By:  Lee Ann Moore, EquaTerra Chief Marketing Officer

The economic downturn has created uncertainty across the software application industry. It is no surprise that our recent 3Q Pulse Survey cited that most organizations suspended new and/or extensive application development and maintenance (ADM) efforts, opting for off-the-shelf software or to forego software investments. This trend remains strong though there are scattered reports from large India-based outsourcing providers that some buyers are beginning to invest in new software development and business technology infrastructure. Is this modest uptick in discretionary spending a replacement of inefficient legacy systems or indicative of buyer readiness to deploy new applications and products? It is too early to know for sure. We see continued investment in enterprise resource planning systems to improve overall process performance – often an investment that reduces costs and provides short- and long-term benefits.

I recently interviewed Charles Arnold, EquaTerra IT Managing Director, and Stan Lepeak, EquaTerra Research Managing Director, to provide their view of ADM and enterprise software trends:

When you talk about buyers suspending new ADM efforts entirely, what types of applications are you talking about (non ERP-related)?

Lepeak: Perhaps more than work suspension, we are seeing a shift in buying patterns. Buyers are opting for short-term projects, such as new custom application development or using contract labor for ongoing development work, via contracts that are easy to renew or shut off. Recently, application development demand seems to be trending upward. We observe buyers opting for package software over custom development and taking the software as a service (SaaS) route (where viable) in lieu of purchasing and installing. Some ERP implementations in flight are slowing, or organizations are paring back new investments. In other situations, ERP efforts with strong business cases, clear cost savings and pre-allocated budgets are moving forward, often at an accelerated pace. ERP is also heating up in the public sector.

Are there ramifications for buyers “sitting on the sidelines” too long — is their competitive advantage being lost? Will the business get used to not having this spend to contend with and resist future investments in “discretionary” ADM work?

Lepeak: Yes, this is a great risk, especially as the economy improves. You can’t constantly cut expenses and achieve long-term greatness. Buyers risk losing market share and competitive advantage as they potentially lag in new offerings, product / service quality and innovation and new market penetration. Historically, leaders coming out of the recession stop investing in their business.

Arnold: Spending on new development applications has been down recently and it is not entirely the result of sitting on the sidelines. Many organizations have taken the economic downturn as a cause to consolidate their service providers in an effort to reduce spend. This means that they are still making progress on the development fronts that require long-term commitment, but are doing so at a reduced cost. This strategy is a far stronger one than just waiting for the economy to improve.

Buyers continue to invest in ERP efforts. Will that be the case for the foreseeable future? Or is it simply a result of how ingrained ERP systems are in day-to-day operations?

Lepeak: I see ongoing strong investment as buyers focus more on standardized and more cost-effective IT platforms in lieu of legacy systems and custom development. “Hodge-podge” IT environments that are inefficient and expensive to maintain are a luxury that few organizations can afford these days. Yet, buyers with existing ERP investments are less willing to fund additional functionality and are more focused securing more performance out of existing investments. They are looking to reduce the cost and improve the performance of ongoing support and management. These trends will drive organizations to outsource more operations and support, and this trend will benefit service providers who can help organizations get better returns on their existing investments.

Learn More

Listen to our podcast on “How the Economy is Driving Software Application Decisions.”

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Filed under: Information Technology (IT), Outsourcing by EquaTerra