Optimizing Software Delivery: Should We Buy, Build, or Outsource? Twin SPIN Talk June 2, 2005 Dr. Joyce Statz
Agenda Challenges we Face Why ask the question? Choices What can we buy? Choices When should we build? Choices What should we outsource? Working with our Choices How do we do them well? Summary 2 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Perspectives in the Room To help with examples, questions, discussion. Who is a software developer? Who is a project manager? Who is a process improvement professional? Who is a manager of a software organization? Who is a user/customer of a software organization? Who else is here? 3 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Software Delivery Covers a Broad Landscape Process and Technology and People Requests Help escalations ALM Process Portfolio Strategic Demand Project Demand Operations Demand GOVERNANCE Business Governance Selection Dashboards Cases Committees Analysis & Audits Approved Projects PROGRAM MANAGEMENT Projects Pipelines Budgets Risk Requirement Changes Active Projects PROJECT & RESOURCE MANAGEMENT Time Resource Schedule Tracking Assignment Alignment 4 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005 Assign Configuration Management PROCESS MANAGEMENT Defect Process Personal Tracking Enforcement Portals Auto-Configuration Define Design Develop Test Deploy Defects Software Development Metrics Auto-Instrument
Our Motivation for Change: Project Results are Poor Improvements are needed in all project dimensions 66% NOT SUCCESSFUL 54% OVER BUDGET 70% LATE 30% CANCELLED Source: The Standish Group, 2003 5 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
and Rework Costs are High, Even for Successful Projects! Application development organizations typically spend about 40% of their development effort on rework Number of Individuals 30 50 100 200 300 500 1000 3000 People Spending $3,000,000 $5,000,000 $10,000,000 $20,000,000 $30,000,000 $50,000,000 $100,000,000 $300,000,000 Source: Derived from industry experience reports of last 10 years Your Unproductive Spending on Rework $1,200,000 $2,000,000 $4,000,000 $8,000,000 $12,000,000 $20,000,000 $40,000,000 $120,000,000 6 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Why Projects are Challenged Competing business priorities and resources Constant change, with requirements churn Evolving business processes, shorter release cycles Distributed teams and external resources Increased complexity and mixed-it environments Inability to deploy, even though developed on time Higher performance and availability expectations 7 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Additional Contributors to Delivery Failures Gaps Between Organizations Gaps Between Roles within an Organization Lack of alignment (overall prioritization and objectives) Lack of visibility/transparency Broken workflows and sub-optimal execution Lack of communication, collaboration, and information flow Exacerbated with geographic and organizational distribution of teams Platform Complexity Expensive skills required; steep learning ramp. Tools do not protect developers from complexity: huge margin for errors Lack of solid and mature pattern and process base Heterogeneity 8 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Agenda Challenges we Face Why ask the question? Choices What can we buy? Choices When should we build? Choices What should we outsource? Working with our Choices How do we do them well? Summary 9 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Consider Value for Investment Time, Money Buy, when it s standard readily available supported leverages industry experience and investment expected to be there Maximum Business Value This is table stakes to be in the game commodity soon to be open source? 10 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Discussion: What and how to buy? When would not not buy these? Operating System Office Productivity Suite Email system Database Software Employee Learning Management System Customer Relationship Management (CRM) System How do we buy? COTS off the shelf Lease, license, from an ASP 11 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Why use time and money to customize? When it doesn t quite fit, but The package is a better value than building the thing External experts can customize with less cost than we can do it There is no competitive advantage to build something unique (it s good enough ) Maximum Business Value 12 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Discussion: Extend the Checklist for Buying ID Items Regarding Buying the Software Off the Shelf 1 Have you determined that no changes will be needed to the off-the-shelf software? If not, is that cost reasonable and appropriate? 2 Have you identified any changes that will be needed to existing systems or software, if you purchase this software off the shelf? If so, is the effort required to make those changes comprehended in your plans? 3 Have you identified any changes to existing processes that will be required for the off-the-shelf software to work appropriately in your environment? If so, is the effort for making those changes comprehended in your plans? 4 Have you reviewed the requirements for the product against offerings of all significant vendors of this type of software, and have you found at least one good match to the requirements? 5 If you need to do a competitive evaluation, do you have the staff and time to do that? 6 Is the life cycle cost of buying the software off the shelf (qualification, initial purchase, transition to the organization, training for the organization, installation of updates, etc. ) less than the cost of building and maintaining the software? 7 Are there other reasons to buy this software off the shelf? 8 Have you checked to see that there is no shareware or open source that will meet your needs? 9 If there is only once source of a solution, can you afford the consequences of working with that sole source? 10 Other? 13 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Agenda Challenges we Face Why ask the question? Choices What can we buy? Choices When should we build? Choices What should we outsource? Working with our Choices How do we do them well? Summary 14 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Focus Development Effort for Business Value Maximum Business Value 15 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Justification to Build Has Many Dimensions Competitive advantage requires internal development Organization core competence reflected in software Pace of business change requires evolution by internal team Proprietary information is incorporated in the software Market demands this type of system from the organization Revenue stream favors internal development Existing systems are a main source of revenue Extensions, additional features, client-specific changes augment revenue Maintenance or tailoring provide additional revenue Integration with existing systems requires in-house expertise 16 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Discussion: Extend the Checklist for Building ID Items Regarding Building the Software Internally 1 Have you analyzed the cost and schedule impact of developing this software in your organization, to see that it is or is not cost-effective? 2 Does your organization have the capability of developing this software? 3 Does your organization have the available personnel and other resources needed to develop this software in the time required? 4 Does development of this software internally provide a significant business benefit? 5 Does development of this software internally fit the organization s core competencies? Does it fit the corporate strategy? 6 Does the customer (or marketing or others) require that the solution be built internally? 7 Is the required software an extension to existing systems, making it efficient for your organization to develop it? 8 Does the organization have all testing and deployment capabilities required to build it? 9 Considering the intellectual property rights for the software, must you build it to be able to have the rights? 10 If you build the software, will you be able to maintain it? 11 Other? 17 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Agenda Challenges we Face Why ask the question? Choices What can we buy? Choices When should we build? Choices What should we outsource? Working with our Choices How do we do them well? Summary 18 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Outsourcing is Getting a lot of Attention Organizations are using outsourcing in varied ways some as staff augmentation, with contract staff on-site or off-site some outsource the development or maintenance of a system some outsource the whole IT activity many variants and combinations of these exist Common perceptions outsourcing work costs less than performing the work internally savings are directly proportional to differences in salaries By 2005, 75% of application outsourcing for Fortune 500 enterprises will include an offshore or global sourcing component (0.7 probability). [Gartner Research] 19 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Common Business Reasons for Outsourcing 20 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Consider the Realities of Outsourcing Organizations are seldom prepared to handle outsourcing, so expectations are not met True costs are not what is generally expected In-sourcing is a trend to watch, too 21 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Reasons that Outsourcing Did Not Meet Expectations 22 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Outsourcing Costs are Misunderstood Research findings effort required and billing rates are significantly impacted by communication, dealing with culture and geographic distance effectiveness of both customer and provider organizations (technological, project management, business domain expertise) outsourcing will typically save 25% to 40% in some cases where domain expertise is required, outsourcing saves nothing effort and skill to document requirements, develop useful agreements, and manage supplier relationships are often underestimated Source: Gartner Research Note, December, 2003, Determine the Cost-Effectiveness of AD Sourcing 23 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Hidden Costs of Outsourcing Hidden Costs (as % of contract) Best Case (%) Worst Case (%) 1. Vendor selection* 0.2 2 2. Transitioning the Work 2 3 3. Layoffs and retention 3 5 4. Lost productivity/cultural issues** 3 27 5. Improving development processes 1 10 6. Managing the contract 6 10 Total hidden costs 15.2% 57% * Annualized percentage from an initial five-year cost of 1 % to 10 % of contract. ** This varies widely depending on the maturity of the offshore vendor and an understanding of cultural differences among offshore and onshore workers, as well as the rate of turnover among offshore workers and the length of the contract. (based on information from Meta Group, Gartner, and Renodis) Source: Stephanie Overby, The Hidden Costs of Offshore Outsourcing, CIO Magazine, September 1, 2003, p. 61 24 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Sources of Hidden Costs - 1 Vendor Selection documenting requirements, sending out RFPs, evaluating project leader for this effort legal fees, outsourcing advisor travel expenses to evaluate candidates Cost of Transition 3-12 months to hand off the work bringing vendor in house, paying for visas and travel keeping people on staff to transfer knowledge putting infrastructure in place at vendor site, communication lines to get there, etc. Cost of Layoffs severance, retention bonuses to keep those needed morale problems, associated costs Source: Stephanie Overby, The Hidden Costs of Offshore Outsourcing, CIO Magazine, September 1, 2003, p. 61 25 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Sources of Hidden Costs - 2 Cultural Cost - impact on productivity productivity of new workers rework caused by inability of new workers to speak up and offer suggestions dealing with new concepts not in their business cultures - more time to explain, rework lack of experience of vendor high turnover at offshore vendors, up to 35% in India [adds 1-2% to contract] communication issues, which lead to more travel or rework [2-5% added to contract] Cost of Ramping Up the processes need to have solid processes to deal with vendors who do create sound specs [can be 10% of a project] perform good testing Cost of Managing a contract invoicing, auditing duties ensure costs go to right cost center, time properly recorded Source: Stephanie Overby, The Hidden Costs of Offshore Outsourcing, CIO Magazine, September 1, 2003, p. 61 26 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
How Much Work is Outsourced? State of the CIO 2004, CIO Magazine, October 1, 2004 [544 heads of IT] 80% of respondents do some outsourcing; about 20% of the staff being external 76% do not expect to send work overseas planned change: 14% will increase and 2% will decrease non-us outsourcing Meta Group 2004 Worldwide IT Benchmark Report 2003: Average 41% of new development outsourced; 2002 was 35.9% Jupiter Research Study, cited in CIO Magazine, December 15, 2004, p. 24 252 companies surveyed about contact centers; outsourcing more prevalent at companies with high revenue (> $1B) or large workforce (> 10,000) Contact Center Operations Outsourced Contact Center Location 18% 12% 70% In House Outsource part Outsource all 29% Onshore Offshore 55% Mixture 16% 27 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Discussion: Extend the Checklist for Outsourcing ID Items Regarding Having a Supplier Build the Software 1 Is there at least one supplier available to build the software? 2 Does your organization have the expertise to develop a request for proposal and evaluate the responses? 3 Does your organization have the expertise to evaluate the capability of suppliers proposing to build the software? 4 Does your organization have the expertise to manage a supplier contract? 5 Have you identified what type of contract is required by your organizatin for this acquisition? If so, is that acceptable to your supplier? 6 Are you able to acquire the software with the conditions you require for redistribution, license, and/or use? 7 If your supplier was pre-selected for this project, is the supplier capable of building this product? 8 Other? 28 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Agenda Challenges we Face Why ask the question? Choices What can we buy? Choices When should we build? Choices What should we outsource? Working with our Choices How do we do them well? Summary 29 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Software Delivery Optimization Goals Treating software development as a disciplined and managed business process, from demand management through deployment Aligning people, processes, and technology to key business objectives Continuously evolving the capability of the organization, to maximize the business value of software 30 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Software Delivery Optimization Aspects TECHNOLOGY TECHNOLOGY SDO Undisciplined PROCESS PROCESS SDO PEOPLE TECHNOLOGY TECHNOLOGY PEOPLE PROCESS PROCESS SDO TECHNOLOGY TECHNOLOGY Amateur Software Delivery Optimization Solutions for all three components of successful development: Technology powerful tools Process coordination and discipline People ability to execute PROCESS PROCESS SDO PEOPLE Inefficient 31 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Optimization Considerations What process problems currently exist? What changes will improve process performance? What new performance standards will apply? How is process efficiency measured? PROCESS PROCESS SDO PEOPLE TECHNOLOGY TECHNOLOGY How does technology enhance productivity? What architectures and processes are enabled by the technology? How are benefits associated with technology defined? How has technology provided economies of scale? Who will be affected by the changes? Who will lead the change and what skills do they need? What communication is required and when? How receptive are users to change? What new performance measures will apply? What management practices need to change? 32 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Borland Accelerate Improvement Framework PHASES Define Goals Architect Coaching, Training, Deploy MentoringValidate the Results Approach Develop and Solution HIGH LEVEL ACTIVITIES PROCESS TECHNOLOGY SDO PEOPLE Align Executive Team Clarify Objectives Baseline Current State Prioritize Gaps Define Success Measures Develop Program Leaders Plan Program Approach Develop and Pilot Solution Develop Skills Deploy Solution Benchmark progress Validate measures Identify next steps 33 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Required Components for Change PROGRAM/ PROJECT FOCUS DRIVERS FOR CHANGE BUSINESS STRATEGY CLARITY OF DIRECTION BROAD REACH MEASURABLE GOALS PROCESS PROCESS TECHNOLOGY TECHNOLOGY SDO PEOPLE DEVELOPMENT STRATEGY VISIBLE LEADERSHIP CONSISTENT COMMUNICATION CHANGE MANAGEMENT 34 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Borland Services that Enable Solutions Strategy Seminars, Workshops, and Assessments Process, Technology, People Skills Technical Support Offerings Standard Premium Premium Plus Process Development and Deployment Services (Developing, piloting, deploying software development processes across the enterprise) Technical Account Management (On-site dedicated resource to manage program - deployments, migrations, evangelism) Application and Data Migration Services (Requirements -- Modeling -- SCM) Quick-Start Programs (Planning, Mentoring, Installation, Recommendations Requirements, Modeling, SCM,) Knowledge Base / Methods / Tools Borland Accelerate Borland University Training and Certification in Process and Technology Solution Instructor-led training, blended learning, and web-based approaches 35 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Agenda Challenges we Face Why ask the question? Choices What can we buy? Choices When should we build? Choices What should we outsource? Working with our Choices How do we do them well? Summary 36 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Summary Software delivery optimization requires an integrated strategy for evolving people, process, and technology DEVELOPMENT STRATEGY OPERATIONAL EFFICIENCY PROCESS PROCESS SDO TECHNOLOGY TECHNOLOGY CHANGE MGMT TECHNOLOGY STRATEGY PEOPLE BORLAND ACCELERATE 37 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Contact Information Dr. Joyce Statz Vice President, Knowledge Management Borland Worldwide Services Borland Software Corporation Joyce.Statz@borland.com Learn more about Software Delivery Optimization www.borland.com 38 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Backup Materials 39 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Does Outsourcing Cost us Our Jobs? Robert Reich. Jobless in America, CIO Magazine, Fall/Winter, 2003, p. 36. 2003 More than half of all Fortune 500 companies are outsourcing some software development; estimates are 80% of such companies will do so by 2005 U.S. technologies companies now pay foreign organizations $10b/year to handle data entry, analysis, customer service, and computer programming Number of IT jobs sent abroad is a tiny part of America s 10-million person IT workforce Tom Davenport. Decision Evolution, CIO Magazine, Oct 1, 2004, p. 42. Productivity gains largely responsible for 2.7 million US jobs lost between 2001 and 2004 off-shoring responsible for 300,000 jobs lost between 2001 and 2004 40 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Example Outsourcing Undone: In-sourcing at J.P. Morgan Chase Information Technology Austin American Statesman, September 16, 2004 NEW YORK: J.P. Morgan Chase & Co. says in January it will rehire 4,000 workers whose jobs it had outsourced to IBM Corp, bucking a corporate trend in information technology. The move brings to an early end an outsourcing agreement once hailed as the largest of its kind. Less than two years ago, the bank called the $5 billion deal groundbreaking, saying it would last seven years. Instead, it will last less than two years. CIO Magazine, November 1, 2004 part of reason for JP Morgan canceling may have been merger with Bank One in July 2004, after which it had a significantly greater capacity to manage its own technology and infrastructure. JP Morgan workers had been transferred to IBM during 2003 Austin Adams, now JP Morgan Chase CIO, was the CIO of Bank One, and is known for his do it yourself ethos 41 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Outsourcing in the U.S. Another Alternative Some areas of the U.S. are competitive with the India service providers Arkansas Indiana North Dakota, South Dakota... Consider the characteristics of these U.S. populations cost of living is relatively low, so salaries are lower people tend to stay in that part of the country, for family ties and various reasons culture is well-aligned with that of the clients communication problems are minimal... etc. Companies are setting up to do U.S. outsourcing in these areas 42 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Critical Success Factors for Outsourcing 1. Manage acquisition according to a documented process 2. Carefully define and document the requirements 3. Select qualified suppliers 4. Establish and maintain sound agreements between acquirer and supplier 5. Maintain ongoing communication between acquirer and supplier 6. Track and monitor results and performance to commitments 7. Test and evaluate resulting products and services 8. Maintain and support acquired software 43 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005
Typical Supplier Management Process Identifying the Needs Selecting the Supplier Procuring the Supplier Managing the Supplier Relationship Accepting the Product
Typical Acquisition Roles/Responsibilities ACQUIRER SUPPLIER Planning, Tracking & Oversight Project/Program Manager Acquisition Manager Planning, Tracking & Oversight Project Manager Requirements Engineering Architecture/ Standards Requirements Specialist Systems Engineer Requirements Engineering System Design & Development System Development Team Acceptance Testing Acceptance Test Manager System Testing System Test Team QA/CM Monitoring QA, CM Specialists Installation, Operations & Maintenance System Support 45 Copyright 2005 Borland Software Corporation. All rights reserved. 3 June 2005