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CIO's guide to outsourcing application development and management

Application outsourcing will lead enterprise CIO agendas again next year, with IT application development and management services in high demand. Learn more in this guide.

IT outsourcing and managed services are ramping up as the recession appears to be residing. Enterprise CIOs are...

looking to globalize, re-engineer processes and cut costs, and analysts and practitioners say IT application development and management will remain among the most-requested services for IT outsourcing and hosting services in 2010.

In this guide, find the latest stories from SearchCIO.com examining emerging trends and best practices in outsourcing and offshoring IT application development and management. Learn how to set decision points in the application outsourcing process, manage risk in application outsourcing and insource previously outsourced application work.

This guide is part of SearchCIO.com's CIO Briefing series, which is designed to give IT leaders strategic guidance and advice that addresses the management and decision-making aspects of timely topics. For a complete list of topics covered to date, visit the CIO Briefing section.

Application outsourcing trends

Fewer organizations expect to outsource IT application development in the coming year, due to concerns about cost and time overruns and a wish to keep initial application work in-house, according to recent research. But more firms, such as Nokia Siemens Networks B.V., are looking to outsource IT application management and maintenance as a cost-saving measure.

Telecom giant Nokia Siemens Networks recently signed a three-year IT application management services agreement with consulting and outsourcing firm Accenture PLC. Under the terms of the agreement, Accenture will manage applications related to Nokia's human resources (HR), finance and control functions, as well as Nokia's corporate-wide tools and platforms. IT application management around these functions was previously outsourced among a number of vendors.

Nokia Siemens CIO Manfred Immizer said the outsourced management services include maintenance, monitoring and enhancements for Nokia Siemens' systems where appropriate. Outsourcing these applications in bulk provides an economy of scale such that "the cost reduction compared to the baseline we have today is very significant," he said.

Learn more in "Outsourcing IT application management on rise for 2010; here's why." Also:

  • Firms to turn to IT outsourcing for global growth in economic recovery
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  • Enterprises look beyond Gmail, cloud for email outsourcing services
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  • Need for speed driving midmarket adoption of IT outsourcing services
    The midmarket's adoption of IT outsourcing services is increasing as the economy begins to recover, with Software as a Service (SaaS) deals in the five figures and skills augmentation topping the list.
  • SaaS, cloud computing lead to cuts in application hosting pricing
    Analysts expect application hosting pricing to decline due to cloud computing and SaaS, but not everyone will be able to renegotiate their contracts. Here's what's going on.
  • CRM outsourcing attractive in recession
    CRM outsourcing is getting a closer look as companies seek to cut costs.

Decision points in application outsourcing

During a session at Burton Group Inc.'s Catalyst Conference, Amylin Pharmaceuticals Inc. CIO Steve Phillpott explained how he laid the groundwork for cloud computing services, both in IT and beyond. We present it here in a to-do list format along with his experience.

Assess IT software assets, then consider putting commodity and standalone applications in the cloud. The IT team built a chart that showed business users which applications they thought were differentiators and which ones they thought were commoditized and explained why applications they viewed as commodities were better suited for cloud services like email for LiveOffice. Standalone applications like HR/benefits and sales analytics were also better suited for the cloud.

"We explained that these were applications and systems that did not have a lot of interaction with other ones and were more suitable to the cloud," he said.

Learn more in Laying the groundwork for cloud computing services adoption in 6 steps." Also:

  • Recession-proof apps strategy starts with business drivers, not vendor
    Building a recession-proof application strategy starts with identifying business drivers, not the vendor, according to a Forrester report.
  • Enterprise application integration: Beyond SOA and into the cloud
    CIOs look to enterprise application integration to coordinate and consolidate. Learn how to use service-oriented architecture, cloud computing and application integration providers to your advantage.

Minimizing risk and improving relationships in application outsourcing

To minimize application development outsourcing risk, more enterprises are writing stricter rules into their outsourcing statements of work. These cover how the developers working on an application development project can share project information. "Companies are adding contract restrictions on how and where their project details can be discussed because of the [blogosphere]," said Tim Vibbert, a former enterprise architect for a large outsourcer as well as an internal architect for large companies.

And enterprises should hold their primary application development outsourcing partners accountable for enforcing such communication restrictions among their subcontractors as well, he said.

That brings up a pretty significant concern when trying to manage application development outsourcing risks: Who, exactly, is working on your project? "When you work with a large outsourcer, they may be outsourcing pieces of the app dev project to specialty firms, so make sure you're aware of that," Vibbert said.

Learn more in "Managing application development outsourcing risks." Also:

  • Disruptive application outsourcing: Flexibility at a fixed price
    A new outsourcing model touts flexible terms at a fixed price and improved relations with the business.
  • How to build IT innovation, flexibility into your IT outsourcing deals
    Learn how to draw IT innovation from your IT outsourcing vendors and structure your contracts to cover new technology models like cloud and SaaS.
  • Seven Security Questions to Ask Your SaaS Provider
    Outsourcing SaaS puts control over an organization's applications in the hands of others. Learn what questions to ask your provider.
  • Outsourcing and offshoring in a recession more flexible, panelists say
    Outsourcing and offshoring activities in a recession thrive on flexibility from both clients and providers, according to panelists at the 2009 MIT Sloan CIO Symposium.

Insourcing IT app development and management

IT organizations looking to insource their application development or management need to assess how close they want to be to their data, and have an honest conversation with their vendors about the transition ahead.

Insourcing, or bringing previously outsourced IT functions back in-house, is on the rise, experts say. In the application sphere, insourcing is happening in "individual pockets," usually stemming from dissatisfaction with service delivery, according to Dane Anderson, a research vice president in the IT services and sourcing group at Gartner Inc., a Stamford, Conn.-based consultancy.

The vendor is usually not solely to blame for this dissatisfaction. "Often it isn't due to poor skills, but poor outlining of the requirements," Anderson said.

In addition, IT organizations usually cite the need for engagement with the applications as a primary motivator for turning to insourcing. "The client business changes the level of intimacy or proximity that they need to have," said Ben Trowbridge, CEO of outsourcing consulting firm Alsbridge Inc.

Learn more in "Insourcing IT application development and management: A how-to guide." Also:

  • IT insourcing can bring jobs, cost savings back in-house, experts say
    IT insourcing is on the rise as companies terminate IT outsourcing contracts or let them expire. Here's why, and whether it might work for you.
  • Cloud computing helps firm bring call center in-house, integrate apps
    Cloud computing allows a firm to bring its call center in-house to improve customer service, plus integrate applications and provide executive dashboards. Here's how.

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I have a bit different opinions on this. Since more and more non-tech entrepreneurs are boarding the train internet entrepreneurism. They are always in search of tech cofounder who can run the technical stuff associated with their product along with them. But most of the time they end up finding no tech cofounder. That's when they look towards outsourcing application development and its costs. Which I think is perfectly fine as long as you are hiring the right outsourcing firm that understands your product and thinks on the same frequency as you are.
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