For decades, conventional wisdom suggested that packaged applications would sally forth from their cross-industry...
strongholds and roll up the fragmented applications landscape supporting industry vertical processes.
However, a recent Forrester survey of IT executives in charge of application development and delivery at more than 30 large enterprises discovered that applications portfolios exhibit increasing emphasis on custom applications.
In fact, 36% of respondents claimed to run 100 or more major custom apps in their datacentres today, while only 15% claimed to run fewer than five (Figure 1).
That said, spending on custom applications remains modest. Only 18% of respondents claimed to devote between 25% and 50% of IT spend to developing and maintaining custom apps, while 30% claimed that custom apps account for less than 10% of IT spend.
This partly reflects the fact that firms rightly target many custom applications to support limited user communities in highly differentiated specialist processes.
Application development and delivery professionals have observed with great interest the introduction of rules engines and business process management (BPM) and enterprise content management layers into the architecture of both custom and packaged applications, given their potential to speed app delivery and increase flexibility.
They also wonder whether agile development, open source, dynamic case management, and the continuing evolution of service-oriented architecture (SOA) may shift the balance between custom and packaged enterprise apps.
But Forrester interview data suggests that anticipating more than a marginal shift is premature. Firms implement applications packages to reduce risk, since application packages are already tried and tested. Most importantly, packages embody the accepted wisdom about the way to execute common business functions and avoid the risk to organisations of devoting eccentric idiosyncratic inventive effort to undifferentiating processes.
Packages allow them to economise on in-house resources, since they usually require less time to implement, reduce time-to-value and fix initial costs. Finally, packaged apps come with supplier support and training, whereas the application delivery organisation has to provide support and training for custom applications.
Use innovation to break the impasse
New technologies, architectures and delivery practices offer opportunities for IT to help firms differentiate their offerings.
But to mitigate risk and reduce long-term costs, application development and delivery executives should consider how to combine the staunch predictability and domain mastery of standard packaged applications with the agility of new technologies, architectures and delivery practices. When considering how best to meet explicit or latent application demand they should consider the:
- Nature of the process to support. Some processes are well-defined and offer little opportunity for differentiation against competitors. Well-accepted or highly prescriptive process definitions make it highly likely that the most effective choice will be packaged rather than custom;
- Available technologies. Where the technology is raw and not yet packaged, it is likely that only the very largest firms with IT R&D budget will be able to afford the experimentation necessary. Even then, this will be economically attractive only for the most highly differentiating apps, such as in-store personalised promotions;
- Rate of product/service offering innovation. Where product and service offerings have extremely long lifecycles, as in life insurance, for example, there will be less scope for custom apps development to contribute to differentiation compared with investment banking or digital entertainment where custom apps development of new and perhaps customer-specific or market-specific offerings could be critical;
- Proportion of digital content in the product offering. The greater the digital value in the offering, the greater the opportunity to differentiate with custom apps development. Sometimes the digital value is the know-how to deliver a system of planning and control that enables a supplier of even the most commoditised merchandise to run at a profit in a highly competitive market;
- Channel innovation. Where channels to market are restructuring, there may be more opportunity for custom apps to add value to a firm's offerings.
To mitigate risk and reduce long-term costs, application development and delivery executives should consider how to combine the staunch predictability and domain mastery of standard packaged applications with the agility of new technologies, architectures and delivery practices
George Lawrie, Forrester Research
Focus your custom application development where it makes a difference
Forrester recommends IT executives in charge of application development and delivery to take the lead, together with their enterprise architecture and business process colleagues, in driving a digital differentiation strategy that strikes the optimum balance between custom and packaged apps, given the technologies and skills available and the market offerings of their firm.
Working together with their colleagues, they should first of all prioritise processes that offer most potential from custom apps. They should lobby to establish a review body to agree on the processes and supporting apps that offer the most opportunity for competitive differentiation. The work of this review body should also inform the firm's portfolio management and application strategy process, in concert with business leaders who own and set investment priorities.
Then, to capitalise on competitively differentiating custom applications opportunities, application development and delivery executives should secure a budget to monitor the viability of new and emerging technologies. They should also establish a "sandbox" budget for training developers and testing the viability of new technologies and architectures and for developing the business case for integrating them into support for differentiating processes.
George Lawrie is vice-president and principal analyst at Forrester Research Inc. He serves application development and delivery professionals and covers topics such as IT investment prioritisation and packaged applications. He is also the author of Forrester's custom versus packaged apps opportunity assessment and blogs at: http://blogs.forrester.com/application_development.