CADM Report 2012 PDF

Custom Application
Development &
Maintenance Market
Research & Intelligence
International Youth Centre, Teen Murti Marg, Chanakyapuri, New Delhi - 110 021, India
Phone: 91-11-23010199, Fax: 91-11-23015452, E-mail: research@nasscom.in
Website: www.nasscom.in
Custom Application
Development &
Maintenance Market
Research & Intelligence
NASSCOM Custom Application Development & Maintenance Market 3
Copyright 2012
International Youth Centre, Teen Murti Marg, Chanakyapuri
New Delhi - 110 021, India
Phone: 91-11-23010199, Fax: 91-11-23015452
E-mail: research@nasscom.in
Published by
NASSCOM, New Delhi
Designed & Produced by
CREATIVE INC.
Phone: 91-11-41634301
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Contents
Industry Overview/Analysis 5
Market Analysis 18
Growth Drivers/Trends 25
Challenges 44
Future Outlook 49
Summary 51
Industry Overview/Analysis
CADM can be classied under three areas
Over the last few years, global organisations are increasingly concentrating on managing IT operational
budgets more efectively by engaging in strategic outsourcing of IT projects. Custom Application
Development and Maintenance/Management (CADM) services have become the most widely
outsourced IT services area not only for global organisations, but also for small and medium enterprises.
Organisations across developed and growth markets continue to gain signicant benets through
efective enterprise application deployment, integration and management thereby gaining signicant
business value in terms of efective cost management, production exibility and access to talent.
The biggest driver of ofshoring CADM engagements is to reduce IT operational costs, focusing on
partnering with global IT services organisations adopting best practice standards in handling ofshore
delivery engagements of CADM services on a global delivery model.
CADM services can be categorised under three main areas:
Application development and customisation
Application development and customisation activities primarily involve large scale application
development as well as enhancement of new functions for existing software applications, upgrading
existing applications as well as modernisation of legacy systems. Application development engagements
are usually agreed between customer and service provider on a xed timexed price model, involving
intensive labour augmentation by the provider.
Application management/maintenance
Application management/maintenance activities primarily revolve around the management and
ownership of enterprise applications and IT capabilities. Most of these activities involve large scale
application maintenance and support engagements including application performance management,
monitoring, service level management and incident/problem management. This type of engagement
usually involves transfer of people/processes to the service provider. A typical application management
project involves application maintenance, consulting and integration activities.
Application integration
Application integration primarily involves seamless interfacing and integration of newly developed/
or enhanced/customised applications with other existing IT systems within the enterprise (typically,
ERP implementation engagements). Additionally, a typical CADM engagement also involves updating
legacy application systems to sync up or talk to other applications across business functions/units
thereby providing signicant benets in data visibility/availability across business units.
Typical CADM engagements involve service providers delivering application development and
management support services on a global delivery model. The rst scale of understanding and analysis
of customer requirements involve project teams understanding and evaluating business requirements,
and nalising project execution and deployment timelines onsite (at client premises). With rising
levels of complexity in CADM engagements, leading service providers engage with clients to provide
value-added services with a mix of project management and execution teams, based at client premises.
They assist them in smooth transitioning and integration into new technology platforms/environment,
thereby, improving customer satisfaction and acceptance levels.
During a typical application development engagement process, most of the higher level design and
analysis portion of a CADM engagement takes place at client premises. This involves evaluating and
nalising specic business requirements, software requirements and system architecture design with
the client teams (across business functions/units, etc. all depending on the size and complexity of
the CADM project).
On the other hand, project management, change management, software quality assurance and
conguration management activities typically involve teams operating on a hybrid/virtual model. The
Operational structure of CADM services
coding and testing portion of the engagement usually occurs at ofshore locations of the service provider
with large scale technical teams engaged in developing and testing individual software components.
Post Go-Live period, wherein the applications have gone live in client/production environment, a
signicant portion of the multi-year CADM engagement involves application management/maintenance
support activities primarily handled from ofshore locations.
Almost all the large scale IT service providers engaged in IT projects are adopting this hybrid CADM
delivery and support approach for clients across verticals globally.
The CADM market space has witnessed a signicant change since the past decade. During the initial
period of growth of the Indian IT-BPO industry, IT service providers started of securing pure-play
application development and maintenance/management contracts from global customers primarily
from the North American market. This was further complimented by global IT MNC rms that initiated
low-end technology and management support for its customers from Indian delivery centres. As the
market matured, Indian IT service providers initiated the next wave of innovation shifting its focus
from providing basic maintenance support services to complex/value-added and transformational
business impact IT services having a signicant impact on the customers business outcome, rather
than simply providing software development and support services.
This large scale transition for Indian IT service providers took a lot of effort, understanding
and adoption of globally adopted best practices/standards across business/service delivery,
execution and client engagement models which resulted in increased customer confidence to
outsource mission critical IT service engagements involving CADM, system integration, as well as IT
consulting/advisory services.
Since the past few years, global service providers are engaging with customers as strategic partners in
end-to-end solutions delivery, support, infrastructure management and IT advisory/consulting services
CADM integral to large scale business transformation
engagements
with a key focus on enhancing business outcome. This transformation has enabled service providers
to include CADM services as a part of business transformation engagement involved in enhancing
business value for the customer.
Signicant portion of large scale business transformational engagements involve projects that include
development of major product innovations, including creation of new capabilities, use of web-based
collaborative technologies, etc. across business functions/units globally. Service providers are also
managing the rising demands from customers by building up its project teams having in-depth
industry-focused knowledge, process execution and delivery, as well as organisational exibility in
terms of contract pricing, tenure and delivery locations based on client requirements.
The Indian IT services market has maintained strong growth with a CAGR of over 15 per cent since the
past few years. For leading IT service providers including mid-Tier Indian IT service rms, CADM remains
one of the most dominant service oferings, often accounting for over 45 per cent of its overall IT
service revenues. This trend is expected to maintain strong growth rates, as mid-Tier customers from
North American and European markets are exploring new sourcing opportunities from highly mature
IT service provider markets (such as India) to drive operational benets at lower costs.
Additionally, with the evolution of new technologies such as cloud-based services, mobility solutions,
social media applications and big data/analytics, leading IT service providers have already started
penetrating these niche domains through complex custom application development and maintenance/
management activities, thereby expanding the breadth of delivering ofshore CADM services from the
Indian market.
For Indian players, CADM remains the largest component of IT
services export revenues
Leading IT service providers are increasingly focusing on managing critical customer applications and
maintenance services, owing to stringent cost pressures resulting in IT budgets getting squeezed
on large scale IT service projects. For service providers, what initially started as basic application
maintenance and support activities, slowly started transition into higher end application modernisation,
enhancement and consulting services, thereby ofering higher value-added application maintenance/
management services resulting in signicant operational and cost benets for clients.
Global customers across developed markets continue to allocate a signicant share (over 70 per cent)
of IT budgets on maintaining/upgrading or modernising existing applications/ERP systems. Besides,
organisations are increasingly extending enterprise applications to talk to new/emerging platforms
in the social media, analytics, mobility and cloud domains, resulting in increasing complexities in
integration between existing and newly developed applications across platforms. Service providers
ofering application management/maintenance services are also increasingly expanding its service
oferings to incorporate these new emerging opportunities and expand its service delivery, execution
and support activities related to modernisation of existing IT systems, as well as seamless integration
between diferent application portfolios within ERP and new technology platforms.
Service providers are growing up the value chain
Global IT service providers are managing application maintenance and support services across the
value chain, including managing mission critical applications/IT systems on a real-time basis through
dedicated virtual teams operating on a hybrid (onsite/ofshore) model. With a highly qualied talent
pool of technical and functional consultants, business analysts and process consultants, programme
managers, and solution architects, key service providers are increasingly meeting the rising customer
expectations and needs by gaining deep insights about client information systems/operations and
identifying best approach methodologies to manage critical technology systems on real-time basis.
Outsourcing application management services deriving
signicant benets for clients
Under current economic conditions, customers are maintaining a cautious outlook and delaying any
signicant investments in IT. Key customers in developed markets are expecting solutions to help them
cut costs and minimise revenue leakages, facilitating entry into new growth areas and strengthen
internal capabilities. As a result, IT service providers are focusing on ofering transformative value
propositions, hinged on benets well beyond lower cost replication of existing processes (covering
revenue enhancement, capital reduction and risk management).
The proliferation of as-a-service oferings and trends related to mobility, social tools and sustainability
make demands for innovative strategy partners more important than ever. Since the past few years,
CADM engagements with vendors continued its evolutionary approach based on experience and level
of maturity in terms of delivering client commitments as well as service delivery capabilities. This has
resulted in leading IT service providers to grow up the value chain in ofering higher end value-added
CADM services along with exible service and pricing delivery models for repeat customers. As maturity
and experience in managing clients IT operations evolved, IT service providers began establishing niche
vertical-centric service delivery capabilities. Existing as well as new clients prefer this new approach
resulting in Tier I/II service providers developing specic vertical focused CADM capabilities resulting
in increased customer wins.
Globally, CADM players are adopting a blended delivery approach
to address client needs
Additionally, leading service providers are increasingly focusing on shifting from purely operating on a
global delivery model, wherein majority of IT service engagements operate primarily from an ofshore
delivery model, to a blended delivery model approach. This approach is directly beneting service
providers by not only managing a strategic onsite/ofshore/nearshore delivery mix, but also increase
customer satisfaction rates in terms of project execution, delivery and support activities, resulting in
attaining higher service delivery targets at lower costs.
During the early to mid 2000s, global organisations opted for ofshoring of CADM services with the sole
objective of lowering their operational costs. However, in course of time, as service providers evolved
and matured in terms of service oferings and delivery capabilities, clients began to realise incremental
benets of CADM ofshoring to leading market players such as India. Some of the key challenges faced
by customers involve allocating IT budgets to streamline IT operations across business units/functions
globally, improve and enhance application availability and stability, as well as minimise deployment
turnaround time across business units. Ofshoring these mission critical activities to global IT service
providers resulted in signicant improvement in returns on investment through reduction in operational
costs, as well as gaining superior IT service delivery capabilities from best-in-class IT service providers
(in terms of talent, adoption of best practices/standards, lean IT principles, etc.).
resulting in enhanced business value for customers on IT
spends
Market Analysis
CADM services in India A snapshot
The Indian market continued to witness strong levels of CADM export revenue growth since the past
few years, primarily driven by Tier I Indian IT service rms catering to global customers primarily from
the US market. Globally, the CADM market is expected to reach USD 85.8 billion in FY2012, out of which
India is expected to account for almost 24 per cent of the global share. Large global customers are
expected to continue to allocate a signicant portion of their IT budget in maintaining, extending and
upgrading their existing applications portfolio, which will directly lead to more application management/
maintenance engagements in the coming years. Indias strong delivery capabilities, maturity levels
in managing global CADM projects as well as availability of a huge talent base will result in further
expansion of market opportunities for Tier I/II Indian service providers.
India remains the preferred location; expected to account for
around 24 per cent of the pie
The US market continued to remain the most lucrative for leading Indian IT service providers accounting
for around 65 per cent of CADM export revenues in FY2011. Indias growing vertical-specic expertise
is driving customers to continue to prefer India as the most preferred CADM sourcing destination as
compared to other emerging countries.
As cost pressures continue to rise under challenging demand conditions for key customers in developed
markets, leading service providers are increasingly ofering higher levels of exibility in pricing and
delivery models (involving increasing onshoring component), accelerate deployments as well as
signicantly improve application lifecycle and software delivery thereby further enhancing operational
benets and business value for its customers.
Additionally, SMBs in the US and UK are also exploring sourcing strategies to highly mature IT service
providers in order to contain costs, as well as derive maximum business value.
The North American market is driving growth for majority of
CADM engagements
The BFSI segment is the most mature market with majority of the global Tier I BFSI organisations
having already established advanced IT systems across business functions/units globally. During
FY2011, BFSI accounted for the largest share of 38 per cent in ofshoring CADM services to global IT
services rms.
Global players in the hi-tech/telecom, manufacturing, healthcare and retail sectors continued to invest
signicantly in large scale application modernisation/upgradation, custom application development and
integration activities globally, with a key focus on improving customer experience as well as application
integration (between ERP systems and other technology platforms including mobility, cloud-based
solutions, analytics/big data) activities.
BFSI, telecom and manufacturing lead in CADM ofshoring
engagements
IT service rms are increasingly adopting a hybrid service delivery model involving a large portion of
resources operating from ofshore globally-integrated service delivery centres worldwide. In onsite/
ofshore/nearshore (hybrid) delivery model, the ofshored work is distributed between the service
providers onsite centre and the ofshore development centre. This delivery mechanism allows the
customer to take advantage of both types of outsourcing models. A large number of global clients
are shifting towards this outsourcing model. The distribution of work primarily depends on the type,
duration and level of complexity of the CADM project. Usually 20-30 per cent of the work is done at
the onsite/nearshore centre involving signicant customer interactions in project scoping, deep dive
analysis of business requirements, project management, change management as well as resource
deployment strategies. The remaining software development and maintenance/support activities are
primarily done at ofshore delivery centres.
Hybrid delivery approach driving cost and delivery ef ciencies
for clients and vendors
HCLs multi-year ADM project helped manage its clients IMS/
AMS operations ef ciently
Growth Drivers/Trends
Ofshoring of CADM services is undergoing a transformational phase as compared to a few years ago,
where IT service providers primarily concentrated on engaging in low-end application development,
maintenance and support services to customers primarily in the US market. From a demand side
perspective, the SMB markets in the US and UK are increasingly concentrating on evaluating sourcing
strategies to mature IT service markets such as India. Besides, as Indian service providers have
grown up the value chain, adopting globally accepted best practices and standards in service delivery
and execution, global customers are increasingly sourcing complex CADM, system integration,
custom application development and IT consulting services as a large scale business transformation
engagement, rather than basic pure-play CADM assignments.
IT service providers are also expanding their presence in other high growth emerging markets such
as APAC and the Middle East where complex CADM engagements are taking an expanded role owing
to increased focus on application modernisation, migration, development and application integration
activities with new technology platforms based on cloud and mobility solutions. Clients are increasingly
delivering their products/services to end customers through multi-delivery platforms (web, mobile
devices such as smartphones, tablets, netbooks, etc.). Hence, new technology themes such as cloud,
mobile and collaboration technologies are having a signicant impact in CADM engagements (applications
Key trends and drivers highlight CADM to be a growing market
opportunity
getting more mobile-enabled, thereby bringing in complex mobile application development, application
modernisation and integration activities). As mobile device usage grows at phenomenal levels globally,
it is anticipated that mobile application development will surpass application development activities on
traditional IT platforms. The increasing demand for access to services and wireless internet connections
on the move will push for the development of new solutions to meet this growing demand.
Ofshoring application development and management services primarily help organisations to focus
on accelerating delivery of high quality software applications with lower defect rates, minimal rework
and at lower costs, in addition to freeing up in-house technology teams on broader corporate level
strategic initiatives. Large corporations initially started outsourcing CADM services with the key
objective of reducing costs, but as service providers matured, customers began to realise the true
benets of ofshoring CADM services beyond cost reasons. What seems to be the biggest advantage
for customers is to gain signicant improvements in business outcome through strategic sourcing of
IT service projects to leading global IT service providers.
Despite a trend towards increased CADM outsourcing to lower wage economies, the fact
remains that the cost of developing and maintaining applications can still consume around
50 per cent of the total IT budget. Applying lean IT principles by vendors has the potential to
enhance their software development and management/maintenance productivity by over
30 per cent, while improving the quality and speed of execution, resulting in faster turnaround time
of CADM projects.
Clients focusing on outsourcing CADM projects primarily to
reduce IT operational costs
The BFSI sector will continue to invest signicantly in custom application development and management
activities in FY2012. Increased focus on risk management and regulation will drive allocation of IT
budgets in application integration and optimisation activities across business units globally. Additionally,
global BFSI organisations are concentrating on investing in modernising IT applications including
customer service solutions through the cloud, analytic solutions for mining deep insights on customer
behaviour as well as reaching out to newer end customer segments through mobility solutions.
Similarly, retail and healthcare sectors are also undergoing a transformational change in the way they
are using IT as an enabler to ofer customised high impact solutions for its end customers. Global
IT service providers are expected to witness signicant levels of large scale organisation-wide IT
transformational engagements involving the entire gamut of CADM, system integration, IT consulting
and remote infrastructure management services. IT services rms will see signicant opportunities in
developing customised application development solutions involving large scale integration between
traditional IT systems/applications with new technology platforms, thereby enabling real-time
application maintenance and support activities on a hybrid delivery model.
Next generation applications in retail, healthcare and BFSI to
drive CADM contracts
MindTrees solution for predicting quality efectiveness of
testing procedures
Demand for mobility solutions at enterprise levels across verticals is driving the mobile application
development space. Since the past two years, emerging markets such as India and China have seen
rapid growth in terms of end user mobile consumer activity, with increasing penetration of afordable
smartphones, tablets and other mobile devices across consumer segments. The sharp increase in
demand for mobile devices and apps along with the existing variety of mobile OS has created a
large supply of mobile application developers. With increasing demand from consumers for more
features/utilities on mobile across gaming and social networking apps, there has also been a growing
demand from business users. As more and more business users are increasingly getting dependent
on their iPads/smartphones, etc. for internal as well as external collaboration, the total number of
business apps downloads are rising exponentially since the past one year. This will directly result in
large scale revenue generation opportunities for mobile application developers, apps stores, marketers
as well as organisations too.
Additionally, consumers are increasingly demanding multi-payment channels from global organisations
primarily using mobile devices. Consumer-oriented industry segments such as retail, BFSI, healthcare,
etc. are increasingly providing these exi-payment options, which is directly generating potential CADM
engagement opportunities with global organisations.
Mobile apps development to drive the next phase of growth in
2012 and beyond
Location is one of the main enablers that deliver services to users based on their context. According to
Gartner, the total user base of consumer location-based services is expected to reach 1.4 billion by 2014.
Location-based services strive to deliver features and functionalities in tune with the users context,
taking into account the users location, personal preference, gender, age, profession, intention and so
on, thus ofering a more intelligent user experience than basic location services can.
Mobile social networking remains one of the most popular and the fastest growing consumer mobile
apps category. Social network platforms have started consuming a signicant portion of network traf c
since the past one or two years. They are becoming portals, transit hubs and cloud storage for increasing
amounts of messaging and email traf c, videos, photographs, games and commerce. As mainstream
adoption progresses, global social sites will be driven towards providing services in partnership with
third parties and are likely to evolve to a role as infrastructure providers acting as data warehouses
and providing user data and access to the more consumer-facing brands.
thereby opening new revenue streams
Infosys mobile B2C solution helped its retail client to expand its
reach to new markets
Tier I Indian IT service providers such as TCS, Wipro, Infosys, HCL and Cognizant are moving beyond the
traditional mode of pricing engagements with clients. Even though, majority of the vendors continue
to ofer exible pricing models (based on the type of engagement, duration, resource requirements,
level of complexity, etc.), a large number of players are increasingly shifting towards outcome-based
and transaction-based pricing models. Outcome-based models came into prominence from 2008
onwards, when the global nancial crisis spread across developed markets, resulting in tightening of
IT budgets.
The key objective for organisations engaged in ofshoring IT service projects with Indian service providers
is to tie engagements costs with the level of business value that they are able to generate. Typically,
outcome-based pricing strategies allow clients to tie up project payments based on business value
generated (in terms of improved top line growth, cost reduction, bottom line improvement, etc.), rather
than on the number of resources deployed on a particular engagement. As a result, service providers are
further getting strategically involved in understanding the customers business model, operations and
industry nuances and how to manage and mitigate risks at all stages. Clients benet from these types
of engagement models in terms of heightened accountability and risk taking capabilities of vendors,
thereby deepening client-vendor relationships. Clients also benet from such billing models as they
can keep their costs entirely variable and dependent on their own specied business outcomes.
Shift in pricing model strategies allowing vendors to secure
global transformation projects
L&T Infotechs ADM engagement with an O&G major delivered
benets across the value chain
Since the past few years, leading IT services rms continued to focus on building an advanced pool of
talent base through various structured on-the-job training programmes as well as partner with third-
party learning and development rms. Leading players are providing in-depth training to its new hires
(including existing employees) in developing expertise across multiple, specialised domains as well as
vertical-centric business knowledge primarily in BFSI, retail, healthcare, telecom, etc. For example,
HCLs on-the-job in-house Certied Software Engineer Programme focuses on providing in-depth
training for its employees in the areas of software development, testing, maintenance and support
capabilities (catering to the BFSI sector) at its Centre of Excellence in Jaipur. Several such internal
vertical-focused learning and development initiatives are already in progress across Tier I and mid-Tier
Indian IT services organisations.
Service providers benet from such internal training programmes in terms of readily deployable
professionals on global CADM engagements, minimal time to ramp up existing projects, as well as
gain higher customer condence in securing higher value-added complex IT service engagements
through repeat business with existing customers. Similarly, clients benet by having a highly skilled
and engaged workforce operating at competitive rates involving minimal application defects/rework
and a highly empowered client-vendor relationship on a long-term basis.
On-the-job skills development providing signicant operational
benets for vendors and customers
As IT service providers continue to adopt large scale operational excellence in managing global CADM
engagements, there has been a transformational change in prioritising key areas during any IT service
management project. For example, vendors have increasingly concentrated on adopting global best
practices in standardising and implementing real-time automated advanced project monitoring, tracking
and reporting tools to manage large scale CADM projects. Based on maturity and level of experience in
the CADM space, there has been a signicant employee base diversication in managing and enhancing
client intimacy by concentrating on providing high impact business value to its customers. Similar
focus has been driven towards managing customer expectations by driving onshore/nearshore delivery
models which is allowing vendors to shift its prior focus on managing people/projects to managing
business outcome.
As a result, customers are experiencing transformational business-level improvements thereby further
engaging with existing vendors on much higher value-added complex IT service engagements along
with typical CADM assignments.
People and organisational re-alignment to have transformational
impact on IT service projects
Emerging technologies such as cloud-based services/platforms/solutions, mobility solutions/
apps, big data/analytics as well as social media tools/apps are rapidly transforming the application
development landscape for Indian IT services rms. Vendors will need signicant re-tooling (including
domain expertise, experience in end-to-end business transformation, etc.) in engaging with new and
existing customers to develop a strategy/roadmap for evaluating whether to move their whole set of
applications portfolio to the cloud (hybrid/private/public) and its desired impact on business outcome.
SMEs will prefer to opt for cloud-based platforms to lower IT operational costs as well as reach out
to a wider target customer base through web-based solutions and services. Technology providers will
increasingly focus on gaining deep understanding of cloud delivery models such as SaaS/PaaS/IaaS
as well as build in-depth domain expertise in rapid application development and deployment in the
cloud. In the coming years, as cloud-based technologies mature and evolve, global organisations will
increasingly focus on re-designing their existing enterprise applications to seamlessly integrate across
all types of cloud (public, private or hybrid).
Similarly, in the mobility space, the BFSI sector will continue to see heightened activities in developing
mobile apps designed to allow mobile devices to operate as Point of Sale (POS) terminals for payment
delivery functions. Besides, as the number of mobility devices continue to witness increasing adoption
Rising adoption of emerging technologies to drive complex
application development engagements
levels across markets, mobile application development activities will increasingly shift towards making
applications available across delivery platforms mobile, web browser and desktop, thereby ofering
seamless convergence between any device on a real-time basis.
Business intelligence/or big data analytics will be the biggest game changer for global organisations in
de-mystifying end customer buying patterns/trends on a real-time basis. Customised software tools
that enable processing of unstructured data, text mining and sentiment analysis will be exploited not
just for data analysis/reporting but to make predictions of future consumer trends, incorporating data
collected from social networking platforms to access and evaluate user behaviour, buying patterns,
etc. Harnessing big data and advanced analytics/predictive analytics will be the key areas that will see
a richer set of software products emerging in the market.
The CADM marketplace continues to be led by the global IT majors such as IBM, Accenture, HP followed
by Tier I Indian IT service providers including TCS, Infosys, Wipro, Cognizant and HCL. Currently, Indian
IT service providers secure over 30 per cent of its annual revenues from CADM engagements with
Fortune 500 organisations. However, as the markets matured, Tier I IT service providers also started
ofering higher value-added IT services along with CADM as a part of multi-year large scale business
transformational engagements. As a result, there also emerged signicant opportunities for mid-Tier
IT service organisations such as L&T Infotech, iGate, MindTree, ITC Infotech to start ofering verticalised
CADM services to global organisations (including SMBs). For example, L&T Infotech primarily engages
in ofering best-of-the breed CADM services primarily to the global oil & gas sector.
This trend has gained momentum (in ofering verticalised IT service oferings) not only with mid-Tier
vendors but also with Tier I service providers, thereby further expanding the CADM ecosystem in India.
Most of the CADM services primarily come from large scale ERP implementation projects. Larger IT
service players such as IBM, Wipro, Accenture, TCS will continue to dominate the CADM services market.
With a rising supplier base, customers are reaping signicant benets by selectively sourcing CADM
requirements to best-in-class service providers rather than selecting one single supplier for managing
their end-to-end application lifecycle management and support activities.
Expanding CADM ecosystem ofering customers exibility in
strategic IT engagements
For example, TCS engaged into an IT modernisation project with
a global telecom major
CADM engagements are expected to gain new revenue streams from cloud deployments (basically
transitioning of on-premise custom applications to cloud architecture). This could result in signicant
demand for outsourced software development, re-platforming and tooling of legacy applications and
thereby enabling new cloud-based SaaS deployments. Besides, maintenance of cloud-based applications
deployed on legacy IT systems with ongoing support and diagnosis for run-time issues, could lead to
the growth of new servicelines in the application management/maintenance domain.
Leading IT service providers ofering CADM services will nd signicant opportunities in expanding
its presence in the growing SaaS vendor market with the development and management services
for applications. For example, in the custom application development space, demand for application
migration, integration and re-platforming of traditional on-premise applications to SaaS from both
clients and ISVs could provide a signicant opportunity.
In the packaged application customisation space, CADM players could leverage experience in customising
non-core process software packages to develop and deliver proprietary Cloud-as-a-Service versions
to clients. Additionally, customisation of cloud applications for customers will lead to follow-on
maintenance contracts, but there is a high possibility in the reduction of the term of the contracts as
clients would want to prevent vendor lock-in with shorter term engagements.
Cloud-based technologies opening up new business
opportunities
Cloud adoption levels by Indian customers are slowly gaining momentum, but at a much lower rate
as compared to global customers. However, with the increasing focus of the government in large
scale e-Governance initiatives across states in India, there exists a signicant potential for IT service
providers to ofer a hybrid application delivery model (blend of traditional IT application systems
along with private cloud-based delivery). Even though the domestic banking sector has adopted large
scale application enhancement and management roles which is directly beneting end customers in
terms of customer experience, web-based collaboration/customer interaction services based on cloud
technologies, the potential for signicant development, upgradation, integration and management
of enterprise-wide portfolio of applications in the healthcare and education segments will see much
wider growth prospects in the coming years.
presenting signicant opportunities in the domestic market
Challenges
The Indian IT services industry will need to address the various challenges faced by the CADM
marketplace and adopt a slew of mitigation strategies to maintain its growth trajectory:
Commoditisation: As a result of expanding supplier base, the segment continues to face the danger
of being commoditised unless, leading players in the market adopt a slew of diferentiators including
ofering higher degrees of exibility in delivery capabilities, investing in continuous process/productivity
excellence, etc. With rising customer expectations at lower/stable billing rates, Indian service providers
will need to focus on ofering higher verticalised service oferings to manage customer expectations
without compromising on service delivery capabilities.
Talent: Rising competition within service providers for securing high skilled employable talent
continues to be a challenge. As expectations and quality of service delivery from customers continue
to rise, organisations have implemented highly customised employee engagement models to
attract and retain high performers. Additionally, employees need to be continuously trained on-the-
job on advanced domain-centric as well as specialised skills for project management and change
management roles. Leading IT service providers are investing signicantly in establishing Centres of
Excellence in software development and management to build up readily deployable talent pool on new
CADM engagements.
To achieve growth, the market has to strengthen current
measures to address challenges...
Competition: Rising competition to bid for global/domestic CADM engagements (both within Indian as
well as MNC players) is resulting in rising cost pressures on billing rates, owing to rising demands from
customers in terms of delivering more at lower rates. Besides, other low cost locations beyond the Indian
market could pose serious threat in maintaining stable growth projections for Indian players. Indian
rms are adopting a slew of strategic initiatives including diversifying into niche higher value-added
CADM services (including focusing on developing capabilities across emerging technology platforms
such as cloud, mobility, etc.). Additionally, large scale players including mid-Tier rms are building up
verticalised, focuses solutions and services unique to the needs of the growing SMB market in India
as well as abroad.
System availability/Uptime: Majority of the large scale Indian/global IT service providers need to
focus on resolving critical issues that arise during any typical CADM engagement, primarily involving
system availability during transitioning periods/go-live events (upgradation, maintenance schedules
involving downtime thereby impacting business delivery to end customers). Organisations will need
to increasingly adopt and implement global best practice standards for managing client applications
on a real-time basis with proper change management/communication strategies, keeping the client
informed at all stages during application availability/downtime. Besides, virtual teams supporting
clients operating from diferent geographies need to extensively collaborate on a real-time basis to
manage client escalations without any delay.
Data security: Managing sensitive client data during testing, integration and deployment of applications
with existing enterprise operations operating in diferent platforms has to be the outmost priority for
service providers during any CADM engagement. Leading IT services rms will continue to focus on
enhancing risk management protocols/standards based on globally accepted best practices involving
regular security audits including ITSM process audits across levels, etc.
and maintain its competitive edge
Transformational capability: Under challenging market conditions, customers will continue to expect
more at lower costs from service providers. Suppliers need to adopt lean IT principles across levels to
manage costs and improve productivity and service delivery during the entire tenure of the engagement.
Additionally, with the rapid evolution and acceptance of emerging technologies integrating with existing
ERP systems, service providers need to rapidly upscale domain/subject matter expertise talent pool
to handle these new growth opportunities.
Future Outlook
The CADM services business will continue to present a signicant opportunity for the Indian IT services
industry. The total global CADM market is estimated to reach about USD 172 billion by 2020. India is
expected to capture over 48 per cent of the addressable CADM market primarily driven by expansion
strategies adopted by Indian IT service providers beyond developed markets, as well as increased levels
of adoption of emerging technologies across industries globally.
CADM services could double by 2020
Summary
Application development and maintenance services continued to maintain high levels of growth
since the past few years
- Demand is being driven by applications around mobility, social, cloud and analytics
(or big data)
- Drive to modernise existing legacy systems expected to further drive growth
Emergence of innovative business delivery and pricing models, cloud-based and mobile
application development, indicate increasing complexity of roles ofshored to nearshore/global
delivery locations
Globally, CADM deals are expected to maintain stable growth rates in FY2013 despite uncertain
economic conditions in the European and North American markets. However, the Indian market
will continue to capture over 24 per cent of global CADM ofshoring engagements
BFSI, telecom, retail and manufacturing verticals will continue to drive the CADM ofshoring
space. From the domestic market, banking, education, government and healthcare verticals will
see heightened CADM engagements primarily driven by the governments thrust on large scale
eGovernance initiatives
Tier I/II Indian IT service players continue to derive a sizeable portion of IT service revenues from
ofshore CADM engagements (around 25-30 per cent) primarily from North American markets
(around 55-60 per cent)
Large scale complex application development and maintenance services are expected to drive the
next phase of growth in the coming years, primarily driven by complex R&D project engagements
in captive centres of global IT MNCs located in emerging markets such as India and China
By 2020, Indias share in the global CADM market is expected to reach over 48 per cent
To Summarise
International Youth Centre
Teen Murti Marg, Chanakyapuri
New Delhi 110 021, India
T 91 11 2301 0199 F 91 11 2301 5452
research@nasscom.in
www.nasscom.in

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