usable solutions to reduce the application maintenance effort should take preference. The solutions should be industryspecific, uniquely addressing clients pain points. HCL has extensive experience in supporting the front-, middle- and back office application portfolio of clients across different industries. We have thoroughly analysed the incident and service request volumes, mapping them to the corresponding business functions and sub functions. This has enabled us to identify top focus areas and pain points in the client s existing ASM function. HCL has built an exhaustive array of domain specific tools, dashboards, mobility solutions, plugins and solution accelerators to reduce the labour-driven effort which are leveraged in ASM engagements. HCL is supporting applications across the pharmaceutical value chain i.e. R&D, manufacturing and supply chain, sales and marketing for top pharmaceutical companies in the world. Our domain-driven analysis and insights have identified that maximum incidents and service tickets are contributed by certain subbusiness processes, for which we have created reusable assets and point solutions. HCL has built similar solutions in other industries as well. Ready-made solutions are complemented by Knowledge Databases (KeDB) to resolve incidents and Standard Operating Principals (SOP) for service requests. This has reduced the customers dependence on personnel. It is evident from our non-linear growth; we have grown our revenue per employee by 50% in a period of six years. 5. Business Alignment in Application Management Gartner Prediction: By 2016, more than 50% of application modernization efforts will address business demand for enhanced functionality to legacy applications - not cost reduction. 5 While cost reduction remains a critical primary focus area for CIOs, HCL is asking, why can t a run-the-business service like ASM impact business performance? ALT ASM is HCL s alternative in managing applications. ALT ASM engagements are fundamentally designed to be business-aligned, committed to aligning the business process KPIs with IT SLAs. As part of ALT ASM, HCL would not only focus on facilitating 99.95% up time, but also on business KPIs like on-time delivery and yield to solve IT and business disconnect. HCL is a business process-led organization, which believes that technology is a means to drive a business outcome. ALT ASM leverages the power of ProcessWatch, HCL s tool included in ALT ASM and other native embedded functionality of ERPs to create visibility into business process metrics as well as to proactively address issues. ALT ASM engagements also bring HCL application modernization tools PRIZM and ASSESS SMART for application assessment of quality, size, security, vulnerability, maintainability, reliability and performance. Continuous application monitoring is done to identify applications for functional and technical re-engineering. Redundant applications are identified for decommissioning. This ensures that the application portfolio is business aligned for maximum business impact and leaner for reduced TCO. Source: HCL Technologies 1-5 Gartner Inc., Predicts 2013: Business Impact of Technology Drives the Future Application Services Market, G , 26 November 2012

7 7 ALT ASM Proactively reducing ASM and impacting business performance Recognizing that support, maintenance and business value are not mutually exclusive, marks a new start for IT sourcing models. Unlike traditional ASM, ALT ASM seeks to drive efficiencies at a fundamental level using proactive ticket resolution, LEAN principles, pre-built self-healing solutions, self-funded application portfolio optimization and a business-aligned target operating model. The goal of ALT ASM is to create a zero ticket application landscape. It is also focused on impacting business performance by linking business processes to the IT landscape, while also targeting to achieve business process KPIs. This is a game changing and bold approach for a function or sector of the IT industry that has not evolved for the last decade. ALT ASM aims to create alternative solutions to five problems that CIOs face in applications outsourcing: Proactive Workload Reduction: CIOs so far have only been presented with the cost savings achieved through offshoring and savings delivered as part of the defined contract. To help CIOs see other alternatives, HCL has created a paradigm shift in applications outsourcing through its ALT ASM proposition. It is derived from our strategy of shifting from ticket resolution to ticket removal. ALT ASM aims to deliver unprecedented visibility, velocity and value, by bringing together a host of its IP and processes and fundamentally approaching IT with Business Process first, Technology second mind-set. By understanding the business process, we understand the impact of an upstream failure on a downstream process. This knowledge helps anticipate and focus on resolution efforts irrespective of the priority assigned to a ticket. Focus on Business Advantage: There is a need to change how we deliver and what we target as part of our SLAs. An ASM engagement in technology-led silos is inefficient in terms of its resource use and is akin to a horse with blinders. HCL has designed a business function-aligned target operating model in which the engagement units headed by client service managers are aligned to the various functions of the client. This creates an organization that is focused on achieving business objectives. Along with this, ALT ASM uses HCL s proprietary tool Prizm to map the business process to the IT landscape. This enables the ASM engagement to generate ideas that can impact the business. Another tool used is ProVantage, which monitors the business KPIs and their linkage with IT KPIs. The final step is FIGURE 1 Alternative Solutions to Five Problems CIO s face in Application Outsourcing Source: HCL Technologies

8 8 taking business KPIs as SLAs. This aligns the goals of the business and IT, thereby creating business advantage. Proactively Impacting Agility: The transformation of the IT landscape starts at the time of transition, with the mapping of IT Landscape to business processes using HCL s Application Analysis and Optimization tool, Prizm. This creates a culture of continuous improvement from the word go. With that, we reinvest 3% of the total contract value in the form of transformation consulting assignments, which result in identifying transformation opportunities. These opportunities can be realized with the unlocked capital resulting from optimization derived from ALT ASM and are in the form of Application Portfolio Optimization, Application Modernization and Cloud Enablement. Flexibility in service delivery and resourcing: An ASM engagement, which is not flexible enough to provide for additional trained resources in case of an urgent need, puts the client at risk rising from business fluctuations. Understanding this challenge, HCL offers clients a flexible staffing model which provides run-the-business (RTB)-trained resources whenever there is a need, as part of ALT ASM. Inversely resources required for change-the-business (CTB) activities can be sourced from ASM. Our business-aligned target operating model results in a highly cross-skilled workforce and thus we are able to provide resources that are completely aware of the company s business process and are able to impact CTB activities in the right way. Flexible delivery is achieved through the modularized business-aligned target operating model, where in case of a business expansion; a new businessaligned track is easily created. Transparent Engagement: When it comes to creating visibility for the customer through strong collaboration models, advanced reporting tools with frequent updates and clear role articulation for greater accountability, we look at Managed Services. ALT ASM creates a transparent engagement through a 24X7 visibility dashboard, a multi-vendor governance framework, business process to IT landscape visibility, and business process KPI monitoring. It creates visibility at all three levels of business, IT and governance. Source: HCL Technologies

9 9 From the Gartner Files: Predicts 2013: Business Impact of Technology Drives the Future Application Services Market Underlying themes framing our 2013 predictions focus on the changing application services models driven by business outcomes such as IT enablement for the business innovation, the business buyer as influencer, business need for speed, agility, flexibility and, always, costefficiencies. Key Findings Accelerated spending on new technologies mobility, cloud, analytics and social computing services will be driven by the segment of buyers that seek untapped value from these technologies. Buyers will increasingly focus on speed to market, business impact of their enterprise applications and efficiency of their application portfolios; these choices guide and underlie new preferences for applications, application services and provider selection. Application services providers will use crowd and community sourcing to create distinct application management communities, broken down into development and maintenance communities. The increased focus of providers in developing/maintaining reusable intellectual property (IP) assets is evidence of a future in which cloud-based platform development, assembly-based software strategies, IP leverage, and configurable solutions will be an option if not the norm for some buyer solutions. The intentions of legacy application modernization efforts will shift conclusively from an IT-centric cost view to business enablement through new technologies (such as analytics, mobility, and software as a service [SaaS]). Recommendations Business buyers must plan for and shift the mix of external application services budget to support nexus solutions and business enablement. Use vendor evaluation models to select consultants/system integrators (SIs) based on the type of capabilities needed to tackle these types of IT and business initiatives. Application services providers must evolve their strategy to enable the nexus technologies: Those able to help evaluate, design and implement these solutions individually, as well as synergistically, will be favored by client decision makers. Application services providers must invest and expand the ability to sell directly to the business and bring solutions directly to business buyers. Develop solutions and delivery models to support business buyers to drive and participate in SaaS deployments and focus on relationships with business buyers as a means to differentiate using business value propositions to drive business development. Strategic Planning Assumptions By 2016, 25% of external application implementation spending will be on mobility, cloud, analytics and social computing services. By 2016, the disruptive impact of SaaS deployment on application services providers traditional revenue streams will be less than 4%. By 2016, application services providers will have replaced 20% of their internal application management staff with crowd and community sourcing. By 2016, the most profitable application services providers will replace at least 20% of their labor-driven effort with solutions architected from IP assets. By 2016, more than 50% of application modernization efforts will address business demand for enhanced functionality to legacy applications not cost reduction.

10 10 Analysis What You Need to Know As we have explored in the published research of the Application Services agenda throughout the year, this is a dynamic market with aggressive competition, quickly evolving buyer demands for more business impact from enterprise applications, and a confluence of IT forces that are essentially leading to a new or at least, bifurcated application services market. The old (labor-based services) and the new (industrialized, cloud-based options) will coexist, but the leading driver of change will be business impact. This is the first-ever annual Gartner Predictions report for the application services agenda. As the predictions reveal, the visible concepts highlighted this year include: The Nexus of Forces (cloud, social, mobile and information) Crowdsourcing Modernization Nonlinear growth Yet, the underlying theme implicit across all the predictions is the strong emergence of the business the business goals, IT enablement for the business, the business buyer as influencer, the business need for speed, agility, flexibility and always, cost-efficiencies. This Predicts report complements other publications from this agenda. The following Strategic Planning Assumptions capture some of the changing dynamics we anticipate will influence the application services market in the coming five years. Strategic Planning Assumptions Strategic Planning Assumption: By 2016, 25% of external application implementation spending will be on mobility, cloud, analytics and social computing services. Analysis by: Susan Tan Key Findings: Powerful technological forces are reshaping how employees work and how businesses engage with their partners, suppliers and customers. Social, cloud, analytics and mobility technologies are innovative and disruptive on their own but together represent a new computing paradigm. Gartner calls the convergence of these four technologies the Nexus of Forces and each of these technologies a nexus technology. Mobility, for example, is being used for increasing productivity by equipping employees to do their jobs better on the go, for enhancing revenue by offering an alternative channel for customers that include new features such as location and presence; and, in certain cases, for transforming business models by fundamentally changing work processes and leveraging functionalities in smart devices and sensors. Predictive analytics are enabling enterprises to better understand their businesses and make better decisions. Cloud solutions, including SaaS, not only reduce IT costs and increase an enterprise agility but can also be used by enterprises to create cloud services such as Apple s icloud. Enterprises are tapping social networks to help with product design, improve customer satisfaction, solicit feedback and stimulate demand. In Gartner s 2012 CIO survey, CIOs rank analytics, mobile technologies and cloud computing as the top three priority technologies (see the Executive Summary in Amplifying the Enterprise: The 2012 CIO Agenda ). Today, external application implementation spending on social, cloud, analytics and mobility services is estimated at about 13% of the total IT consulting and application implementation market. As more enterprises recognize the value of these technologies in transforming their businesses, and as such solutions penetrate more business functions within each enterprise, enterprises will increase their spending on service providers to help them evaluate, design and implement such solutions individually as well as synergistically. By 2016, solutions that leverage mobility, social, analytics and cloud technologies will make up more than 25% of external application implementation spending.

11 11 Market Implications: Forward-thinking enterprises will not only harness the power of each force but will also increasingly combine these technologies synergistically to change the way enterprises conduct business, interact with customers and revolutionize their business models. For example, a mobile app for the sales force can be hosted in the cloud, and integrated with back-end ERP systems for real-time inventory checking and ordering, as well as third-party databases and social websites, with access to analytics presented as mobile dashboards. As customers demand enterprises do business the way they want to, enterprises that do not embrace these nexus technologies will be at a competitive disadvantage. Nexus technologies are new, and many enterprises don t understand the possibilities they can bring about and the governance needed to make that work. They will look to external service providers (ESPs) to help them envision the art of the possible, prioritize nexus initiatives as well as implement the solutions. Spending for services to support nexus technologies will come from multiple business units in addition to the official IT budget. Many consultants and SIs, including Accenture, Deloitte, Ernst & Young, IBM, Infosys and PwC, are offering digital transformation services to help clients leverage the confluence of nexus technologies to create competitive advantages. In addition, numerous boutiques have sprung up to assist enterprises in implementing solutions using one or several of the nexus technologies. Recommendations: For enterprise buyers of application implementation services: Involve business users and jointly explore, by process and function, how each of the nexus technologies, individually and synergistically, may be used in your enterprise to increase revenue, customer engagement and satisfaction, or reduce cost. Proactively reach out to business units to discuss the possibility of applying nexus technologies in their business, or, if they already have some form of nexus solution in place, the possibility of increasing its value through integration. Then create a plan and road map to implement these nexus-related solutions, with help from ESPs if necessary. For every new IT solution, explore the inclusion of social, cloud, analytics and mobility technologies to see if they can enhance the value of the solutions, and expect service providers to include such technologies in their proposed solutions. Plan for and shift the mix of external application services budget to support nexus solutions. Update vendor evaluation models to select consultants/sis based on the type of capabilities needed to tackle these types of IT initiatives. For example, selection of providers of cloud-enablement services should include an evaluation of capabilities such as cost, data protection and integration while selection of providers of mobile or social computing services should include an evaluation of capabilities such as agile development methodologies, reusable assets and user experience/design. For more holistic nexus solutions, look for service providers with a vision for how these technologies can be used for business benefits in your particular industry. Strategic Planning Assumption: By 2016, the disruptive impact of SaaS deployment on application services providers traditional revenue streams will be less than 4%. Analysis by: Patrick Sullivan Key Findings: There is a concern that SaaS applications require reduced levels of consulting and implementation services compared with traditional solutions, and significantly reduced efforts in application management are identified as concerns. Consulting and implementation services associated with SaaS-based applications are typically about 80% of the effort that are associated with on-premises package implementation projects for comparable scope and scale. Although SaaS is growing rapidly and application services related to SaaS software are also growing rapidly (19% CAGR through 2016), nevertheless, these services will still be less than 10% of the overall application services marketplace in 2016.

12 12 The application services market will continue to be dominated by the traditional (labor-based) services centered on custom application and on-premises packages, which include consulting, implementation and application management. Market Implications: This prediction addresses the concerns of application services providers that the rise of SaaS may have a cannibalistic impact on their revenue. Currently, the revenue from SaaS software represents 16% of the total enterprise software market at $16 billion but growing through 2016 at a high rate (CAGR 19.1% 2012 through 2016) which is four times the rate of onpremises software. This adoption is shifting the application portfolio mix within enterprises away from custom applications to packaged software, and SaaS; this prediction addresses the impact of this shift (see Figure 1). Application services for SaaS-related software are also growing at a high rate (CAGR 18.8%, 2011 through 2016). This represents both an opportunity and a threat to application services providers that have built sizable revenue streams implementing and managing custom and packaged software. The consulting, implementation and management efforts of SaaS applications are similar to, but different from, traditional applications in that the traditional labor-centric model for these services needs to be adapted. Critical characteristics of SaaS software engagement are: Projects are typically shorter and smaller relative to large package implementation, due mostly to reduced scope and scale. Today, typical SaaS engagements are six to 18 weeks in duration. There is a growing tendency for projects to become larger, as SaaS efforts become larger and more complex. SaaS deployments require business users to adopt the processes that are configured in the software. Therefore, the projects require significant business user participation and process change management as part of deployment. Implementation efforts today are focused on integration with other existing applications that centers on data and interfaces as well as configuration of the software to match business needs. Typically, agile development processes are used that involve business users and IT staff through the integration and configuration phase (as opposed to more-waterfall-like efforts on large on-premises efforts). For the same scope and scale of solution, SaaS engagements today are less effort due FIGURE 1 Shift Expected in Application Portfolio Custom applications 43% 33% Packaged applications 45% 45% SaaS applications 12% 22% Today In 2015 Note: The same survey generated similar results for Western Europe, with SaaS applications growing from 11% to 19%, while custom applications in the portfolio shrink from 48% to 37%. Source: Gartner (November 2012)

13 13 mostly to reduced business requirements and design efforts (solution is more predefined along with technology architecture). Research of contracts suggest about 20% reduced effort and fees for similar scope and scale of efforts. Application management and updates are considerably less than traditional packages, because only the interfaces with other systems and/or custom modules that were developed to supplement to SaaS software need to be updated. However, these will need to be reviewed, and possibly changed, multiple times each year as the SaaS software provider applies software updates. In most instances, the updates are easy if standard adapters and integration techniques are used, but they still must be done and tested. Thus, the actual efforts to maintain SaaS are more significant than often anticipated due to the frequency of updates but typically less than custom or package management. Gartner forecasts the total market for application services (technology consulting, implementation and application management) at $230 billion. Of this, less than 4% is focused on SaaS, with custom applications and packaged applications being the focus (traditional services). By 2016, we anticipate that SaaS-related efforts will grow to $19 billion, which still will be only 7% of the total application services marketplace. Finally, should the differential between SaaS and traditional efforts of 20% savings be applied to the full SaaS market, it represents only around $4 billion in potential erosion of traditional services by deployment of SaaS alternatives. Thus, the disruptive impact of SaaS on application services is minor. A larger opportunity is also presented by establishing a presence in the high-growth market for application services brought by SaaS with revenue opportunities in consulting, architecture and design. Recommendations: Application services solution managers should: Invest in SaaS solutions and develop practices for selected SaaS packages that are in demand by your targeted market segments. SaaS service growth of close to 20% represents an opportunity to establish a competitive position within a high-growth market. Invest and expand your ability to sell directly to the business and bring solutions directly to business buyers. As business buyers continue to drive and participate in SaaS deployments, relationships with business buyers are needed not only for successful services, but also to differentiate from a business development perspective. Do not be overly concerned with the disruptive impact of SaaS on traditional application services due to the small size of the SaaS market and massive size of traditional application services. Continue to focus on targeted segments and traditional application services. Strategic Planning Assumption: By 2016, application services providers will have replaced 20% of their internal application management staff with crowdsourcing and community sourcing. Analysis by: Gilbert van der Heiden Key Findings: Demand for cost reductions continues and drives service providers to reduce local staff in favor of offshore delivery capabilities. The expansion rate of global delivery capabilities, however, does not match the global demand in platform and domain experience and expertise. Demand for application services capabilities in the nexus areas (cloud, social, mobile, big data), including the integration of such developments with the existing application and services portfolio, will grow. Service providers are investing in building and expanding such capabilities. Capabilities are searched for globally, through traditional methods, as well as new methods such as social media, but more and more through professionalized crowdsourcing 1 and community sourcing. 2 These communities reduce the traditional method to hire individuals as the required capabilities can be accessed online at lower cost. Crowdsourcing and community sourcing are sustainable because of the abundance and continued growth of supply of resources and the gamified and very granular comparability of resources, in combination with the fact that access is global, as is delivery.

14 14 Market Implications: The large potential of skilled individuals that can be accessed through professional crowd and community sourcing agencies 3 (effectively staffing search engines) and the granularity of experience and rating of individuals all directly accessible online allows for detailed comparisons of individuals. The continued economic pressure will ensure a continuous growth of contractors that can be accessed. New graduates may potentially directly move to crowdsourcing to remain independent from employers. This is a global development resulting in a global pool of effectively local capabilities as well as global delivery capabilities. Service providers will use crowdsourcing and community sourcing to create distinct application management communities, broken down into development and maintenance communities. Such communities will not be visible directly to the clients of the providers, but will be part of the global delivery organization. Communities will consist of individuals with validated skills who the service provider will allocate work on a regular basis to keep them involved and committed. Application development community: A service provider would use crowdsourcing to find the right skills the first time for an application development exercise to determine who could become part of a development community and act as an application development community for the development platforms the provider is seeking skills for. The term community fits better as it is about creating a controlled environment and access to known skills with a level of continuity. Crowdsourcing will continue to be a means to resolve attrition in the communities and continuously evolve the community s capabilities, and the gamification part will continue to challenge the community members to excel. Gamification embeds challenges and prices and competition in the crowd and community sourcing. The detailed level of selection is the same level of awarding prices/benefits. If individuals want to be selected, they have to score. If they want to increase their rate, they have to win. If they want to make real money, they continuously need to win. Awards will represent certifications/proof of capability. Gamification, hence, will challenge community members to excel, no different from any other competitive market that effectively also represents competition. The service provider will control requirements, design and integration and hand out only coding and unit testing to the community initially. With expanding experience, service providers will hand out requirements to the community to determine the most suitable design as well. Application maintenance community: Such a community approach will also be deployed for ticket-based incident resolution of software by independent software vendors (ISVs,) especially when software is SOA-based and hence modularized and built on reusable assets. Reusable assets can be maintained through such an application maintenance community. Let us not underestimate: (a) the expanding broadband capabilities; (b) the increased pressure on allowing home-based work scenarios; and (c) the growing videoconferencing capabilities at desktop level. This will further grow the virtual collaboration potential, decreasing the need for on-site staff. So, even maintenance service providers can build communities with selected individuals with defined and restricted access to service platforms. Service providers can t fully depend on communities, for example, for highly secure and controlled application environments, nor can communities replace all internal staff as there will still be a need for on-site capabilities; for example, on average 40% on-site for SAP projects4 to 50% commonly for agile projects and between 25% to 40% on-site for application maintenance. Also, providers will maintain their own senior developers and administrators to ensure continuity of industry and technology domain expertise and for continuity of client knowledge and relationships. Service providers, however, will increase dependency on communities for the simple reason that cost remains a core driver, and communities have the potential to ensure a continuous access to skills while not having the bench or employment issues. Although 20% of application services staff is a huge number of individuals, we predict that the market is ready for this change, and so, too, are providers and developers. Recommendations: End users considering application services providers: Verify their approach to crowdsourcing and community sourcing: Initially discuss development communities for agile projects given the need to break down the work

15 15 in smaller pieces that can be allocated to individuals. When they have built up experience, end users should challenge providers on the broader capabilities. Alternatively move directly into communities themselves for business analysts, application architects, test managers and testers, coders and software and automation developers. Application services providers: For those not considering crowd and community sourcing, focus on niche capabilities and build a distinct business value story that allows for higher rates, or expand investments in automation. Strategic Planning Assumption: By 2016, the most profitable application services providers will replace at least 20% of their labor-driven effort with solutions architected from IP assets. Analysis by: Allie Young, Frances Karamouzis and Sandra Notardonato Key Findings: The increased focus of providers in developing/maintaining reusable IP assets is evidence of a future in which cloudbased platform development, assemblybased software strategies, IP leverage and configurable solutions will be an option if not the norm for some buyer solutions. It also defines the convergence of software and services shaping application services providers strategy in the future. The convergence of software and IT services is transforming the application services market, redefining choice and benefits (for buyers) and introducing new competitive dynamics and strategies (for application services providers). Benefits to the buyer include faster time to market, cost-effectiveness, and/or greater efficiencies. From a provider perspective, assetbased solutions will be a means of combating margin head winds, particularly for offshore IT services providers. Application services providers report accelerating attention to the creation and maintenance of their own IP software assets, specifically for use in repeatable horizontal expertise (like security) and in vertical offers. They are also focusing on profitable growth that is premised on repeatability of asset use (nonlinear growth) versus growth tied to labor. Market Implications: In this prediction, we implicitly address a dramatic change in how buyers are eager to consume aggregated or bundled services and software functionality, as well as the challenges of application services providers to manage more profitable revenue growth in a changing marketplace. Buyers have recognized the liability of custom solutions (high development and ongoing maintenance costs, as well as lengthy development cycles). Instead, buyers favor packaged solutions (SAP or Oracle, as an example) and accept prebuilt multitenant software (SaaS options versus custom solutions) for certain solutions. Buyers focus on speed to market, business impact of their enterprise applications, and efficiency of their application portfolios underlie these new preferences. Application services providers, on the other hand, have had to adjust their strategies. Rather than revenue growth and profit from labor-based custom software development approaches for one client, leading providers are creating and maintaining their software as assets, to be leveraged across multiple clients. This strategy for providers to catalog and preserve their IP is not new; what is new is the change in market conditions where buyers expectations for IT s speed, quality, and cost-efficiencies, and the acceptance of industrialized approaches make new approaches possible. Providers recognize that their ability to leverage their software as IP assets as reusable components in configurable solutions is an alternative to revenue growth that in the past was tied to a unit of labor, and this unit of labor had a limit to utilization potential. This new approach, called nonlinear revenue growth, also has the potential for greater profitability build once, use many times. Certain principles apply in this new business model that supports application services providers profitability: reuse and harvesting of IP (as a software asset); access to leverageable IP; exploit IP in cross-vertical or micro-vertical solutions; and industrialized, focused labor model (factory) that reduces labor cost of solutions. The impact of the convergence of software and services is seen in the outcome of fundamental shifts: Less customization: With no letup in IT s focus to contain/reduce IT costs, organizations have become selective in their decisions to customize applications; Gartner s user data shows a clear decline the percentage of custom applications to favor packaged or SaaS. This suggests a negative impact on

16 16 revenue streams for providers in the long term, because slowed growth from custom application development/maintenance has historically been a significant revenue source. Cloud-based options: Changing technology trends that favor greater industrialization and prebuilt solutions have resulted in new options for organizations to access applications functionality (SaaS and business process as a service [BpaaS]) or build functionality platform as a service (PaaS); enterprise buyers even have choice to bypass traditional application services providers relationships completely or to adopt a hybrid approach which of course negatively impacts application services providers growth options. (Yet, SaaS is not the answer for all enterprise applications needs.) Compete on labor pricing: The global delivery model provided competitive advantage to providers to lower the cost of labor, but the benefits proved finite, because rates can go only so low and still deliver the quality needed. Low cost labor options have become the norm and undifferentiating. Therefore, the future potential to capitalize on knowledge workers is to create factory settings where IP creation is directed toward building software assets for multiclient use (leveraged investment in nonlinear models). Business impact from provider relationships: The increasing influence of the business buyer to find the IT solutions that support business growth has meant new priorities in service provider relationships for enterprise applications use of new technology trends (mobile, social, cloud), vertical relevance, speed, agility, quality and cost-effectiveness. Providers with proven assets have the competitive advantage of mining their IP assets for application in new vertical offerings. The impact of the convergence of software and services to create reusable IP assets represents the potential for radical change in providers business models: Instead of growth historically constrained by labor and utilization, we will see increased operating leverage. The amount of leverage is dependent upon the strategy. Different models are emerging: licensing of proprietary software (sell a license and maintenance to customer); leveraging frameworks, technology-based tools and methodologies (to use as part of implementation for example); platform-based models (the vendor creates and owns the platform, multitenant, pay per usage, royalty fee). To date, companies are taking on different strategies around these new models, but the focus is on decoupling the inherent connection between revenue and head count. For example, Infosys has an explicit growth strategy to drive a specific amount of revenue from products, platforms and solutions; it is building out verticaland domain-specific platforms, and looking to acquire IP-based solutions as well. Others, such as Accenture, have introduced proprietary software solutions that they license to buyers some of Accenture s software has been built internally and some has been acquired; it has even formalized a separate software arm in its organization. IBM GBS has a sophisticated and extensive commitment and investment to building, maintaining and leveraging its software assets in sophisticated solutions; how it takes these assets to market in both horizontal and vertical solutions is a top priority for IBM. Others, such as CSC, are dramatically reducing customization as part of their portfolio of offerings and introducing more standardized, automated application solutions. For providers, the business model is clear: If quality IP assets can be developed (or acquired) and maintained, and if the levels of IP asset reuse can increase, the greater the profitability they will garner. Application services providers have indicated that asset reuse can increase profitability on a contract in the range of 15% to 50%. While much of this profit is being reinvested in the business (creation of new assets, as well as maintaining and refreshing current assets), longer term as the time frame of this prediction postulates we believe that the most profitable application services providers will replace at least 20% of their labor-driven effort with solutions architected from IP assets. Further, asset-based solutions will be a means of combating margin head winds, including pricing pressure, currency appreciation and wage inflation, particularly for the offshore IT services providers. We see this strategy as providing a runway for profitability improvement in the dramatically changing application services business. Recommendations: Application services providers: Immediately evaluate how the convergence of software and services opens potential new opportunities for profitable growth; adopt a long-term strategy for building/maintaining software assets, premised on a nonlinear model to leverage these assets, and invest accordingly. Target specific solution areas where you have established client base and credibility, and identify an opportunity for differentiation and innovation.

17 17 Buyers of business solutions: Evaluate current and prospective application services providers focus on innovation and software asset strategies. Providers that detail their vision and commitment to a nonlinear business model are likely to be the longterm contenders; such a strategy is also an indication of investment. Application services providers with formal software asset strategies for reuse should be considered for those processes where customization is not required or where existing leading-edge solutions suffice. Strategic Planning Assumption: By 2016, more than 50% of application modernization efforts will address business demand for enhanced functionality to legacy applications not cost reduction. Analysis by: Allie Young, Patrick Sullivan Key Findings: In the past five years (post through-2009 recession), the primary drivers of legacy application modernization were focused largely on IT-led initiatives to improve maintainability/usability of legacy applications and to react to cost take-out requirements, while preserving the enterprise investment in core applications. In the coming five years, the intentions of legacy application modernization efforts will shift conclusively from an IT-centric cost view to business enablement through new technologies (such as analytics, mobility and SaaS). Legacy application modernizations drivers will accentuate gaining functionality from exploiting new delivery models (like SaaS and cloud-based platforms), pace-layering best practices, integrated IT-business/ process approaches, real-time analytics and new technologies to access customers and to work in new ways (the Nexus of Forces information, mobility, cloud, social). 5 Market Implications: Legacy application modernization has been a reality for IT organizations for more than two decades, occurring incrementally in various forms: upgrade legacy applications (new functionality); replace legacy applications (with packaged software or SaaS); replatform applications (migration to new hardware, new operating environment or cloud infrastructure); and enhance functional but not replace applications (user interfaces, new functionality, supplemental modules). 6 The 2008-through-2009 global economic recession had a profound effect on modernization efforts IT priorities to reduce costs became mandatory. Five years later, global economic uncertainties remain, but the widespread adoption of Internet technology and user/mobile devices has fundamentally changed enterprise computing. IT had to respond quickly to the technology changes at multiple levels the infrastructure, applications and business process levels. Core enterprise applications were either enabling or inhibiting the dramatic change but in the vast majority of cases, they were inhibiting change. Gartner predicts that the resulting shift in legacy application modernization will be evident in two primary ways: Business outcomes drive investments: Although IT involvement (architecture strategy, compliance, security, integration) is essential, the business involvement sets the new goals for modernization, involving business users and process experts. Differentiation through innovation becomes mandatory: Although efficiencies and cost take-out remain critical, they become an outcome, as opposed to the focus. Modernization must harness ways that new functionality can be brought into the organization and how enterprise applications support new functionality. To depict the forthcoming change, Gartner provides estimates on the focus of legacy application modernization projects where application services providers are engaged by enterprise clients in 2010 and by 2016 (see Figure 2). This shift in focus that we predict means that modernization efforts will rely on much higher levels of innovation and iterative development to enable new business functionality of emerging technologies in fact, many modernization efforts will require skill sets that are lacking in IT departments (such as business strategy, architecture, analytics, social and mobility). Other skills will be developed in the course of applying new technologies in innovative ways. Automation through tools and frameworks, of course, plays an increasingly important role in the success of modernization; development toolsets and products have improved considerably over the

18 18 FIGURE 2 Gartner Estimates of Primary Focus of Legacy Application Modernization Projects 2016 (estimates) (estimate)s Percent Replacement/retirement Replatform Upgrade of legacy systems Enhanced functionality Note: Gartner percentage estimates only. Source: Gartner (November 2012) years, enabling greater predictability and higher success rates of modernization. Furthermore, the close integration of experts from application services providers and the client organization (the IP knowledge of industry and process) become tantamount to successful modernization of legacy systems. Finally, success of modernization that focuses on new functionality will be more predictable when the following are in place: Business-driven needs and a holistic enterprise application portfolio approach (considers the entirety of the application portfolio and architecture) Full life cycle and pace-layering approach to the timing of modernization of the application portfolio (systems of record, systems of differentiation and systems of innovation) 7 Prioritization of user adoption not just user acceptance of the new systems as part of a complete governance process Recommendations: For application services providers: Refresh your legacy application modernization strategy and offerings to incorporate new technologies in Gartner s Nexus of Forces (cloud, social, mobile, big data) as well as advisory services, application implementation and management services. Update sales/marketing messaging from user flexibility, maintainability and cost take-out to articulate the business value propositions that will drive clients business (speed to market, client access, differentiation/innovation, agility, responsiveness and process alignment gained from more responsive and integrated enterprise applications that support growth and ability to reach/respond to the customer). Reconfigure application modernization teams to include cross-organization experts, from leading-edge application development teams, technologists, vertical experts, process experts and architects. Enterprise IT and business decision makers: Approach legacy application migration projects as an evolutionary journey, following portfolio rationalization efforts emphasizing the holistic, strategic view that closely links IT and the business. Ensure that this is embedded into the organization s IT governance processes. Establish a strategic plan and road map that identifies near-, mid-, and longer-term functionality requirements for the enterprise application portfolio and includes pacelayering concepts.

19 19 Evaluate and select application services providers that bring leading-edge technology experience (Nexus of Forces) and a businessled approach to modernization; these modernization projects have risk and must run in parallel with ongoing systems functionality to cutover. Change your governance process to involve both applications, IT infrastructure and business users to identify specific areas where modernization is needed; convene annual or as-needed meetings of these individuals to refresh modernization strategies. A Look Back In response to your requests, we are taking a look back at some key predictions from previous years. We have intentionally selected predictions from opposite ends of the scale one where we were wholly or largely on target, as well as one we missed. On Target: 2009 Prediction By 2012, of Brazil Russia, India and China (BRIC) countries, China will be the leading India-alternative offshore location for highly scalable resources, followed by Brazil; Russia, being viewed as offering only niche capabilities, will fall behind. This prediction has been largely accurate in terms of the volume of organizations that use these countries for their offshore and nearshore services. In a Gartner s IT and Business Processes Sourcing Survey of 419 organizations that took place in May 2012, the following data was gathered from respondents: Of organizations using the Asia/Pacific region for offshore and nearshore services, 48.5% are using India, and 45.9% are using China. Organizations using the Latin American region told us that 46.8% are using Brazil for offshore and nearshore services. However, for respondents using the Europe, Middle East and Africa region, only 19.2% are using Russia for offshore and nearshore services (more than 6 percentage points behind Poland). This data does not point to the total revenue that is being generated by each country; for example, only 2.6% more respondents in the Gartner survey are using India over China, but the overall volume of revenue generated by India is considerably higher in deal size and volume than China. However, it does reflect the growing importance of China as an offshore and nearshore location for application services in particular. A number of Chinese pure play offshore service company have recently reached a critical mass of 10,000 to 20,000 employees, and the pending merger of VanceInfo and HiSoft will create the first China pure play with more than 30,000 employees. A significant number of multinational service providers are also now located there. As pointed out in the original prediction, the geopolitical and economic environment in Russia, combined with high costs in the major business centers of Moscow and St. Petersburg, has continued to undermine the efforts of some very capable service providers from the country. These factors have also dissuaded many multinational service providers from adding Russia as a key geographic hub within their global delivery models. The result is that Russia has struggled to keep pace with China s and Brazil s efforts to close the gap on India s dominance in offshore service delivery. Brazil is still positioned well as a hub within Latin America, and many multinational service providers are located there to service Latin America and North America. However, its progress is slower than anticipated, with few Brazilian providers offering offshore and nearshore services from large delivery centers. Evidence 1 According to Wikipedia, crowdsourcing is a neologistic compound of crowd and outsourcing for the act of outsourcing tasks, traditionally performed by an employee or contractor, to a large group of people or community (a crowd), through an open call. 2 There is no official definition of community source, nor has Gartner developed one yet. A good enough definition (and one of the earliest) was provided by the Sakai project (see www. sakaiproject.org): Community source describes a model for the purposeful coordination of work in a community. It is based on many of the principles of open-source development efforts, but community source efforts rely more explicitly on defined roles, responsibilities and funded commitments by community members than some open-source development models. 3 Example agencies are: Elance ( 1.7 million contractors offer their services and growing. It provides online reports and graphs with rates per country; TopCoder ( com) 420,000 contractors and growing; Guru ( more than 1 million contractors; Odesk ( it separate itself as it refers to businesses using Odesk, being more than 350,000. You can select contractors to

20 20 a very granular level; Vworker ( more than 380,000 contractors. It differentiates itself by offering a sort of project base. That is, it allows you to select multiple individuals to assign them to a single job; utest ( com) more than 50,000. Year over year it adds 10,000 testers; the more development moves to Web and cloud, the more can be tested by crowdsourcing. 4 See Lessons From 169 SAP Implementations Using Service Providers in North America. This is a nice overview of end-user experience, including the notice that 60% of effort, on average is done onshore. With Indian providers it is just 30%. 5 Gartner s Nexus of Forces describes the convergence of four elements (social, mobile, cloud services and information) which will demand a totally new approach to all aspects of information management. 6 Hype Cycle for Application Services, Gartner defines application modernization as an initiative that addresses the migration of legacy to new applications or platforms, including the integration of new functionality to provide the latest functions to the business. Modernization options include replatforming, rehosting, recoding, rearchitecting, re-engineering, interoperability, replacement and retirement, as well as changes to the application architecture to clarify which option should be selected. In Wikipedia: The complexity of modernizing legacy applications is noted in Wikipedia: A legacy code is any application based on older technologies and hardware, such as mainframes, that continues to provide core services to an organization. Legacy applications are frequently large and difficult to modify, and scrapping or replacing them often means re-engineering an organization s business processes as well. However, more applications that were written in so-called modern languages like java are becoming legacy. Whereas legacy languages such as COBOL are top on the list for what would be considered legacy, newer languages can be just as monolithic, hard to modify, and thus, be candidates of modernization projects. Also: Challenges in Legacy Modernization: Typical legacy systems have been in existence for more than two decades. Migrating is fraught with challenges: Organizational change management. Coexistence of legacy and new systems. As each increment is completed, the percentage of legacy code decreases. Eventually, the system is completely modernized. A migration strategy must ensure that the system remains fully functional during the modernization effort. (see Wikipedia: Software Modernization; Software_modernization#Challenges_in_Legacy_ Modernization) 7 Refer to How to Use Pace Layering to Develop a Modern Application Strategy. In this report, Gartner defines the three layers of applications: Systems of record These established, packaged applications or legacy homegrown systems support core transaction processing and manage the organization s critical master data. The rate of change is low, because the processes are well-established, common to most organizations, and often subject to regulations or recommended practices Systems of differentiation These applications enable unique company processes or industry-specific capabilities. They have a medium life cycle (one to three years) but need to be reconfigured frequently to accommodate changing business practices or customer requirements Systems of innovation These new applications are built on an ad hoc basis to address emerging business requirements or opportunities. They are typically short life cycle projects (up to 12 months) that use departmental or outside resources and consumer-grade technologies. Also refer to Concepts of Pace Layering in System Design. Pace layering is a concept that can be applied to various activities, system designs, and strategic relationships within and between organizations. As an application portfolio activity, pace layering classifies applications as systems of record, differentiations, or innovations based on their rates of change and life cycles. Within system design, pace layering relates to separation of concerns, logical and physical architecture techniques, service modeling, and other practices. Source: Gartner Predicts, G , Allie Young, Patrick Sullivan, Susan Tan, Gilbert van der Heiden, Frances Karamouzis, Sandra Notardonato, Ian Marriott, 21 November 2012