Changing QA Models | Market Insights™
June 28, 2017
Market disruptions are putting existing QA models are under the microscope, compelling QA organizations to transform themselves to deliver breakthrough business value
Market disruptions are putting existing QA models are under the microscope, compelling QA organizations to transform themselves to deliver breakthrough business value
Labor arbitrage and shared services companies have had a perfect marriage over the last 20 years. Then along came the Digital Revolution with new business models and a new construct for services. One component of the digital model construct is DevOps. It makes a significant impact on business services, but it’s important to understand how it changes the picture for labor arbitrage and shared services.
Shared service companies are structured on a functional basis. One way to think about them is they are a stack of functional expertise. In the case of IT, the stack includes such functions as infrastructure, security, application development and maintenance, and compliance. There is a multiple stack hierarchy, with each functional layer having shared service champions responsible for delivering that function cost-effectively at a high level of quality. Labor arbitrage fits perfectly into this equation in that each functional layer uses people, and the work can often be done more cost-effectively offshore than onshore.
Changing talent and service delivery models are forcing enterprises to review and redefine their location portfolios
In a world where sales for IT services have been decelerating, we believe there is a $400 billion unaddressed market for IT services. A huge, attractive prize for service providers. But it requires a different business model. This blog post describes the situation.
The unaddressed market is enterprise shadow IT. By shadow IT, I mean spending on IT that doesn’t go through the enterprise IT shared services function.
Why? Because IT is too slow in responding business users’ demands for new functionalities and capabilities and is not aligned with the business needs.
Shadow IT exists not only because business users are taking the matter into their own hands but also because there are companies that are successfully serving business users’ need for quick access to functionality and capability. Who is successfully serving shadow IT? AWS is one of them, and it’s a $17.5 billion business. Rackspace also serves the shadow IT market. So do Google and Microsoft Azure along with all SaaS companies. And many small local contractors are brought in to run quick app development or maintenance projects and PC support. These are just a few examples to illustrate that there’s a big, alternative shadow ecosystem operating in parallel to enterprise IT.
What is the basis for my assessment of the market size? Let’s do the math:
This results in a $400 billion shadow IT marketplace that is currently largely unaddressed by service providers. The market may be even larger, as our Everest Group research finds shadow IT is at least 50 percent of enterprise total IT spend.
Currently, providers sell infrastructure or apps services into the enterprise IT group. That model won’t work in addressing shadow IT. Can it be done? Yes. AWS is doing it. SaaS companies are doing it. Service providers can do it, but they must deploy a different business model than they currently use. In service providers’ current model, value is associated with IT functions and delivering the lowest cost per unit for those functions. It’s the same problem enterprise IT has, as value for business users is now speed in acquiring functionalities and capabilities that meet business needs.
My advice is to deploy a DevOps model and create an integrated pod with a cloud stack and cross-functional teams that are placed into the various business departments to address their needs. Third-party service providers leveraging the DevOps model and cross-functional teams in business departments will be well positioned to capture a significant share of the huge shadow IT market.
Amidst unprecedented uncertainty, Everest Group predicts 2017 will bring continued market slowdown and technology-led disruption in sourcing
While the global services industry experienced continued growth in 2016, the pace of year-on-year revenue growth1 slowed from 4.5 percent in Q1 to below 3 percent by the end of the year, and the momentum of new activity shifted towards in-house delivery as opposed to outsourcing. In fact, setups of Global In-house Centers (GICs) reached an all-time high in 2016.
Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—predicts a continued decline in the outsourcing growth rate1 over the next one to three years, falling to as little as 1.9 percent by late 2019, as a result of macro uncertainties, technological disruptions and competition.
Sourcing activity in 2016 was marked by increased location activity that was concentrated in the top-10 locations in offshore/nearshore countries. Another prominent trend in 2016 was the growth of digital services; the share of digital services in outsourcing deals as compared to traditional services rose to 35 percent in 2016, with cloud, analytics and mobility services leading the way.
The outsourcing transactions of United Kingdom buyers neared three-year lows in 2016 as UK buyers followed a “wait and watch” approach amidst uncertainty around Brexit. Similarly, buyers in the United States are facing considerable uncertainty in 2017 regarding the Trump Administration’s approach to visa and immigration reform as well as the political climate around offshoring in general.
The sourcing industry is also facing substantial technology-led disruption. The increasing adoption of automation and DevOps; the growing utilization of IoT, machine learning and analytics; and the need for higher-skilled talent with digital expertise will be key drivers, causing enterprises to re-evaluate their location portfolios to address changing service delivery models.
Overall, Everest Group expects the preference for the in-house delivery model to increase, as it offers the potential for better risk management and control over IP, increased productivity, the ability to deliver more specialized or complex work, and other value benefits beyond labor arbitrage.
“We are seeing a definite skew toward in-house models as opposed to outsourcing, but we characterize it as a shift rather than a complete pendulum swing,” said H. Karthik, partner, Global Sourcing, at Everest Group. “Factoring in political uncertainties, the impact of technology, competitive drivers and many other dynamics in the market, we believe that in the coming year enterprises will continue to leverage both in-house delivery and outsourcing, but they will be more intentional about their location strategy and how to optimize their overall sourcing model.”
Everest Group’s latest research on the global services market explores the evolving market drivers and their implications for global services buyers and providers in two recent reports and a webinar deck available for complimentary download:
About Market Vista™
Market Vista —a subscription-based service of Everest Group—provides the research, analysis and insights that enable Global Sourcing professionals to navigate the complexity of today’s sourcing market and make informed and impactful decisions. Market Vista research includes developments related to service providers, locations, processes and sourcing models, as well as a comprehensive outlook of the fast-evolving global offshoring and outsourcing market.
1 in organic constant currency terms
DevOps as a concept has been in the market for some time now, and citations abound from the leadership of various organizations on how they have adopted DevOps successfully as part of their software implementation methodology.
But, every organization that has adopted DevOps has done so partially or almost completely on their own understanding and practice of the concept. Some suggest it as a modified form of agile development methodology, while others claim it as a simple co-location of resources with the traditional processes in place.
Here are some realities about DevOps, both for organizations that have already adopted it, and for those still sitting on the fence.
In the digital age, where faster deployment of products has become all the more important, it is imperative to develop an appropriate DevOps framework that ensures fast and easy deployment of code into the production. This framework should not only ensure a faster time to market but also affirm that the quality of the code meets or exceeds client expectations.
It has become critical for organizations to enhance the customer experience via software that meets individual customer’s expectations. DevOps as a methodology accelerates the release of this software, which is launched in form of a minimum viable product (MVP) and upgraded incrementally based on market demand.
The DevOps framework ideally should consist of the right team structure, where the development and operations teams collaborate from the beginning of the design stage to formulate an ideal system. This framework should solve old issues, such as late involvement of the operations and testing teams, which results in developers moving on to new projects while the code waits for the UAT approval before being handed over to the operations team, which in turn affects the release timing and code quality.
The framework should also incorporate guidelines on the tool stack that will help in faster code deployment while maintaining consistency across multiple environments. There are a variety of tools in the marketplace that automate DevOps testing, configuration, provisioning, and monitoring. It is highly important to choose the right tool stack that can be easily integrated, while ensuring high performance and throughput.
What are the critical DevOps underpinnings? The three pillars of reduced cost, increased quality, and lower effort are the KPIs against which the DevOps strategy should be gauged. Automated deployment of code plays a major role in achieving these objectives, helping ensure that end users get a ready to use product in a short span of time. And with the urgency with which organizations are going digital, time can equal success…or failure.
For more details on DevOps and its application, please see Everest Group’s recently published viewpoint, “DevOps: People, Processes and Products.”
DevOps, which Wikipedia defines as “a culture, movement or practice that emphasizes the collaboration and communication of both software developers and other IT professionals while automating the process of software delivery and infrastructure changes,” will play a key role in digital transformation strategies for many companies, according to Everest Group’s annual report on application services.
Infrastructure as Code (IAC) offers DevOps a lifeline, but new research reveals that IAC is misunderstood by enterprises, resulting in underwhelming returns on IT infrastructure investments.
Despite extensive enterprise adoption of next-generation IT infrastructure concepts such as hybrid cloud, software defined infrastructure (SDI) and automation, 70 percent of enterprises still lack adequate processes to help developers self-provision IT infrastructure. Moreover, more than 70 percent of enterprises do not have an IT infrastructure designed to support Agile and DevOps methodologies, according to new research published by Everest Group.
This is an unfortunate trend in the infrastructures services market, which grew by only 0.6 percent in 2015, significantly lagging the overall IT services market growth of 3 percent.
One of the reasons enterprises are struggling with achieving IT infrastructure agility is the lack of understanding about Infrastructure as Code (IAC) or programmable infrastructure.
IAC offers DevOps a lifeline by providing a comprehensive approach for automating the end-to-end provisioning and management of IT infrastructure through code, which is built and maintained based on software development principle
However, the IAC concept and its true benefits are still not well understood by enterprises. In fact, many enterprises still equate IAC with traditional IT infrastructure automation, failing to realize that IAC takes a more holistic approach to provisioning and management of hybrid IT infrastructure and requires a careful revamp of tools, processes, and people.
“As enterprises increasingly leverage Agile and DevOps principles to launch products and services faster than their competition, the need for delivering a highly agile and consistent IT infrastructure has become the need of the hour,” said Yugal Joshi, practice director at Everest Group. “An IAC approach can help enterprises realize the true potential of DevOps, but because of misconceptions about what IAC is and what it entails, many enterprises are experience underwhelming returns on their infrastructure investments.”
A new Market Insight published by Everest Group—“Infrastructure as Code (IAC) – What It Is, and Why It Is Gaining Traction”— summarizes the objectives, benefits and business implications of IAC and dispels common misconceptions about the approach. This high-resolution graphic is available for complimentary download and may be included in news coverage, with attribution to Everest Group.
A more detailed discussion about IAC is available in “Infrastructure Services – Annual Report 2016: Infrastructure As Code – It’s Not Automation!” In addition to addressing IAC, this research deep dives into the IS landscape. It provides data-driven facts and perspectives on the overall market, covering IS adoption trends, demand drivers, buyer expectations and challenges, and trends shaping the market, and also provides an outlook for 2017.
Additional complimentary Market Insight graphics stemming from this report are available for download here and include:
• Global IT services market – Key geographies 2016
• Output-based pricing is now the norm in IT infrastructure services engagements
• IT infrastructure investments not reaping expected rewards
• Anti-incumbency high in IT infrastructure services deals
Taking the message a step further, Everest Group cites recent research in warning, “No DevOps, No Digital.”
No longer a peripheral facilitator of business operations, technology must now be at the heart of every enterprise. It is time to “go digital or die,” according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing. To become truly digital, enterprises need to develop a holistic applications and infrastructure strategy, with DevOps as the pivotal enabler.
Everest Group experts Sarah Burnett, vice president, and Eric Simonson, managing partner, will discuss these findings at an exclusive event, “Go Digital or Die,” to be co-hosted by Professional Outsourcing magazine and Nasscom on June 23 in London.
Burnett and Simonson will join R. Chandrashekhar, Nasscom president, in discussing technology from the capital point of view, disruptive technology, and making the digital transition.
***More information about this exclusive networking dinner and presentation at the Royal Horse Guards Parade Hotel is available here.***
According to Everest Group’s Application & Digital Services research conducted in Q1 2016, over three-fourths of enterprises believe in leveraging digital technologies to achieve competitive differentiation.
“Enterprises that embrace digital adoption are using technology to create new business, not just enable it. For example, enterprises are discovering how IoT and mobility can dramatically improve user experiences, which is unlike the traditional role of technology for driving efficiencies in back-office operations,” said Yugal Joshi, practice director and lead on the recently published report, “Application Services – Annual Report 2016: ‘No DevOps No Digital.’”
“Digital enterprises are those that employ emerging technologies throughout the enterprise—across internal and market-facing operations,” continued Joshi. “This requires an integrated applications and operations strategy with DevOps as its pivotal element.”
Everest Group also reports that though enterprises are keen to adopt DevOps principles, most organizations struggle with them and require hand-holding on their journey. Nevertheless, this has not resulted in higher engagement with service providers, as enterprises themselves are scaling up their portfolio to meet this demand.
Other Key Takeaways from Application Services Annual Report
***Publication-Quality Graphics***
High-resolution graphics illustrating the key takeaways from the “Application Services – Annual Report 2016: ‘No DevOps No Digital’” may be included in news coverage, with attribution to Everest Group. Graphics include:
Download graphics here.
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