The next generation of product development will require wholesale change to the types of skills companies need. As my colleague James Staten recently wrote, an earthquake in Silicon Valley is turning every company into a software vendor. It is this notion, that every company becomes an ISV, that will profoundly change the nature of business, and in particular product development:
Software, and customers interaction with that software, now defines companies and their brands.
Developing software-enabled products requires sophisticated technology and architectural design skills. This presents tremendous challenges — even more so for companies for whom technology is not in their DNA.
Companies must look in the mirror and evaluate if they currently have the skills and expertise to navigate this new environment. In this new world where customers interact with you through software, do you have the skills to develop products and services which will create intense and enjoyable customer experiences?
Improving the use of data and analytics is a top strategic priority for many companies. But organizations face major challenges ramping up their information management capabilities — in particular due to the combination of a brutal proliferation of new or enhanced technologies, emerging data sources, and difficulty in finding skilled people with the appropriate experience. As a result, companies are increasingly looking to service providers for help.
Please note that we use the term “data services” to refer to broader engagements (including data delivery, analysis, management, or governance-related services), while “data management services” form a smaller subset of services relating to finding, collecting, migrating, and integrating data.
Here are three of the key findings from our research:
More than two-thirds of organizations expect their spending on data management services to increase; 41% stated they expect spending to increase 5% to 10% in the next 12 months.
Central and Eastern Europe (CEE) continues to garner interest from services buyers. Earlier this year, I wrote a report called “A New Dawn For Tech Services In Central And Eastern Europe” that highlighted how the region will become increasingly attractive to companies, as the skills and capabilities to be found there will be ever more important for the next generation of technology engagements. Such engagements will focus on developing software that will empower customers, partners, and employees with context-rich apps, helping them take action in their moment of need — what Forrester calls "systems of engagement."
Six months ago, Luxoft, one of the key providers in the region, announced its IPO. Last week, it released its first half-year results, and so it seemed an opportune time to reflect on both the region and the progress made by Luxoft so far. The highlights of Luxoft’s results are:
Revenues of $181.4 million for six months to September 30, 2013 (up 25% year-over-year).
Second-quarter revenues of $97.7 million compared with $74.1 million for the same period a year earlier.
Increased guidance for fiscal year 2014 to $384 million.
Major industry dynamics such as digital disruption are causing chaos and upheaval even in mature industries. To help navigate the changes that result, companies are placing an ever greater premium on data-driven insights. Put simply, the management and effective utilization of data have become essential for competitive survival — but the growing volume and diversity of data leave companies scrambling to effectively and efficiently manage, govern, and utilize it. Companies face four main data management challenges at the moment:
Highly skilled and experienced resources are expensive and difficult to find.
New technologies, such as SAP HANA or Hadoop, are challenging existing capabilities.
New sources of data are rendering existing information infrastructures inadequate.
Companies still lack maturity in managing and analyzing their data. For example, few companies have a fully-fledged information management strategy (just 13%, according to Forrester’s Q2 2013 Global Information Strategy And Architecture Online Survey).
Historically, one of the main segments of the product development services (PDS) market has been software product development for independent software vendors (ISVs). My colleague John McCarthy and I have just published a report that outlines how this market is undergoing a significant shift as it splits between serving the traditional ISVs and serving what Forrester refers to as “software-is-the-brand” companies.
Software-is-the-brand companies are those firms in industry sectors like financial services, retail, information services, and media and entertainment that are seeing more and more of their business value coming from their software-based products and services. This new segment will comprise the majority of growth in the software PDS market over the next four to five years.
This growth will occur as these companies increasingly require high-end product development capabilities for what, in many cases, were seen as traditional IT projects. My colleague Christine Ferrusi Ross recently wrote how technology has become the supply chain for these software-is-the-brand companies because it is the “raw material” that allows today’s products to be built. Frequently, however, these companies need help from service providers to acquire the appropriate skills and expertise to handle the current complexity and speed of technological change.
Since 2010, when Forrester asks about organizations’ top software priorities, the number one ranked priority has been business intelligence (BI). Continued economic uncertainty and major industry-changing dynamics like mobility and the shift to digital business put a premium on data and information. The ability to effectively extract, analyze, and interpret vast quantities of data has simply become critical to business strategy decisions. Investments in BI analytics reflect the importance being placed on these technologies.
However, the large number of analytics technologies at differing levels of maturity and adoption has, in many cases, left planners of BI confused as to which technology should be adopted and for which scenario.
As a result, my colleague, Holger Kisker, and I used Forrester’s TechRadar methodology to examine 15 key analytics technologies to identify their usage scenario, current maturity within the enterprise, future trajectory, key vendors, as well as estimated costs for implementation. The technologies analyzed included the following: reporting, dashboards, performance analytics, embedded analytics, web analytics, process analytics, predictive analytics, OLAP, advanced visualization, metadata-generated analytics, location analytics, search/discovery, streaming analytics, nonmodeled data exploration and discovery, and finally text analytics. Forrester clients can read the full report here.
In 2011, Forrester first reported on a new breed of mature and collaborative product development services (PDS) offerings coming to market, which we called “product development services 2.0.” These services are a stark contrast to traditional staff augmentation engagements. How are they different? Providers take greater responsibility for the end-to-end life cycle of the product, promise a higher level of industry and domain expertise, and offer a value-add service addressing key client business concerns. The transition has been gradual up to now, but there are finally signs of a more rapid shift.
One of the key announcements made in recent months was HCL’s launch of its “Service Line Unit” (SLU) initiative. Here are the key elements of this initiative:
•SLUs are a packaged set of PDS offerings, bringing together relevant HCL tools, partnerships, processes, and delivery competencies to address specific pain points.
•In developing these offerings, HCL systematically investigated the white space and the key business challenges in its chosen target markets. In turn, it invested in building out its own IP and domain knowledge to address these challenges.
•Ultimately, these investments and the targeting of specific business concerns will help HCL frame its service offerings in the context of key business outcomes, such as time-to-market.
I recently returned from attending the opening of Belatrix Software’s new office in Lima, Peru, where I was also able to meet with representatives of the Peruvian Association Of Software Producers (APESOFT), which aims to promote the software industry in Peru.
I was keen to travel to Peru to gain a better understanding of one of the fastest-growing Latin American economies, as well as to put this growth into the context of its technology industry. Peru was recently ranked fourth in Bloomberg’s list of the top 20 emerging markets, just behind China, South Korea, and Thailand but ahead of other prominent Latin American destinations such as Mexico and Brazil. It is rated as one of the most attractive Latin American markets for doing business.
Peru has one of the fastest-growing economies in Latin America, and although GDP growth has recently slowed slightly, its forecast for the medium to long term is positive. Although by total size, it is dwarfed by Brazil (whose GDP is approximately 14 times larger than Peru’s), the IMF is expecting continued growth at approximately 6% in 2013 and 2014.
However, despite its fast-growing economy, Peru’s IT market is one of the smaller and more nascent Latin American markets. Forrester estimates that total Peruvian IT purchases in 2012 were $2.5 billion — compared with $23.4 billion in Mexico and $46.5 billion in Brazil.
IT services buyers are changing their buying requirements. Increasing demand for technologies that drive business innovation agendas, from cloud to analytics to mobile, is creating dramatic upheaval in the technology services market. One result of this, is that while organizations are looking to consolidate their supplier base in traditional service areas like applications outsourcing, buyers are looking to a broader range of providers to acquire specific expertise for these innovation-led engagements.
In light of this shifting backdrop, there is an argument that this will present opportunity to some of the so-called “alternative offshore” locations beyond India. In other words, buyers will look to other regions to try and find some of these specific skills and resources.
My recent report examined this with respect to Central and Eastern Europe (CEE).
The services market in the CEE region remains highly fragmented, with a large number of relatively small providers. However, the region does have a set of key strengths which will position it strongly in the minds of buyers as these broader technology shifts take place. In particular:
Aspirations of young digital natives in the region to become programmers or engineers
Educational systems focused on key strengths in engineering, math and science
Leading providers focus on high-end software engineering with expertise in agile development
Leading providers focus on product development services which helps differentiate from traditional IT services
While not the top priority, more than a quarter of respondents to Forrester’s Forrsights Services Survey, Q2 2012, stated they were looking to implement or expand their use of offshore resources. Motivation for new offshore geographies is driven by a range of factors, from seeking new sources of talent to risk mitigation, cost savings, innovation, and local market knowledge and access.
My recently published report analyzes the attractiveness of the three largest economies in Latin America as outsourcing locations: Brazil, Argentina, and Mexico. Latin America presents an attractive location, particularly for US and Canadian companies. However there is wide variation in the suitability between different countries. Some of the high-level findings of the research include:
Brazil has clear strengths with its size, scale, wealth of IT skills, and array of local service providers such as BRQ, Ci&T, and Stefanini. Most service providers are focused on the domestic market, however, and don’t have the same export focus as providers in other countries. In addition, overly complex legislative and bureaucratic hurdles, as well as, to some extent, language issues, continue to prevent it from reaching its potential. Ci&T however is one exception, providing a model for Agile development and entrepreneurship.