NelsonHall Reveals Findings of New Research Into the Application Management Market

Boston, Paris, Köln, and London (July 15, 2008) - NelsonHall, the leading independent analyst firm, dedicated to BPO and ITO advice, today announced the availability of its latest research entitled "Application Management Assessment and Forecast", a comprehensive review of application management globally, authored by Dominique Raviart, Research Manager at NelsonHall.

Raviart commented, "Application management has undergone a lot of changes in the past years, moving away from T&M to SLA-based provisioning, from onsite to factory-based delivery, and overall becoming much more industrialized than in the past. In addition, Indian vendors have changed the rules of the AM games with their low-cost, process-oriented and certification-heavy offering as well as by their ability to provide low-cost staff augmentation services." This transformation is not going to end soon. Raviart added "Clients are now awarding much larger standalone contracts than in the past that only include AM but also bundled application development and systems integration as well as application development outsourcing. Because of their complexity, the number of people involved, the technology diversity and the level of change management required, those contracts will be much more difficult to manage and will required increased governance."

Key findings revealed in the NelsonHall research report include:

• Spending in AM on a worldwide basis will be growing by 7.2%. Volume will be up by c.9% while price reductions will impact overall spending by c. 2%. In light of the uncertainty regarding the state of the economy in the U.S. but also in EMEA and APAC, clients will demand further price reductions and send more AM work offshore
• Clients are turning to multi-sourcing and are awarding standalone AM contracts. Simultaneously, the size of those contracts is increasing, including in the past two years several deals above the $1Bn landmark. Circa 55% of AM spending is indeed awarded in the form of standalone contracts
• Offshore and nearshore sourcing represents almost 30% of AM spending worldwide. While spending in onshore services will be flat until 2012, client demand for offshore and nearshore growing by 14% on average each year. Despite this growth, the delivery of AM services located offshore and nearshore will only account for 38% of AM spending by 2012 or around 60% in terms of headcount
• The potential for offshoring remains high. Yet it constrained by public sector reluctance to offshore, limitations of English-based offshoring and client work habits relying on informal interactions.

"AM brings the promise of lower costs, higher quality, increased productivity" said Raviart. "It can help clients become less involved in daily operations and regain more time monitoring vendors, selecting technologies selection and developing a strategic sense of what they want to achieve with their IT".

"This does not mean that AM is an easy activity, and especially large deals are risky because of their size. Nevertheless, interested clients can now learn from the experience from early adopters. What they are interested is how to maximize co-ordination between vendors, how to retain and transfer knowledge and how to define relevant risk and rewards pricing mechanisms."

"Another key topic of interest to clients is the level of transformation that large application management contracts should include. AM contracts can be very adequate vehicles for conducting investment into applications such as application modernization or SOA-inspired rewriting. However transformational AM contracts also have pitfalls including client lock-in, lack of competitive pressure on vendors and high levels of subcontracting. Currently, the analysis of spending shows that c. 20% of AM spending is transformational. This suggests that clients are more comfortable by awarding application development and systems integration outside of the framework of an AM contract", adds Raviart.

NelsonHall's "Application Management Assessment and Forecast" report is available now as part of NelsonHall's IT Outsourcing program. For more information about accessing this report and NelsonHall's research services, please contact the following NelsonHall representatives:

· Rob Hughes at rob.hughes@nelson-hall.com or call on (+44) 8707 705967