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Recent Trends in Enterprise Information

Systems and Application Delivery Models

Jiří Voříšek
Department of IT
University of Economics, Prague
vorisek@vse.cz
nb.vse.cz/~vorisek
1
Agenda

 Does ICT matter?


 Is the significance of ICT the same for all industries?
 Enterprise Application Delivery - Historical Perspective
 Current situation in Enterprise Application Delivery
• User perspective
• Provider perspective
 Business and technological factors for change
 Sourcing variants
 Comparison of software license model with ASP model
 Prerequisites for efficient deployment of ASP model
 Impact on ICT landscape and user organisations
 Impact on labour market and ICT education

© prof. Voříšek 2
Does ICT Matter ?
Capital expenditures of US companies to ICT:
1965 – 5%, 1980 – 15%, 1990 – 30%, 2000 – 50%

Nicholas Carr [Carr, 2003]:


 When a resource becomes essential to competition but
inconsequential to strategy, the risks it creates become more important
than the advantages it provides. Think of electricity. Today, no
company builds its business strategy around its electricity usage, but
even a brief lapse in supply can be devastating

IT doesn’t matter and can’t bring strategic advantage


at present 
• Spend less
• Follow, don't lead
• Focus on vulnerabilities, not on opportunities
© prof. Voříšek 3
Does IT Matter ?

We believe that

 Unique alignment of ICT with business model and with


business processes and social capital of the enterprise
can bring strategic advantage
 Alignment of business processes with ICT services will
be one of the most important requirements in the near
future

© prof. Voříšek 4
Case Study 1 – Food Sales

 a small chandlery (several local suppliers, tens of


customers per day, personal service)
 self-service shop (higher efficiency but loss of customers’
acquaintance)
 supermarket (many suppliers from all over the world,
pressure to suppliers, hundred thousands of customers,
detailed acquaintance of customer and his habit –
customer’s card). Qualitative levels of goods ordering:
 optical check of the racks and manual ordering
 computer monitoring of sales (bar code)– manual ordering
 computer monitoring of sales – automated ordering
 direct connection of a supplier into the information system of the seller (the
supplier is responsible for the identification of goods delivery time)

© prof. Voříšek 5
Case Study 2
„How a capable management changed a florist“

 Initial situation
• a small gardening with a store
• SWOT
– (-) a small group of customers
– (-) seasonality of sales (the greenhouses have been cancelled
because of expensive heating)
– (-) limitation to the local flowers
– (+) creative management (owner)

florist
(garden, customers
store)

© prof. Voříšek 6
Case Study 2
„How a capable management changed a florist“
 Main ideas of a new business strategy
• the target to increase multiply the turnover and profit within
a year period
• to use opportunities of the current age – cooperation,
joining the supply chain, ICT, …
• vision – a new model of business
– orders through the Internet
– participation of the customer on creation of bouquet (types of
flowers, design of the bouquet, packaging, wish card, place and time
of delivery)
– to offer prepared design of bouquet for less creative customers – to
hire an external designer
– to cancel the gardening – to buy flowers abroad (Dutch wholesaler)
– to use an external partner for the deliveries to the customers (Česká
pošta, FedEx,...) and for the payments (Bank)

© prof. Voříšek 7
Case Study 2
„How a capable management changed a florist“

WWW
provider

Flower Florist
Bank Customers
wholesalers (garten, store)

Postal service
(Fedex)

© prof. Voříšek 8
Is the significance of ICT

the same for all industries?

© prof. Voříšek 9
Different Significance of ICT for Different Industries
(Coonan, H.H. et. all: Building Australian ICT Skills - Report of the ICT skills foresighting working group, Australian Government, Department of
Communications, Information Technology and the Arts., May 2006, ISSN 0 642 75354 7 )

Industry ICT Capital ICT Employment ICT R&D Expenditure


Expenditure for Industry Share of Total
Share (Share of total R&D 2002-03
2003-04 %) 2005
Mining 3.9% 4,250 (1.3%) 0.2%
Agriculture, forestry and fishing 7.7% 540 (0.16%) *
Transport and storage 15.8% 7,650 (2.3%) 31%
Manufacturing 16.2% 22,390 (6.7%) 16%
Construction 16.3% 12,880 (3.9%) 16%
Retail Trade 21.6% 14,920 (4.5%) 33%
Health and community services 25.5% 6,420 (2%) np
Wholesale trade 26.1% 13,960 (4.2%) 41%
Accommodation, cafes and restaurants 26.6% 380 (0.1%) np
Property and business services 33.6% 124,030 (37.2%) 63%
Personal and other services 35.0% 2,720 (0.8%) np
Government administration and defence 42.0% 25,620 (7.7%) 52%
Education 43.7% 16,300 (4.5%) 83%
Cultural and recreational services 44.4% 6,660 (2%) np
Electricity, gas and water supply 68.4% 9,460 (2.8%) 39%
Communication services 89.1% 42,580 (12.8%) 42%
Finance and insurance 90.1% 22,810 (6.8%) 77%

©All
prof.industries
Voříšek 26.7% 333,560 10
Enterprise Application Delivery - Historical Perspective

1990s
ERP Applications
2005
(SW License Model)
Application Services
(Software-as-a-service,
Utility computing)
1960s
Data Processing
= !? Bureau

1970-80s
In-house Development

The end of 90s-2004


Traditional
Outsourcing

© prof. Voříšek 11
Current Situation - User Perspective

Traditional software license model:


Implementation
ERP Application End User
and Consulting
Vendor Organization
Organisations

 End User Organization:


• owns and maintain all ICT infrastructure and associated
HR

© prof. Voříšek 12
Current Situation - User Perspective

 Cost of IT projects
• big global banks spend 15-20% of operating budget on
IT [Gartner, 2002]
• despite long experience many projects significantly
exceed their original budgets and planned
implementation time
• research of 117 US companies [CW, 2002]:
– 25% exceeded their budgets
– 20% were abandoned before completion
– 40% failed to achieve business objectives

 Traditional model leads to high TCO and is associated


with significant risks
© prof. Voříšek 13
Current Situation - User Perspective

 Complexity of ERP systems


• difficult customization
• high complexity of operation even in situations where
the corresponding business process is simple
• low utilization of the overall functionality by end users
• high cost of training of end users due to complexity of
the systems and documentation

 Increased cost of the ERP solution that


the organizations are no longer willing to bear

© prof. Voříšek 14
Current Situation - User Perspective

 Fast rate of technology change

• Fast SW obsolescence (? software ownership)


• New versions of SW released approximately once a
year – version management (!? costs, integration)

 End-user organizations are unable to absorb new


technologies at the rate that vendors produce them
 New technologies may not lead to any business benefit

© prof. Voříšek 15
Current Situation - User Perspective

 High demand on IT specialists

• Traditional model is associated with high demand on IT


skills
• Shortage of IT specialists leads to high cost

 Many organizations cannot afford to maintain their own


internal IT staff

© prof. Voříšek 16
Current Situation - User Perspective

 The structure of investments leads to unsatisfactory


overhead costs and to low flexibility [Inside, 2002]

Structure of Investments Structure of Operating Costs

Communication
Services
Costs
19%
16%
Internal running
expences
HW 47%
50% External
SW services
31% 37%

© prof. Voříšek 17
Current Situation - User Perspective

 Traditional outsourcing
• Outsourcing organizations often use the same
implementation approach as end user organizations :
Support individual client organizations using separate
implementations sites and highly customized
applications (1 : 1 relation)
• Minimal reuse of resources leads to high costs

 Traditional outsourcing does not solve the cost of


ownership problem
(Coca-Cola Amatil)

© prof. Voříšek 18
Current Situation - Provider Perspective

 Sales of new licenses for enterprise application software have


stagnated and in some cases declined

rok 1999 rok 2003

Licence Support Licence Support

Oracle 41% 27% 34% 44%


PeopleSoft 24% 74% 24% 76%
SAP AG. 38% 23% 31% 37%
Siebel 62% 38% 36% 64%

© prof. Voříšek 19
Current Situation - Provider Perspective

 Major ERP vendors are changing their revenue model


to decrease their reliance on new software licenses
towards income generated from upgrades and product
support
 It motivates many user organizations towards
alternatives such as outsourcing and application
servicing
 Recently a number of important ICT vendors have re-
confirmed their commitment to application servicing in
the context of the Utility Computing approach

© prof. Voříšek 20
Important business factors for change

 Standardization of business environment (e.g. EU)


 Globalization of enterprise applications - same
application to all users over the world
 Management acceptance of outsourcing
 Service Level Agreements (SLA) provide legally
enforceable guarantee

SLA

© prof. Voříšek 21
Important technological factors for change

 Emergence of Utility Computing


• Computing grid provides an ideal infrastructure for application
servicing
• It can host a large number of ASP applications in a scalable and
reliable manner
• Provides a more cost effective solution for hosting enterprise
applications than a set of independent servers each dedicated to a
specific application
 Role of Web Services
• Web services are regarded as the enabling technology for the
integration of ASP applications, and for delivery of low-granularity
application services

Servicing of large amount of customers from single data centre is


both: technologically possible and economically preferable

© prof. Voříšek 23
Sourcing Variants

What are the alternatives of traditional model:


In-house service delivery & In-house IT operations?

 Goal – optimal combination of:


enterprise resources and competences
with competences and resources of reliable partners
What is the optimum? (extremes are unlikely to be optimal)

 Framework supporting this approach needed –


it has to identify necessary services, processes, and resources

© prof. Voříšek 24
Framework for outsourcing
of IS/ICT Services, Processes, and Resources
Business processes

Management of IS/ICT development and operations


What ICT services

Customizat ion
ICT Services
are necessary for IS/ICT
business processes

O p e r a t i o n s - Service Delivery
support ? ICT Processes

Development and maintenance


Development / Purchase / Lease
ICT Resources

I n t e g r a t i o n
Which processes/
Application software
resources has to be (ASW)
Data

operated internally Tools for design, development and operations


and which Database
externally ? (DB)
knowledge

Technological infrastructure
Middleware
HR &

for application running


Operating system
(OS)
Telecommunications
and Internet
Who should own the
Material and

connection
resources ?
energy

LAN and WAN

Hardware
(HW)
© prof. Voříšek 25
Basic Types of Outsourcing

1. Business process outsourcing (BPO)


2. Complete (complex) IS/ICT outsourcing

Business factors

importance
ICT factors
importance
3. Selective IS/ICT outsourcing
• Application service (ASP)
• ICT process outsourcing
• ICT resource outsourcing
4. Application development outsourcing
Make yourself !?

© prof. Voříšek 26
Business Process Outsourcing

Business process "1"

Business process "p"


SLA
and its
metrics

Supporting process /
Non ICT service

ICT Service "1" ICT Service "s"

ICT Process "1" ICT Process "2" ICT Process "j"

Resource "1" Resource "2" Resource "r"

© prof. Voříšek Outsourced 27


Outsourcing of Complex IS/ICT

Business process "1"

Business process "p"

Supporting process /
Non ICT service

Outsourced
ICT Service "1" ICT Service "s"

ICT Process "1" ICT Process "2" ICT Process "j"

Resource "1" Resource "2" Resource "r"

© prof. Voříšek 28
Selective IS/ICT Outsourcing
Business process "1" Business process "1" Business process "1"

Business process "p" Business process "p" Business process "p"

Supporting process / Supporting process / Supporting process /


Non ICT service Non ICT service Non ICT service

ICT Service "1" ICT Service "s" ICT Service "1" ICT Service "s"

ICT Service "1" ICT Service "s"

ICT Process "1" ICT Process "2" ICT Process "j"


ICT Process "1" ICT Process "2" ICT Process "j" ICT Process "1" ICT Process "2" ICT Process "j"

Resource "1" Resource "2" Resource "r" Resource "1" Resource "2" Resource "r" Resource "1" Resource "2" Resource "r"

Outsourced Outsourced Outsourced

ICT resource and its ICT process outsourcing ICT service outsourcing
maintenance (ASP)
outsourcing

e.g. Data center e.g. ERP implementation e.g. CRM outsourcing


outsourcing outsourcing
Experts hiring Systems integration
outsourcing
© prof. Voříšek 29
Outsourcing Variants - Conclusions

 Collaboration of specialized partners is more and more


common for IS/ICT development and operation
 Many variants of outsourcing can be considered
 Each outsourcing scenario needs to be considered
separately
 Each variant has different CSF and requires different
SLA
 Variant selection (sourcing strategy) has to be part of
strategic management

© prof. Voříšek 30
Comparison of traditional software license model
with ASP model

Differen- ASP Traditional Approach


tiator (SW as Service) (SW as License)

Main Application service provider Software vendor develops the


characteristics controls all necessary ICT application; the application is
infrastructure (HW+SW) and implemented on customer’s
delivers application HW and customer is
functionality as a service to responsible for the operations.
many customers.

Design and Technology Issues

Design Designed from the outset for Designed for implementation


delivery as Internet-based by specialist and for customer
service for a large number of to operate and maintain.
customers (HW+SW
architectures, business model).
© prof. Voříšek 31
Design and Technology Issues

Technological Multi-tenant architecture Architecture suitable for


architecture designed to run thousands of deployment by individual
users from different user company on a dedicated ICT
organizations on a scalable infrastructure.
technological infrastructure.
Service Applications with embedded Typically must add service
management service management, management, monitoring and
monitoring metering and metering features subsequent
security capabilities. to product development.
Upgrades Frequent (every 3-6 month) Infrequent, major updates
upgrades possible. All (every 12-24 months). Both,
customers are upgraded provider and customer, have to
simultaneously resulting in implement version
significant cost reductions. management process.

© prof. Voříšek 32
Business Issues

Readiness of Short implementation cycle. Long implementation cycle


the service due to complex
implementation of HW, SW,
and knowledge transfer to
customer sites.
Availability of The service is available from any Could be limited to single
the service location (globally). organization via intranet or
client/server interface.
Scalability The volume of the services deli- Configuration needs to
vered (i.e. number of users sup- support peak requirements,
ported, number of transactions) and cannot be scaled down.
can be scaled (up or down).
Customi- Typically limited. Extensive customization
zation possible, but expensive.
Internal sour- Only few internal sources used Many internal sources used
ces utilization for ICT processes support. Most for ICT processes support.
(people, tech- of the company sources are used
nology, etc.) for core business processes.
© prof. Voříšek 33
Business Issues
Costs of ICT Predictable, no investments Both investments and operating
required - operating costs costs. High overhead costs given
only. The costs are highly by depreciation and amortizing of
correlated with the volume of investments. The costs may not
services. be correlated with volume of
service delivered.

ICT management Issues


ICT sources ICT sources of the provider ICT sources are used only for
utilization (HW, SW, ICT specialists) are one organization.
used across all customers;
provider has advantages of
economies of scale.
ICT How to use ICT for competi- The same plus: wide spectrum of
knowledge tiveness enhancement, avai- ICT knowledge. The required ICT
required at lable services at ICT market, knowledge is dependent on
customer site SLA structure, and manage- number of platforms and types of
© prof. Voříšek ment of service delivery. application used. 34
ICT management Issues

Evaluation The application can be evaluated Application is evaluated after


of an before the purchase. purchase, installation and
application customization.
Problem Short feedback cycle – Problem solving is often indirect
and procedures enable almost via intermediaries (VARs, SIs,
change immediate feedback. Support etc). Patches and upgrades are
manage- staff or programmers can directly implemented at individual
ment identify and fix problems. Fixing a customer sites. Costly and
proce- problem for one customer fixes it unreliable, as customers often
dures for everyone, which reduces delay installation of patches and
support costs. upgrades.
Risks  Loss of knowledge that could be  Stability of the provider – but not
useful in the future. to the same extent as for ASP.
 Stability of the provider (Exit  Technology backwardness.
strategy).  High TCO (Total Cost of
 Systems integration – who should Ownership).
be responsible for?
 Unsatisfactory customisation.

© prof. Voříšek 35
Comparison of software licensed model with ASP model

The comparison makes a compelling


argument for the ASP model as the next
logical step in the IS/ICT evolution.

1990s

ASP model: 2005


Application Services
(Software-as-a-service,
Utility computing)
ERP Applications

1960s

• faster = !?
Data Processing
Bureau

• cheaper 1970-80s
In-house Development

• more flexible
The end of 90s-2004
Traditional
Outsourcing

© prof. Voříšek 36
Prerequisites for efficient deployment of ASP model

Unique alignment of ASP with business processes!

The IDC study [IDC, 2002] indicated that ASP


implementations can generate ROI above 1000%.

What are the prerequisites


for efficient ASP model deployment ?

© prof. Voříšek 37
Prerequisites for efficient deployment of ASP model
(Critical Success Factors)

 Effective management of business and ICT processes


and resources
 Close link between business, ICT, and sourcing
strategies
 Well-designed serviced oriented application and
technology architectures
 Optimal granularity of outsourcing solutions
 IS/ICT Integration
 Detailed information about ICT market.
 Proper provider selection criteria
 Control of IS/ICT and service costs

© prof. Voříšek 38
Effective management of business and ICT
processes and resources - SPSPR Model
Business, IT and Sourcing Strategies - Strategic
goals, products and services, types of customers, partners,... Management "S"
Layer

Suppliers for
Core Processes
Custmers
Core Process 1 Product/
Market of Service 1
Products Market of
and Business company
Services Core Process "p" products
Product/ Processes
Service "p" Layer "P"
Support Process 1 Support Process "pp"

Market of ICT
ICT
Services
ICT Service 1 ICT Service 2 ICT Service "s" Services
Layer
"S" Market of
ICT
Services

ICT
ICT Process1 ICT Process 2 ICT Process j
Processes "P"
Layer

ICT
Market of
ICT ICT Resource 1 ICT Resource 2 ICT Resource 3 ICT Resource "r" Resources "R" Market of
ICT
Resources Layer
Resources

Lease / sale of
supefluous resources

© prof. Voříšek 39
Effective management of business and ICT
processes and resources - SPSPR Model
TOP
management

Process - product/service Process


Requirements - customers Outcomes
- partners

Process
Managers
Business and
ICT Service definition (SLA): IS/ICT
- content
- volume Delivered integration and
Service Order - quality Service
dimensioning
- price

CIO

Market
Who will of IS/ICT
deliver? Outsourcing /ASP
Services

In-house
How
ICT processes creation ICT Process sophisticated
Managers
process to
create?
Resource
requirement:
- content
Resource Delivered
(type)
Order Resource
- volume
- quality
- price
Resource Resource
manager 1 manager 2
© prof. Voříšek 40
Close link between business, ICT,
and sourcing strategies
Sourcing
strategy (which Business, IT and Sourcing Strategies -
goals, products and services, types of customers, partners,...
component "in" "S"
and which "out")

Suppliers for
Core Processes
Custmers
Core Process 1 Product/
Partner Service 1
Market of
Products selection, Market of
and relationship company
Services Core Process "p" products
mng, Product/

evaluation,
Service "p" "P"
changes
Support Process 1 Support Process "pp"

Main decisions:

Market of - who owns?


ICT
Services
ICT Service 1 ICT Service 2 ICT Service "s" "S" Market of
ICT
Services
- who
operates?

- who does
maintenance,
ICT Process1 ICT Process 2 ICT Process j
"P"
and upgrades?

- price/costs,
Market of
ICT
funding? Resource 1 Resource 2 Resource 3 Resource "r" "R" Market of
ICT
Resources Resources

Lease / sale of
supefluous resources

© prof. Voříšek 41
Mature serviced oriented application
and technology architectures

 Not all applications suitable for ASP


 Coexistence of different model requires mature
architecture

Application
software 1
Application
software 2
... Application
software n
Application
software 1
Application
software 2
... Application
software n
(ASW 1) (ASW 2) (ASW n) (ASW 1) (ASW 2) (ASW n)
CV

CV

CV

CV
CV
CV

Database Database Database Worst Database


(DB) (DB1) (DB2) Case (DBn)

Middleware Middleware1 Middleware2 Middlewaren


Best
Case Operating system Operating system 1 Operating system 2 Operating system n
(OS) (OS1) (OS2) (OSn)
Telecommunication Telecommunication Telecommunication Telecommunication
s and Internet s and Internet s and Internet s and Internet
connection connection 1 connection 2 connection 2
LAN and WAN LAN and WAN LAN and WAN LAN and WAN

Hardware Hardware1 Hardware2 Hardwaren


(HW) (HW1) (HW2) (HWn)

© prof. Voříšek 42
Impact on ICT landscape

What will happen if ASP model become


the prevalent model of ICT service delivery ?

HW, SW and Telco products will return back to their producers.


They will provide services not products.

The reduction in the size of the traditional software license


market, reduced demand for on-site implementation and the
corresponding increase in demand for application services will
lead to further rationalization of the ICT vendor market.
Will many SW vendors, implementators, and SI disappear?

© prof. Voříšek 43
Impact on ICT landscape

© prof. Voříšek 44
Impact on ICT landscape

2000 2004

HW and SW Services HW and SW Services

IBM 55,3% 43,0% 48,0% 50,6%

HP 84,3% 16,0% 81,2% 19,6%

Sun 85,3% 14,6% 65,7% 34,2%

© prof. Voříšek 45
Impact on labour market and ICT education

 Reduction of demand for in-house ICT specialists will lead to the


restructuring of the ICT labor market
• ACS and Philipson March 2, 2004: unemployment in the IT industry at more
than 10 per cent, around twice the national average of 5.7 per cent
• Many of these came from displaced programmers, who have the highest
unemployment rate (18 per cent)
• IT industry is healthy, and will always offer many interesting jobs, but the
industry has changed
• The key to success is adapting to those changes
 Education – specialists with following knowledge:
• integration of business and ICT processes (by means of ICT services)
• design of efficient services, application, and technology
infrastructures
• development and realization of sourcing strategy
• management of service delivery
• high-tech for vendor development specialists
© prof. Voříšek 46
Literature
Obligatory:
 [Feuerlicht, Vorisek, 2002] Feuerlicht, G., Voříšek, J.: Delivering
Application Services: Who will Benefit?, Proceedings of “Systems
Integration 2002” conference, VŠE, Praha, 2002, 31-41, ISBN 80-245-
0300-x
 [Feuerlicht, Vorisek, 2003] Feuerlicht, G., Voříšek, J.: Key Success Factors
for Delivering Application Services, Proceedings of “Systems Integration
2003” conference, VŠE, Praha, 2003, 274-282, ISBN 80-245-0522-3
 [Feuerlicht, Vorisek, 2004] Feuerlicht, G., Voříšek, J.: Utility Computing:
ASP by another name, or a new trend?, Proceedings of “Systems
Integration 2004” conference, VŠE, Praha, 2004,
Facultative:
 [Carr, 2003] Carr, N.G.: IT Doesn't Matter , Harvard Business Review, Vol.
81, No. 5, May 2003
(http://hbswk.hbs.edu/item.jhtml?id=3520&t=technology )
 [Cohen, 2004] Cohen, P.: Twelve Technical and Business Trends Shaping
the Year Ahead,
http://www.babsoninsight.com/contentmgr/showdetails.php/id/687
© prof. Voříšek 47
Topics for Essay

1) Compare the approach of RightNow, SalesForce and one Czech


company to CRM delivery (process of delivery, evaluation, SLA,…)
2) Compare according to annual reports the results of important ISW in
last 3-5 years (structure of revenue - new license, upgrades,
support,….)
3) Analysis of IT product and services supply: worlds statistics, trends
(including the changes in supply chain), provider CSFs
4) Analysis of ASP supply: the biggest providers (name, residence, the
year of set up, offered services, No of customers, No of users,…)
5) Evaluation of application delivered by ASPs (application choice,
data collection, analysis)
6) Methods of IS/ICT costs and benefits evaluation

© prof. Voříšek 48
Questions for Exam

1) Is ICT the tool of competitiveness? Is the significance of


ICT the same in all industries ? Give and comment the
examples
2) Enterprise Application Delivery, variants and their CSF
• User perspective
• Provider perspective
3) Business and technological factors for change
4) Sourcing variants and their CSF
5) Comparison of software license model with ASP model
6) Prerequisites for efficient deployment of ASP model
7) Impact of recent trends on ICT landscape, labour
market and ICT education
© prof. Voříšek 49
Thank you for your attention

© prof. Voříšek 50

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