Executive Summary: ISG Provider Lens™ Next-Gen Application Development and Maintenance Services - U.S. 2021
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The COVID-19 pandemic seemed to benefit the application outsourcing and testing services market in the U.S. following some initial hiccups. Many service providers registered higher single-digit growth for their applications and testing businesses, with some recording double-digit growth rates. They learned to work remotely through virtual meetings, instant messaging and cloud services for collaborating and by closing business deals over the Internet. They also re-structured their contracts to provide more financial flexibility and outcome predictability to enterprise clients.
At the same time, many enterprises embarked on a journey toward agile modernization and transformation to address the various challenges associated with supply chain, customer engagements, workforce collaboration, and product and service delivery among others. They are keen to understand the structure of distributed teams in the solution-building phase and visualize new ways of working with live hackathon or day-in-the-life-of (DILO) sessions. There is now a greater focus on practices, processes and culture, including tooling, performance measurements and people and team dynamics.
While delivery became mostly virtual and remote, most providers in the U.S. are seeking to enhance their onshore or nearshore resource counts. Apart from working toward returning employees to the workplace, they are aiming to overcome time zone differences. This can be seen as a hedging strategy to maintain business continuity across regions that are experiencing the ill effects of the ongoing pandemic at different points in time.
For application outsourcing engagements in the U.S., many providers have built accelerators and their own tools and platforms to expedite the continuous integration and continuous delivery (CI/CD) pipeline, application releases and DevOps integration. The commercial off-the-shelf (COTS) product-set for DevOps is continuously expanding, and providers are training their resources on these technologies. This study finds that less than 50 percent of agile development teams are using DevOps successfully. Providers with robust methodologies, established processes and hands-on experience on automation tools are performing better than their counterparts that fail to provide these aspects as part of their service delivery.
Application transformation deals are falling at the intersection of business services, applications and infrastructure services with focus on cloudification of data. Transformation exercises are encompassing every aspect of an application that can enhance an organization’s ability to solve business challenges and harness opportunities through meaningful digital solutions. Experience centricity has also become a top priority for CXOs to drive business outcomes.
As part of transformation initiatives, enterprises are expecting service providers to coach, train and upskill their employees on new ways of working and next-generation technologies. They are also seeking services associated with migration, platforming and modernization. Cloud adoption and modernization are becoming an integral part of most application transformation deals. Enterprises are now inclined to elevate their engagement maturity by tracking business KPIs and outcomes as part of their application development and maintenance (ADM) strategy.
The three facets of application outsourcing, namely application development, application management and application testing, are undergoing the following key changes:
Application development imperatives:
- Business models are rapidly evolving by leveraging open ecosystems and architectures based on application programming interfaces (APIs) and microservices.
- Service providers are moving from a project-based to a product-based thinking approach. They support customer journeys with the integration of highly efficient features while leveraging and developing their domain knowledge.
- Enterprises are experimenting with low-code/no-code platforms to quickly provision applications that can solve operational challenges. One such example involves introducing new collaboration features for teams working from home.
- Clients are embracing BizDevOps, which refers to productized application teams that can manage the cradle-to-grave journey of applications.
- Given the escalating risks in the software supply chain, enterprises are seeking a practical approach to scale security across the application lifecycle. Discussions around security with a focus on complying to industry standards are given particular attention during pre-sales and solution cycles. KPIs linked to security and specific roles and processes for managing it across the application lifecycle are also given being prioritized.
Application management imperatives:
- DevOps is expanding to DevSecOps, BizDevOps, AIOps for security focus, business alignment and operational excellence, respectively.
- Robotic process automation (RPA), IT process automation (ITPA), bots, AI and machine learning are increasingly being adopted to drive efficiency and effectiveness. Industrialization with virtual or remote delivery models is also gaining significant traction.
- There is better business outcome alignment and zero disruption across hybrid landscapes with the growth of the everything-as-a-service model. This is driven by more flexible contracts and commitments of suppliers, augmented service-level agreements (SLA), end-to-end business metrics, and user satisfaction.
- Clients are focused on optimizing application maintenance costs through zero defect and self-healing strategies. They are also adopting AIOps, continuous testing, DevOps tool chains and site-reliability engineering (SRE) principles.
- Many clients are following a multi-cloud strategy to avoid a lock-in with cloud service providers and leverage the best from each of them.
Quality assurance and continuous testing space imperatives:
- The market is moving toward an AI driven, end-to-end test automation template that enables enterprises to achieve rapid digital maturity and accelerate delivery.
- As digital adoption increases over the next three years, continuous (automation) testing services will mature. This will be driven by the increased orchestration with plug-and-play capabilities, embedding of intelligence (AI and machine learning), incorporation of shift right through the integration of customer feedback and production analytics and test ops, and cloudification of quality assurance by moving test assets to the cloud.
- The quality engineering and application realm is expanding significantly to include testing associated with IoT, quantum computing, AI, machine learning, security, big data and analytics, blockchain, resiliency, test advisory and QE transformation programs.
- The demand for domain specialized testing talent is increasing at a significant pace.
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