Candidate AD Roles for Outsourcing

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1 Decision Framework, M. Blechar Research Note 22 October 2003 Balancing the Risks Involved With AD Roles Outsourcing Deciding which application development roles to selectively outsource requires enterprises to compare the risk of losing internal expertise vs. the potential savings. Core Topics Application Development: Architecture and Design for Application Development; Constructing Applications; Managing Application Development Business Management of IT: Business/IT Strategy Development and Planning; Organization and Governance Key Issues How can the IS organization leverage its structure and IT governance to align investments and services to fulfill the enterprise's key strategic goals? What organizational structures are applicable for the development, maintenance and support of applications? The outsourcing of application development (AD) roles has one basic truth: No matter what the application or the situation, your decision to retain or outsource AD roles must take into account the components of each role, the pitfalls associated with losing valuable internal expertise, the overall impact on the AD organization, and the ability of your IS organization to maintain and support applications in the future (see Note 1). In this research, we explore AD roles and classes of applications and offer guidelines on which roles and applications you should selectively outsource and which you should retain. Candidate AD Roles for Outsourcing If you choose to outsource the design and construction aspects of applications, most of the personnel normally assigned to those phases of development will no longer be needed. That is especially true of process and data designers, programmers and programmer analysts. In addition, you could reduce the amount of effort needed from other AD-related roles, including project managers, testers and quality assurance (QA) personnel, methodologists, database administrators (DBAs), network administrators, and application security and technical architecture support. The degree to which you choose to outsource or retain "nonprogramming" roles will depend on your management philosophy, which will involve weighing and balancing costs and risks. For some AD organizations, contracting for a level of quality, consistency and compliance from the outsourced AD provider is sufficient to ensure success. Other AD departments insist on having their own QA personnel, testers, DBAs and so forth to validate the acceptability of the new applications at the time of delivery and to keep ongoing maintenance and enhancement costs manageable and reasonable. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Note 1 Will AD Outsourcing Be Successful in Your Environment? Before examining AD roles as candidates for outsourcing, you need to determine whether the AD environment presents fertile ground for outsourcing success. Decisionmakers should begin the review process by addressing some fundamental questions (the greater the number of "yes" answers, the greater the applicability of AD outsourcing): Are applications based on common skills, languages and platforms? Has the application moved from the design phase to the construction phase? Is in-house innovation on the product complete? Does the application help drive revenue or introduce new business models? Can the application be designed and developed without business insight or industry and product acumen? Can the applications be discretely extracted? Has your organization successfully managed outsourcing contracts in general, and specifically, do you have a good track record with remote or offshore outsourcing? When weighing AD outsourcing possibilities, IS managers should err on the side of caution. You need to remember that you're generally looking only at the life cycle of a single AD project. Although the role of the DBA could shrink or disappear when an application project gets outsourced, you'll still need DBAs to support the backup, recovery and tuning of the production environment databases. In addition, although application resources are generally devoted to specific application systems, administrative or infrastructure-oriented roles typically cut across a wide swath of the application portfolio. Wholesale outsourcing of AD could weaken the ability to maintain other interrelated applications that you're retaining in-house. Even if you have the external service provider (ESP) hosting the application, the new application is likely to have integration touchpoints with legacy applications and packages that will require internal coordination and management. Interrelated IT Roles Affecting Outsourcing Many AD organizations are moving to new service-oriented architectures (SOAs), such as Java 2 Platform, Enterprise Edition (J2EE) and.net, which exploit enterprisewide reusable services and components. A by-product of this trend is the convergence of roles in AD, application maintenance and application integration, which is increasing the difficulty of doing one role within a set of interrelated applications without doing all three roles. Large IS organizations typically split the development and maintenance roles; small-to-midsize IS organizations tend to combine the roles into one function. This situation creates a sourcing dilemma for IS managers: If they decide to outsource AD, should they also outsource maintenance of the application? Should they have the outsourcing vendor "host" the application it builds? This issue affects which AD roles could be outsourced and which roles will be the "touchstones" between the outsourcer and the client company. This situation also affects cost. For example, if you return the outsourced application to a programmer or analyst for long-term maintenance, you'll incur the added costs of knowledge transfer, which would not have been necessary had the maintenance programmer built the application. Similarly, there must be knowledge transfer in the "turnover" process for all personnel who support the technical and information architectures, including DBAs, network administrators and application security personnel. You can reduce the resulting cost and effort by turning over maintenance and operations personnel and functions to the outsourcing vendor; however, the 22 October

3 reality is more complicated. The greater the number of support roles you transfer to the outsourcing vendor, the greater the potential risk. Therefore, when deciding whether to outsource an application or role, you need to evaluate the potential cost savings against the risks posed by loss of knowledge, loss of control and higher integration costs with retained applications. (For details on the factors you should consider when making AD build, buy or outsource decisions, see "Build, Buy and Outsource Decision Factors.") Classes of Applications and the Roles Affected When making AD outsourcing decisions, you need to evaluate the class of applications being considered (see Figure 1). Complexity, integration and domain knowledge are highest with enterprisewide applications and lowest with personal-scale applications. You will rarely be able to make outsourcing decisions cleanly here, because the balance between cost efficiencies and business risk vary by application type. Figure 1 Types of Applications to Outsource Enterprisescale: most likely to be outsourced Enterprisewide Departmental Scale Workgroup Scale Personal Scale Increased complexity, application integration, scalability requirements with formal AD methods, requiring fewer developers with greater skills. Decreased complexity, integration, scalability, ad hoc methods and large numbers of less-skilled developers Source: Gartner Research Enterprise Applications and Developers: Enterprise-scale applications represent the first class of applications you should strongly consider selectively outsourcing. These applications generally fall between the bottom end of enterprise applications and the top end of departmental applications, based on complexity, scalability, integration and internal AD skill levels. The most sharable, interrelated and complex tools fall into the class of applications deemed enterprisewide. Unlike enterprisescale applications which tend to be less-complex and moreself-contained and, thus, more-easily portioned out to an ESP enterprisewide applications are less-likely candidates, because they are generally more highly shared (that is, they have significantly greater governance and release coordination 22 October

4 issues). Most IT executives prefer to retain the development of enterprisewide applications and the roles related to them as a way of controlling delivery risks, maintaining domain knowledge, and coordinating the interrelated and integrated releases. Client-Facing Applications and Developers: Enterprises should also consider outsourcing development roles in clientfacing applications (such as Web browsers, comparable client/server front ends and simple business components) that can be clearly defined and do not require significant coordination with other applications. Client-facing applications typically occupy 70 percent of professional developers using iterative rapid application development (RAD) methods and component-based development tools to assemble components and services and build user interfaces (UIs) or simple applications. Componentbased tools include the extreme programming (XP) methodology and J2EE and.net integrated development environments (IDEs) or fourth-generation languages (4GLs). Client-facing applications are suited to outsourcing because they comprise simple sets of specifications, can be clearly communicated and can be conformance-tested more easily than complex applications. Departmental Applications and Developers: In many large and midsize enterprises, a significant amount of AD goes on in departments and other business areas among people who are not officially part of the IS organization. Generally, these people are part-time application developers at the departmental, workgroup or personal scale. In addition, many are "power users" of business intelligence (BI) tools working with data warehouses. From the perspective of managing the sourcing portfolio, business-based development roles may seem to be sound candidates for outsourcing, but most enterprises do not outsource this development, because doing so introduces new risks, including the loss of domain knowledge and a lack of formal definition processes. Coordination of Efforts Coordination issues between internal and external systems and developers can complicate the outsourcing process. Applications with a limited numbers of interfaces or, at least, applications with well-defined formal touchpoints are good candidates for outsourcing. The handoff to the outsourcing vendor is best done after the analysis and logical design phases of the life cycle. Because client-facing applications deal with the user interface and its relationship to the application workflow and invocation of components, you should normally require that programmers and analysts refine and stabilize the UI prototypes and workflows before communicating requirements to the outsourced group. If 22 October

5 the client-facing aspects of the applications are not stable (for example, if the end user changes requirements iteratively), the outsourcing arrangement must include face-to-face involvement and a well-defined contract that accounts for incremental changes. Wrap-Up Two types of applications those bottom-end enterprise applications dealing with new, simple or self-contained business functions and those based primarily on new UI modules with well-defined interfaces to established applications are the easiest and most-viable for outsourcing. Departmental applications being built by end-user developers are generally poor choices to outsource, because of the knowledge loss and the lack of economies of scale. Applications that deliver complex business functions are best developed internally or bought through packages (or prebuilt component solutions). Development projects require project management roles to ensure successful requirements gathering in the early phases of a development project and to ensure application integration and deployment support after the application has been delivered. Project management roles during the construction of outsourced applications are increasingly moving to the outsourcing vendor, although a shared internal/external project management role remains prior to the construction phase and during the testing and implementation phases of the life cycle. Acronym Key 4GL fourth-generation language AD application development BI business intelligence DBA database administrator ESP external service provider IDE integrated development environment J2EE Java 2 Platform, Enterprise Edition QA quality assurance RAD rapid application development SOA service-oriented architecture UI user interface XP extreme programming Most roles supporting the conceptual and logical levels of the enterprise are poor choices to outsource, as are most infrastructure support roles: database administration, testing, QA, software change management, security and production turnover. AD organizations opting to source maintenance and operations should, at a minimum, consider the extra costs related to having a "mixed-sourcing strategy" for a given application and others to which it interrelates. Bottom Line: There's no uniform answer as to which application development roles and activities should be retained and which should be outsourced. CIOs and IS managers must weigh and balance the management of costs, retention of expertise and tolerance for risk. All enterprises behave differently; in general, you should adopt selective outsourcing of certain types of applications and their corresponding AD roles, largely as a means of reducing costs and augmenting your staff. 22 October