Align Vendor SLAs with Long Term Value

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2. Align Vendor SLAs with Long Term ValueSteven Hall Partner & Managing Director, ISG 3. Steven Hall, Partner & Managing DirectorMr. Steven Hall is a Partner with ISG (formerly TPI) and leads theManufacturing/Telecom Vertical, Cloud Computing Business Unit and the ADMService Line. TPI is the global leader in sourcing advisory. Steve brings extensiveexperience in strategic outsourcing to ISGs clients. Steves experiences include allaspects of the outsourcing advisory space, including IT Sourcing Strategy,Application Development Maintenance (ADM), Service Level Agreements (SLAs), ITGovernance, offshore delivery, project management and implementation of varioussoftware development methodologies. His knowledge derives from practicalexperience implementing global models and advising large multi-nationalcorporations in their sourcing strategies. Steve co-authored Managing GlobalDevelopment Risk, A Guide to Managing Global Software Development.Mr. Hall has extensive experience leading strategy engagements, implementingsoftware projects using a global team and establishing global sourcing models, suchas Build-Operate-Transfer (BOT) agreements and dedicated development centers.He regularly helps clients assess their outsourcing capabilities and advises them onbest practices.Steves advisory career has included support for industry leaders in the telecom,airline, financial, energy, and software sectors. During his career with ISG he hasdeveloped multi-supplier sourcing strategies, identified and developed SLAs formultiple clients, negotiated multiple large-scale outsourcing agreements, designedand implemented IT Governance structures, and analyzed a wide-variety offinancial and operational sourcing scenarios.Copyright 2012 Information Services Group, Inc. All Rights Reserved 2 4. The Power of One ISG brings together three market leaders to create an unrivalled technology insights, market intelligence and advisory services company. The worlds leading sourcing data and advisory firm. the powerA premier independentof One technology advisoryserving theThe premier independentpublic sectorprovider of business and IT benchmarking, performance improvement, data and analytics services. Copyright 2012 Information Services Group, Inc. All Rights Reserved 3 5. Business Optimization Solutions for Every FunctionWith comprehensive expertise across service areas, our consultants bring anextensive set of tools and methodologies to bear for your optimization efforts. ITService areasInfrastructure Cloud SolutionsApplications ERP SolutionsDesktop Services Global DeliveryNetwork Services IT Security Business support Service areasFinance & Accounting Facilities ManagementHuman ResourcesDocument ManagementProcurementMergers & AcquisitionsContact CentersInsurance OperationsShared ServicesBanking OperationsCopyright 2012 Information Services Group, Inc. All Rights Reserved 4 6. Copyright 2011, Technology Partners International, Inc. 7. Number of ADM Contracts Awarded by Contract Type and YearFor the last three years ADM Only engagements have exceeded the number of Bundled ADMawards by a 2 to 1 ratio, but through the first half of 2011 this gap has narrowed.ADM OnlyBundled ADM215177 137113 84 83 66 672008 2009 2010 1H2011 Source: TPI ResearchMulti-Supplier strategies are new norm. Most clients will typically have 2 to 3 ADM Service Providers.Copyright 2012 Information Services Group, Inc. All Rights Reserved6 8. Average ACV of ADM Contracts Awarded by Contract Type and Year (US$M)Average ACV of ADM Only contracts continued a trend of rising ACV through 2010 andsurpassed the recent historical range of $19 million to $21 million. The average through thefirst half of 2011 is below the 2010 high point, but it remains above 2008 2009 levels.ADM Only $24.0$21.0 $21.7 $19.0 2008 2009 20101H2011Source: TPI ResearchCopyright 2012 Information Services Group, Inc. All Rights Reserved 7 9. Number of ADM Only Contracts Awarded by Forbes Rank and YearNon-G2000 companies were responsible for the bulk of activity during 2010, followed by thetop 500 companies. There was a decrease in the number of contracts in 2010 for both thesecategories, and non-G2000 companies continued to account for about 60 percent of allstand-alone ADM awards in 2010.20082009 20101H2011123103 ADM outsourcing adoptedglobally and impacting mid-markets at increased levels. 6967 50 484516 19 14 16 14 5 4 54 5 311G1-500G501-1000G1001-1500 G1501-2000Non-G2000 Source: TPI ResearchCopyright 2012 Information Services Group, Inc. All Rights Reserved8 10. Number of ADM Only Contracts by Service Provider Type and Region, 2008-1H2011The India heritage firms have won more ADM Only contracts than any other class of serviceprovider, outdistancing the Big 5 Americas by approximately 70 percent.Big 5 AmericasBig 5 EuropeIndia Heritage Niche/Tier 2 267Indian Heritage firmsdominate the Applicationoutsourcing space157 129112102 80 59 53575950 47 2711131Americas Asia-Pacific EMEA Market TotalSource: TPI ResearchCopyright 2012 Information Services Group, Inc. All Rights Reserved9 11. Average ACV of ADM Only Contracts by Service Provider Type and Year (US$M) There were a couple of large transactions facilitated by Big 5 Americas firms that influencedthe rise in average ACV in the first half of 2011. 2008200920101H2011 $51$29$30$24 $23$24 $22 $21 $22 $19 $19 $19 $21 $17 $16$12$13 $13 $11 $12 Big 5Big 5 IndiaNiche/ MarketAmericas EuropeHeritageTier 2 AverageSource: TPI ResearchBigger deals still tend to go to the Big 5 Americas firmsCopyright 2012 Information Services Group, Inc. All Rights Reserved10 12. POLL QUESTION 1How many ADM vendors does your organizationor your client work with?1-3 vendorsMore than 6 vendors27% 29% I dont know4-6 vendors 12%32% 13. Shifting $s to New Development is Top PriorityCost savings remains the #1 Goal for moving to a global delivery model butorganizations are really trying to shift costs from Run the Business (RtB) to Changethe Business (CtB)Copyright 2012 Information Services Group, Inc. All Rights Reserved12 14. There are challenges shifting to a Change the Business Model High defect rates and poorly constructed code results in higher maintenancecosts (Technical Debt) Poor documentation results in extended knowledge transition periods Lack of standards and ITIL processes result in poorly defined scope formaintenance activities Lack of clear measurements to determine size of portfolio (e.g. Function Pointsor Use Case Points) results in over-estimating maintenance effortThe goal is to increase Productivity and Improve Software QualityBroader adoption of software tools to provide automated function points counts, provide technical insights, and increase software quality are criticalto successfully moving to CtB model.Copyright 2012 Information Services Group, Inc. All Rights Reserved 13 15. Four Levers to Improve Application Productivity Resource Levers Reduced Headcount / Managed Attrition / Increased Skills / Increased Longevity Financial Levers Operational LeversImproved SLA Driven ManagedRate Card Improvement Application Services Spend is theReduction of Rework /Rate Card Conformance Goal Increase in QualityReduced Vendor Supplier Role & CostUtilizationOptimizationIncreased Location$$ Supplier / ContractEconomiesRationalizationIncreased DeliveryTime Improved OperatingModel Efficiency ProcessesApplication Levers Application Rationalization / Increased Quality / Improved Maintenance EfficienciesCopyright 2012 Information Services Group, Inc. All Rights Reserved14 16. POLL QUESTION 2Do your outsourcing/customer SLAs include metricson the technical quality of code being delivered? Never9%Ad hoc I dont know 11% 35% At the end of a release 27% At every build18% 17. Balancing Functional and Structural Quality Lowers Mx CostsFunctional Testing ensuresStructural Quality ensures thethe Business Requirements resiliency and long-termand core functionality worksmaintainability of the codeas expected (improves overall TCO)Defect Injection Technical DebtDefect Detection Code Quality IndexTest Coverage Structural Quality lowers theBuilt on Base of Quality long-term maintenance costsprocesses (CMMi) of applicationsIn a multi-supplier environment, all parties must be incented to lower long-term application support costs!Copyright 2012 Information Services Group, Inc. All Rights Reserved16 18. The key SLAs are driven through Primitive MetricsPrimitive MetricDescriptionSample SLADescribes the conformance to internal quality standards andISO 9126, SEI, CISQ, standards,Quality KPIs set by the customer organization. best practices Defect Injection RatesDefects Describes a non-conformance to a baseline requirementDefect Detection Rates Structural QualityDescribes the total development time from start of a task to the Milestones on time Schedule end of the task based on a standard unit of measureSchedule Performance IndexDescribes the amount of effort expended to complete a specific Productivity MetricsEfforttask or work product using a standard unit of measure(FPs/Developer, Complexity Matrix, +/- 10% of estimate) FP Counting IFPUG 4.1Describes how big the application or work product is using aSizestandard unit of measure SLOC Counting IEEE Use Case PointsDescribes the cost associated with a project, application, +/- 10% of Budget Cost development phase or category of workCost Performance IndexDescribes the number of resources, skills, and experience levels Retention rates Staffassigned to an engagement activity.Experience and SkillsDescribes the volatility of an item during a softwareWork Order EffectivenessChangedevelopment phase or period of time. Degree of ChangeCopyright 2012 Information Services Group, Inc. All Rights Reserved 17 19. POLL QUESTION 3Do your outsourcing/customer SLAs include metricson the technical quality of code being delivered?I dont know Yes10% 26%No 36%Sometimes 28% 20. There are also multiple disruptive trends impacting outsourcingDisruptive TrendsBusinessSaaSIntelligence/CloudAnalyticsComputingBaaSSocial MediaMobility Web 2.0 ComputingPace of ExecutiveU.S. Policies CommoditizationChanges Global Global PoliticalTalent EconomicsRamificationsDemographics Mobile / Cloud Computing will change the notion of sourcing locales Virtual Sourcing Models will evolve over time and change how we interact.Copyright 2012 Information Services Group, Inc. All Rights Reserved 19 21. Implement a Managed Service ModelThere are multiple operating models used when implementing a managed service in theADM environment. Though the operating models are important to the overall strategy,each contain three (3) basic components that support the managed service model.Attributes of an ADM Managed Service Agreement Defined Services (SOWs) and SLAs Statements of Work specify the What notthe How. Defined Service Levels withmeasured performance goals aligned to theServices Defined Pricing - Fixed Price modelsw/variable component that allows ramp-upand ramp-down of costs based on volumeand need Defined Risk Model - Manage overallsourcing risks via Product Quality risks (is itsupportable in a production environment),Contract terms, Skill mix, Onsite/offshoreratios, geographical locations, etc.Copyright 2012 Information Services Group, Inc. All Rights Reserved 20 22. Top 5 ADM Success Factors P1 1. Clearly define the ADM Services into three (3) main categories and,from a cost perspective, manage these categories separatelyMaintenanceMinor EnhancementProject Based work 2. Define a retained organization that is aligned with the strategyBusiness liaisons coordinate between business and IT leadersProgram/Project Managers retain to manage large programsArchitecture - client drivenBusiness Analysis understands business and requirementsService Delivery Managers - manages the sourced relationshipDevelopers & Testers support retained applications and some subject matter expertsCopyright 2012 Information Services Group, Inc. All Rights Reserved21 23. Top 5 ADM Success Factors P2 3. Define end-to-end Service Level Agreements to incent suppliers towork with each other in a multi-supplier environment 4. Embrace CMMi process makes a differenceService Levels and Quality goals are often aligned with process maturity the more mature organizations can be contractually obligated to deliver higher quality codeProcess adherence drives repeatability and productivity improvements incent Service Providers to operate at CMMi Level 3 or higher with committed productivity improvementsConduct on-going operational assessments to ensure process adherence 5. Use Key Performance Indicators (KPIs) and dashboardsEarned Value Analysis (EVA) using Schedule and Cost performance indexDefect injection and probability statistics for software qualityStructural Quality, regression testing, defect detection, and test coverage ratiosCopyright 2012 Information Services Group, Inc. All Rights Reserved22 24. Summary 1. ADM Outsourcing market continues to expand wide adoption atG2000 and mid-market levels 2. Indian Heritage Service Providers are winning a large % of new business 3. Challenges shifting cost from RtB to CtB will continue to impact sourcingmodels and provide opportunities for software vendors 4. Mega-trends such as cloud computing, social networking, and dataanalytics will have broader impacts on ADM outsourcing 5. Implementing best-practices, including structural quality, providesroadmap to successful implementation of global modelsCopyright 2012 Information Services Group, Inc. All Rights Reserved 23 25. CAST Application Intelligence Platform (AIP) Overview 26. Market Leader in Software Analysis & MeasurementAmbitious Introduce fact-based transparency into application development and Missionsourcing to transform it into a management discipline Broad market presence in Europe & North America Rock Solid Strongly endorsed by software industry gurus and long term investors Foundation $100 million of investment in R&D, driven by top talent in computerscience and software engineering Pioneer and recognized market leader in Software Analysis &Market LeaderMeasurement (SAM) since 1999Cool Vendor in Application Services 2011IT services providers need to care because they will soon see a growingnumber of their deliveries measured by CAST metrics.- Helen Huntley, Research VP, Gartner 27. Analyzing, Measuring and Benchmarking IT Software AssetsKey Application Software Characteristics Software Analysis & Measurement ServicesRisk Drivers Software Quality Gate Robustness Parallel process to system testing Performance Pre-production structural analysis Security of mission critical softwareCost Drivers Transferability ChangeabilityApplication Assessments Maintainability Investigation of troubled projects, persistent application issuesAlerts, trending, Pre/post M&A due diligenceroot cause analysis Deep analysis of cost/risk driversSizing Metrics for Productivity Tracking Benchmarking to Like Applications AutomatedFunction Point Changes Due to a Sequence of Unique repositoryFunctionChange Requestsof structuralPoints40 13523 4 5 quality metrics# Function Points Technical 3025 Compare to20sizing1510 similar apps at Effort 5 0 industry peers 050100150 200estimation Cumulative Effort (Staff Hours) 28. CAST Inserts Actionable VisibilityCAST Application Intelligence Center CxO & VP, Dashboard, reports CAST Application Intelligence PlatformTM AI Management Studio Knowledge Base Approx one thousand rules and best practicesPM, QA, Architects Decade of software engineering Std enforcement expertise Early ID of violations CAST Application Analysis Engine Drill down to root cause CAST Native CAST UA3rd partyAnalyzers (28)scriptsanalyzersDelivered Source Code: Dev Teams, Suppliers CICS, IMS, COBOL, DB2 z/OS, PL/I Arch. visibility / Quick wins J2EE, .NET and all Major RDBMS Software engineering expertise Web Apps, BI, EAI, C/C++, VB, PB Continuous training/coaching Siebel, SAP, PSFT, OBS, Amdocs 29. Tangible and Measured Value Mitigate business risks with improved structural quality Better applications for higher business resiliency and continuity Risk-proofed projects more likely to deliver business benefits on time Make IT and suppliers more productive Eliminate waste in ADM Prevent coding errors in development: 10x savings in rework per coding error Keep technical debt from growing: up to 10% saving in maintenance cost Benchmark then optimize resources: maintenance savings potential Better reuse of frameworks and components: up to 10% of dev budget Reduce waste in operations Improve efficiency of large complex transactions & batch processes: up to 5% mips Reduce troubleshooting and rollover costs: lower Ops staff overtime Apply consistent measurement & KPIs for superior visibility Up to 10% of ADM budget, esp. ADM outsourcingApplying the principles of lean manufacturing to ADM can increase productivity by 20 to 40 percent while improving the quality and speed of execution.- Ranjit Tinaikar, Principal, Head of NA IT Management Practice 30. Market Leader and Pioneer250 Global Leaders Rely on CASTSIsUse & Promote CASTSIs Resell CAST Industry Groups Engage CASTKey Influencers Recognize CAST 31. Q&A 32. Contact Information Lev LesokhinSteve [email protected] [email protected] www.castsoftware.comwww.isg-one.com blog.castsoftware.com considerthesourceblog.com@OnQuality@isg_news slideshare.net/castsoftware 33. L a nmo ea o t A T err bu C Sw w c ss f aec m w .a tot r.owbo .a tot aec m lgc ss f r.o ww w fc b o .o c so q a t w . e o kc m/a tn u lya iw w sd s aen t a tot ae w . ie h r.e/ ss f r l cww w t ie.o O Q a t w . t r m/ n u ly wt c i