Application development hots up

Growing market competition from offshore companies in countries like India and Malaysia is forcing prices down. Local issues such as the increasing cost of resources are driving operating costs up. Throw the challenges associated with competing with a growing number of available off-the-shelf products into this mix, and the picture starts looking bleak.

However, local application development houses remain upbeat about the potential inherent in their market. Additionally, increased spending by government and the financial sector on bespoke application development makes the market look decidedly bullish.

With these investments in IT infrastructure and solutions, there is a growing need for local solution developers that can match real-world operational requirements - particularly in the deployment of integrated solutions.

"There is a lot of system capability that needs to be created within government, and the financial sector is constantly looking for ways to optimise efficiency and provide differentiating services," says Migal van As, CEO of application development house Intervate. "These two industries probably account for up to 50% of the local spend on bespoke development and integration."

The number of legacy systems in these environments is also driving the development of new integrated solutions, as technology, such as mobility, enters the fray. According to Robin Grace, Rational software development brand leader for IBM South and Central Africa: "Many banks in SA are facing similar issues to those of the public sector, where they have fairly large legacy applications that are not designed to handle new technology such as wireless encryption protocol (WEP). At the moment, they are developing systems they can use to deliver new technology. Legacy applications are not going to last too much longer, so companies are asking, 'How do we transition from legacy to new technology`."

Wayne Powell, financial director of the Cape Town-based development agency Global Vision, has a slightly different take on the situation, pointing out there is growth in application development within industries that have traditionally been more averse to such investments.

There is a lot of system capability that needs to be created within government, and the financial sector is constantly looking for ways to optimise efficiency and provide differentiating services.

Migal van As, CEO, Intervate

Activity is being seen across the board, he says, with many new clients coming from the manufacturing and retail industries, particularly the fast-moving consumer goods sector. "Finance and retail seem to be where the quickest decision-making takes place. These are the fastest moving and most vibrant of the vertical sectors we are involved in."

With the economic upswing and a progressively competitive global arena, South African businesses are increasingly addressing specific business requirements that will enable them to deliver additional value to customers. This is driving the bespoke application development market and drawing business away from the many of the packaged solutions available. The situation can largely be attributed to bespoke development enabling a greater ability to deliver solutions to specific business process needs.

"With every one of the larger clients we have been involved with, some time has been spent on evaluating a packaged solution," says Powell. "In the end, these organisations are aware that, while a customised solution may not necessarily be cheaper, the company will be able to identify gaps in its own infrastructure and receive a solution that addresses at least 95% of these needs. And they gain scalability, as they will be able to enhance and upgrade the solution at a later stage."

Basically, customers are looking for more bang for their rand. Says Grace: "Companies are looking for more efficiency out of application development and are looking at ways of approaching it differently from the past."

Van As agrees the choice to develop a customised solution rather than implementing an out-of-the-box product is based on bespoke solutions` ability to address specific requirements that might be unique to the organisation or a specific industry. "Many custom developments lie around line of business system development and integration, as these are the most pressing needs being experienced."

When looking at the maturity of the local custom development sector, the general consensus is the South African application development market is mature and capable. Due to sanctions imposed during the apartheid era, SA was forced to develop its own business applications and alternatives to products not available in the country.

The margin between local and global developers is starting to narrow.

Wayne Powell, financial director, Global Vision

"That is historical," Grace says, "in the sense that, prior to democracy in SA, we were very limited in our markets in that we could not draw on expertise overseas. The South African IT industry developed the attitude of '`n boer maak 'n plan`. Since democracy, we have been able to draw on global markets and have found ourselves to be in a healthy state - probably a healthier state than other emerging markets."

However, danger lies ahead in the form of market entrants from those very emerging economies, such as India and Malaysia. Development houses in those countries are looking for new business opportunities offshore. After having tried to crack the shell of the European and American economies, emerging markets like SA and Eastern Bloc Europe are becoming increasingly attractive options. This is placing a novel pressure on South African businesses, particularly as these global competitors can often offer lower prices.

Many would contest an assertion that the South African market - by emerging market standards - is large enough for foreign entrants and is able to sustain the number of new market entrants. "There are a lot of players operating in niche environments and developing solutions for specific markets. That is why we can sustain a fairly large market - niche areas are less competitive than a general market," says Grace.

But there is a certain amount of rationalisation pending as a result of the pressure being applied by new entrants into the South African market and the increasing cost of operations for local development organisations.

The skills shortage is pushing up operating costs, which have traditionally been fairly low. Skills shortage is a common theme when any assessment of SA`s IT industry is made, and the application development space has not escaped the challenge.

We should draw on our expertise and offer it overseas.

Robin Grace, rational software development brand leader, IBM South and Central Africa

Jaco van der Merwe, director of local software development and contracting house DVT, says: "When the dot-com bubble burst, demand for developers dried up, as few companies were considering technology refresh. Accordingly, there was little or no training of new developers. Six years later, as the economy booms, we are finding a significant shortfall of developers, which is placing upwards pressure on their cost. A few years back, Gartner predicted an 8% growth in bespoke development. This prediction was spot on, but training has lagged and we are paying for it."

Powell agrees, saying the idea that SA enjoys lower cost resources is overplayed. "The margin between local and global developers is starting to narrow and we aren`t seeing a massive difference in the cost of resourcing," he adds.

With the cost of development increasing, it is safe to assume costs are being passed on to the customer. But one has to wonder if price is still a factor for local organisations seeking customised solutions in an area - and era - where business experience and knowledge should be primary deciding factors. Apparently so. Powell feels it has become abundantly clear there are new market entrants, as "there is a lot of competitive pricing taking place".

A key issue is how to address this, as delivering an effective solution is so often dependant on the quality of staff the development house is able to attract - often at a higher cost. A critical element is to ensure customer expectations are adequately managed in terms of the solution to be developed and the skills required to do so.

Companies need to understand that software development is no longer about a group of developers sitting in a room and coding the night away to develop a solution that may or may not address business process requirements.

Instead, today`s effective development agency must focus on developing and attracting specialised business analyst skills, experience and expertise. While this may come at a greater cost than many of the "chop shops", the investment is worth the reward of a system modelled and architected to address the needs of the business and its users.

"The South African application development market is in a state of transition, in that it has been promising to deliver shareholder value by offering business-driven solutions," Grace says. "Company strategies need to be filtered down to the technology infrastructure level and developers are now looking at this business strategy and how it relates to solution development."

The skills shortage is not the only blip on the application development radar though. Fundamental concerns are beginning to arise around the question of intellectual property (IP) ownership - a global trend making its way to South African shores.

The question of who owns the IP arises when an organisation has an external development agency developing and maintaining a system. Most would naturally say the IP belongs to the customer, but this can become a problem if there is limited systems knowledge in the form of documentation.

Should the relationship go sour and the customer change suppliers, how does it take knowledge and IP out of the development house?

While this issue is only beginning to raise its head in SA, it presents a significant challenge to local developers. On a positive note, it is likely to force development companies to focus on delivering premium solutions and services.

According to Grace: "The problem for local developers is that they can no longer make themselves indispensable - which they would obviously like to be. Since this is a challenge that will be laid down by the client, it is critical developers are able to address the concern."

Fortunately, we are able to draw on the experience of organisations in Europe and the US, which are redefining the way systems are documented. "These companies are forcing methodologies and visual modelling onto software houses. In this model, the business and system requirements are documented prior to development. Thus, if the issue of IP ownership arises, the client keeps the system models and visualisation IP, regardless of the code. This makes it far easier for the client to transfer that IP to another development house or take it in-house," says Grace.

Local developers adopting this model and integrating it into their development methodologies before being forced to do so will therefore be at a distinct advantage.

It is clear the South African bespoke application development market holds great potential for growth, despite the myriad challenges facing it. All that is needed is a consistent approach to developing skills and delivering them in an innovative manner to markets around the world.

As Grace says: "What I`d like to see is South African software development houses taking their applications and following a similar [business] model to those in India and Malaysia. We should draw on our expertise and offer it overseas. This would be hugely beneficial and allow us to invest in many of the people we need to train and mentor. This is a great opportunity."

As open source software (OSS) gains more popularity, one would expect the debate on the best development language for the corporate environment to heat up. This is not the case.

Today, development houses are focusing on delivering the solution that best meets the client`s business, budgetary and technology needs. Here`s what our panel of industry players had to say:

Robin Grace, rational software brand leader, IBM South and Central Africa:
"When it comes to development languages, I`m of the opinion it`s actually about what the development house or programmers are most comfortable with. If one takes a visual modelling approach, you raise the discussion from what language is best to what is best for the system and customer. Code then becomes a mechanism to deliver what has been defined in the model as a requirement. The development language is merely a mechanism for translating that requirement into something a computer understands."

Migal van As, CEO, Intervate:
"In some larger enterprises, where specific languages have a strong foothold, there is still some debate taking place. However, I believe that technology decisions should be about the company`s needs in terms of availability, cost, complexity and scalability. Obviously these decisions are also largely based on driving forces such as existing technology investments, the available infrastructure and integration capabilities. Organisations need to choose the solution that provides them with stability, scalability and access to support."

Wayne Powell, financial director, Global Vision:
"The market debate is traditionally between OSS and proprietary platforms such as Microsoft. Licensing is an issue at the lower end, so some of the businesses in the small and medium enterprise (SME) space have gone with OSS - but this is due to licensing and not functionality. At the higher end, organisations tend to prefer the market standard. In the end, the resources available to maintain the application are key. OSS is a bit of a closed shop so that`s where it has fallen short. OSS suffers from a lot of fragmentation, with many different market players. It is a confusing world unless you are a technology expert. This makes it intimidating for SME companies that don`t always have technical resources internally."