New Government Software Models: An Introduction to SaaS and Application Outsourcing

1. New Government Software Models: An Introduction to SaaS and Application Outsourcing Presented to State of Oregon Oct. 15th, 2009 • Rishi Sood • Vice President, Government • Gartner • rishi.sood@gartner.com

2. Presentation Outline • State & Local Environment • Market Segmentation and Solutions Map • Major Cost Optimization Strategies • Budget Battles: Traditional vs. Innovative • SaaS and AO: An Introduction • Alternative Delivery Models & The Cloud: A Primer • SaaS and AO: Working Definitions • SaaS and AO: A Comparative Look • SaaS Areas of Development • SaaS and AO: State & Local Government Users • Practical Steps to SaaS • Centralized IT and the Agencies: Building Collaborative Spirit • Cloud Myths and SaaS Benefits • SaaS Differentiation • Four Steps to SaaS Today 2

3. State & Local Government:Market Segmentation • Decentralized Market • 50 states • 3200+ counties • 19000+ cities Governor/Mayor Legislature City Council A/F TR PS CJ HHS NR PW OT • Admin. & Finance • Tax & Revenue • General Services • Budget • Assessor’s • Treasury • Transportation • Roads • Motor Vehicles • Ports • Public Safety • Sheriff’s • Police • Fire • Criminal Justice • Courts • Corrections • Probation • Parole • Health • Human Services • Social Services • Youth Services • Human Resources • Labor • Worker Comp. • Natural Resources • Environment • Conservation • Land • Water • Forestry • Public Works • Interior • Other Agencies • Economic Development 3 Source: Gartner Dataquest

4. State & Local Government:IT Solutions Map A/F HS HL PS CJ TR PW NR • Int. Tax Systems • Financial Mgmt. • Purchasing • Records Mgmt. • HR Systems • Retirement • 311 • Other • Case Mgmt. Systems • Eligibility Assessment • Fraud Detection • Child Welfare • Child Care • Child Support • UI Systems • WC Systems • Other • Medicaid • WIC • Electronic Lab Systems • Disease Surveillance • Records Mgmt. • BioT Info. Systems • Environ. Health • Other • CAD • RMS • Biometrics • MDTs • Mugshot • Crime Analysis • Video Surveillance • Mass Notification • Other • CJIS • Jail Mgmt. • Inmate Tracking • Jury Mgmt. • Court RMS • Court Automation • Other • ITS • CAD/CAE • Fleet Mgmt. • Driver’s License • Vehicle Registration • Project Mgmt. Systems • Port Security • Other • GIS • Project Mgmt. • Operations Mgmt. • CAD • HR Systems • Other • GIS • Permitting • Envir. Systems • Water Resources • Forestry Mgmt • Land Mgmt. • Hazard Waste • Other 4 Source: Gartner Dataquest

5. State Government Fiscal Issues Total Year End Balances as % of Expenditures, FY2009 <1% (11) 1%-5% (15) 5%-10% (16) >10% (8) Mid Year Actions: 42 states made budget cuts totaling $31.5 billion State General Funds for FY 2010 represent -2.5% over FY 2009 FY 2010: 37 states already anticipate budget gaps Source: NASBO 5

6. Manage Demand Canceling non-viable projects Project prioritization Break-up large projects and defer pieces Create a project management office Shift to Variable Cost Enable shared risk / reward contracts Pay for IT investments with bonds Consider SaaS for certain applications Standardize administrative applications Standardize e-mail Implementing energy saving measures Consolidate mainframes Reduce Labor Cost Offshore application development Offshore application maintenance Automate software distribution Utilizing fewer contractors and consultants Reduce Technology Cost Desktop printer consolidation Adopting open-source desktop software Server cons. (physical, rational, capacity) Convert networks to VPN Implementing VoIP Adopting open-source server software Reuse software components Discontinue buying proprietary hardware Restructure email storage Remove games from PCs and PDAs High-volume print rationalization / consolidation Enterprise call center consolidation within government Call center consolidation across government Change Operating Model Teleworking Cell phone usage Using tools to reduce travel (e.g. video conferencing) Centralize application development Centralize portal management and development Negotiate enterprise email agreement Consolidate IT procurement Improve IS Business Practices Create a project management office Create shared disaster recovery centers Consolidate and renegotiate vendor contracts Centralize desktop application management Renegotiate network rates Create a shared services environment for IT infrastructure Benchmarking Telecommunications audit Helpdesk consolidation Renegotiate shelfware maintenance Discard unused equipment Confiscate underused equipment Defer purchases of desktop products Mapping all Cost Cutting Items Link costs to demand Reduce Resource Costs Cost containment Change Operating Practices 6 Source:Cost Cutting in IT to Cope with Economic Slowdown,Gartner

7. Innovative • Increase technology penetration to reduce operational cost • Partner with third party specialist to improve process • Deploy emerging technologies and management models to meet new requirements Budget Battles: Traditional vs. the Innovative • Traditional • Across the board budget cuts • Increase fees • Reduce workforce • Raid rainy day funds 7

8. II. Changing Government Software: An Introduction to Cloud, SaaS, and AO 8

9. Acquisition Model Service Cloud Computing: A style of computing where massively scalable and elastic IT-enabled capabilities are provided "as a service" to external customers using Internet technologies* Business Model Pay for use Access ModelInternet Technical ModelScalable, elastic, shareable EC2 and S3 Cloud Computing:Definition and Perspective "All that matters is results; I don't care how it's done." "I don't want to own assets — I want to pay for elastic use, like a utility." "I want accessibility from anywhere, from any device." "It's about economies of scale, with effective and dynamic sharing." Global-class industrialization of computing resources and services *It would be easy to add this refining statement: "Where the consumers of the services need only care about what the service does for them, not how it is implemented." 9

10. Processes as a Service; the modernized "bureau" IT SaaS; the lead indicator for ADAMs since 2000 "The cloud" becoming the "uber" term for ADAMs. Cloud computing = a style of computing.Cloud services = any type of service leveraging cloud computing IU: a transitional stage for traditional outsourcing ADAMs? Alternatives to Traditional Approaches Traditional Alternative • Systems Integration • Business process outsourcing • In-house custom app. development • Application outsourcing • On-site, installed software licenses • E-mail outsourcing, document management/print outsourcing • Hosting, Web hosting, colocation • Company-owned and managed infrastructure and IT assets (DC, PCs, network, software) • In-house managed networks, network outsourcing • Hardware and software leasing • Business process utility (BPU) • Software as a service (SaaS) • Cloud Computing/Cloud Services • Community source • Appliances (physical and virtual only) • Software streaming • Infrastructure utility (IU) • Storage as a service • Grid • Utility computing • Capacity on demand • Communication as a service • Remote management services • User-owned appliances or PCs 10

11. Software as a Service: A Working Definition • Software as a service: • An application owned, delivered and managed remotely by one or more providers • Where the provider delivers an application based on a single set of common code and data definitions, which are consumed in a one-to-many model by all contracted customers at any time • On a pay-for-use basis or as a subscription based on usage metrics 11

12. Application Outsourcing: A Working Definition • Application Outsourcing: • An application owned by the customer, managed on premise or remotely by the provider(s) • Where the provider delivers an application based on a standardized set of common code and data definitions, which are consumed in a one-to-one model by the customer • Paid for generally as a percentage of the annual license fee 12

13. Saas and AO: A Comparative Look Application Outsourcing SaaS • Definition • An application owned by the customer, managed on premise or remotely by the provider(s), paid for on a percentage of annual license fee. • Characteristics • "1-2-1" • Post-implementation outsourcing • Pay for services • Annualized payment(s) • Client/Server + Web services "wrappers" • Definition • An application owned, delivered, and managed remotely by the provider(s), multitenant software architecture and contracted on a subscription basis • Characteristics • "1-2-Many" • Pre-implementation outsourcing • Pay for service • Pay as you go • "Net Native"/Web Services/SOA 13

14. Departmental focus • Requirements to extend existing SaaS solutions through configuration • Integration with solution add-ons but only for departmental requirements • Crossdepartmental focus • Automate end-to-end processes such as lead to order • Mixed deployment Environment Pragmatist "Replace departmentalon-premises applications" Master"Weave SaaSinto the fabric of our application portfolio" • Replace on-premises applications wherever possible • Buy into SaaS ecosystem or suite concept • Use SaaS development platforms Beginner "Simple utility applications" Visionary "Eliminateas muchon premisesas we can" • Replace low-end software tools • IT resource or budget constrained; SaaS "Sweet Spot" Continuesto be Pragmatists and Beginners Percentages are estimates only 49% 10% High IT Abilityto Execute Low Low High Comprehensive Strategy 40% 1% 14

15. MRM On Demand SaaS for Contact Center Customer Service SaaS Portals On-Demand Sales Force Automation Communications as a Service Employee Performance Management Security SAAS visibility HRMS (SaaS) On-Demand Financial Management Applications On-Demand Sales Incentive Compensation Management E-Commerce on Demand Project & Portfolio Management (PPM) SaaS E-mail SaaS SaaS — Business Intelligence SaaS Data Quality Web Analytics Supply and Demand Chain Planning (SaaS) SaaS Procurement Applications Distributed Order Management BPMS-Enabled SaaS E-Recruitment Integration as a Service Application Platform as a Service Business Process Hubs SaaS-enabled Application Platforms Mobile Applications on Demand Policy Administration SaaS Options for Life Insurers On Demand Partner Relationship Management Multienterprise Business Process Platform As of June 2008 Peak of Inflated Expectations Technology Trigger Trough of Disillusionment Plateau of Productivity Slope of Enlightenment time Years to mainstream adoption: obsolete before plateau less than 2 years 2 to 5 years 5 to 10 years more than 10 years SaaS Hype Cycle 15 From: "Hype Cycle for Software as a Service, 2008" (G00159149)

16. Other Application Software Supply Chain Management Office Suites and DCC Enterprise Resource Planning Customer Relationship Management Content, Communications and Collaboration SaaS Growth No Longer Easy to Ignore: 2005-2011, Worldwide SaaS Revenue 14,000.0 12,000.0 10,000.0 8,000.0 Millions USD 6,000.0 4,000.0 2,000.0 0.0 2005 2006 2007 2009 2010 2008 2011 Years 16

17. SaaS/AO: Representative Government Users • State • WY Finance • MN & OH Econ Agencies • TX Dept. Criminal Justice • NJ Transit Dept. • IL Dept. of Revenue • Local • Arlington Co, VA, Finance • Chicago, IL Housing Authority • Schaumburg, IL Finance Department • Federal • Social Security Agency • Army Logistics Mgmt. • National Geospatial Agency • Commercial • American Med Response • Greyhound Transport. • Mission Federal Credit Union 17

18. III. What Should You Do Next… 18

19. Positive Strategies and Tactics Enterprise Wide Framework Unified Governance Strategy Future Investment analysis Collaborative Planning Joint Prioritization Adding hosting/specialization Integration (OP & hosted) Consulting about SaaS/AO SaaS/AO Enablement Hosted custom extensions Negative Strategies and Tactics Denial – “This is a fad” Avoidance – “NIMBY” Assuming that tomorrow’s CSFs are the same as yesterday’s Clinging onto the hope that old norms will re-assert themselves Ignoring the opportunity SaaS/AO presents for re-invention, adaptation, innovation Placing all or nothing bets Enterprise IT and the Agencies: Key Attributes to Working Together 19

20. Step One: Recognize the Myths "Cloud" is a euphemism for an abstraction. It cannot be touched, bought, or sold "Clouds" are hardware-based services offering compute, network and storage capacity A hybrid model will and should dominate for the next 10 years Everything needs to be in the cloud Cloud computing is a service delivery and consumption model with multiple attributes All remote computing or off-premises hosting is cloud computing Cloud Computing will always save you money It might save you money but not if used just to replicate on-premises work off premises Industry Myth Gartner's Insight 20

21. Upsides Pay for what you use From an operational budget Basic functionality that you really need, not bells and whistles that you might need No operational management worries No infrastructure overhead/management Medium term lower TCO Faster implementations Easier integration* Downsides No asset value Less central management of the application portfolio More basic functionality* Vendor management (incl. oversight of their operational management) Security concerns Longer term TCO uncertainties “OP2OD” (On Premise to On Demand) integration Step Two: Understand the Trade Offs that SaaS Presents • theoretically; particularly of SaaS to SaaS • applications written with open APIs * Sometimes real, sometimes perceived 21

22. The front end (i.e., the user experience) must: Be highly configurable,with limited requirements for technical skills Have rich (but notoverwhelming)functional options Be highly intuitive Be easy to use (for non- technical audience) Have an attractiveuser interface Be straightforward to integrate into other applications The back end (i.e., the engine) must: Have a multitenant architecture(i.e., one-to-many) Have a highly standardized supporting infrastructure Make extensive use ofRTI approaches(i.e., server emulation, "virtualization," etc.) Focus on scale and leverage of technology deployment Step Three: Choose Vendors That Have Separated the 'Engine' From the User Experience 22

23. Step Four: Getting Started with SaaS Today Action Outcome Compare your cost of tech expenses to SaaS providers Step 1: Savings Determine potential savings or cost increases Find three workloads with which you can experiment Step 2: Portfolio Determine usage Scenarios Select applications to align with SaaS strategy Step 3: Migrate Jump-start your efforts, but do not stop here Step 4: Use Immediate impact and feedback Test SaaS applications with core users 23

24. New Government Software Models: An Introduction to SaaS and Application Outsourcing Presented to State of Oregon Oct. 15th, 2009 • Rishi Sood • Vice President, Government • Gartner • rishi.sood@gartner.com