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Software Testing Business Plan
Cresta Testing
Market Analysis Summary
According to a June 25, 2002, Computer World Federal Study, software bugs cost the U.S. approximately $59.5 billion per year. The study further showed that improvements in testing could reduce this cost by approximately $22.5 billion per year (more than a third). These findings support the March 2001, Jupiter executive survey which noted that four out of five IT projects begin without testing and of these projects 90% undergo costly and avoidable re-work as a result. As such, it is easy to see why testing is not a luxury but a necessity.
Cresta will be focusing primarily on two broad categories of customers: finance, banking and insurance (FBIs) and biotech and life science companies (Pharmas). In New York City alone, there are over 175 separate financial services firms with annual revenues in excess of $250 million and in neighboring New Jersey Pharmas dominate the landscape.
Both of these industries are highly regulated, highly competitive and require the highest standards both internally as well as with respect to the products and services they offer to the public. They do not want to waste their time or risk their money looking for bargain solutions or questionable expertise. As they go into initiatives looking at new opportunities, technologies and solutions, they are very sensitive to risking their company's (or personal) name and reputation. Cresta's strength is managing these risks through testing.
4.1 Market Segmentation
Automated application and system quality assurance (QA) and testing techniques have evolved beyond intellectual market acceptance into the realm of proliferation based on necessity and proven progress in quality, costs and time-to-market.
Revenue growth and market penetration of the leading testing-related software manufacturers supports this theory. Market share leader, Mercury Interactive, has experienced an average yearly revenue growth of 45%, maintains offices in 25 countries, employs over 1,600 employees and claims more than 50% of the market share with over 30,000 customers.
The tools market is expected to grow from $700 million this year to nearly $1.9 billion by 2005. North America is the overwhelming consumer of automated testing tools for distributed environments with more than two-thirds.
The growth in license revenue is significant, but it tells only part of the story. Many companies purchased testing products expecting a "silver bullet" that did all of the work in a turnkey fashion. In those instances, customers grossly under-invested in developing the supporting operational and organizational infrastructure to fully leverage the tools.
Operational policies, processes and procedures were not adequately developed, thereby limiting the achievable enterprise return on investment (ROI). Similarly, they under-invested in developing skills within their own staff, preventing them from fully exploiting the capabilities of the tools, again limiting achievable ROI.
The most successful organizations have appropriately invested to construct a comprehensive, highly skilled, cost-effective, QA/testing infrastructure and they continue to realize substantial financial and business benefits.
These organizations remain in the minority, however, and the potential to introduce associated benefits and efficiencies to the remaining majority, is what Cresta remains focused on. Business drivers to outsource the deployment of a specialist-developed QA/testing infrastructure include:
- Buggy software costs the U.S. in excess of $60 billion a year. Effective specialist testing can negate this cost by more than one third.
- Short-term focus on expenses is squeezing financial IS organizations as business reliance on IT continues to increase. Despite budget restraints, operational IT infrastructure will still need to anticipate and fulfill business-critical IT initiatives. Outsourcing and trusted suppliers will take more control as capital spending reduces in favor of operating budgets.
- Regulatory measures in the finance sector (such as the Basel II accord) are forcing banks into compliancy practices and processes. Testing negates risk of non-compliancy.
- Most financial IT organizations are embarking on large-scale application integration initiatives to generate business innovation and to stay abreast with technology migrations such as Microsoft Windows XP and industry themes STP (Straight Through Processing). The specialists in these areas are in demand to execute on them and to ensure adequate skills transfer and leave-behind.
- The automated software tools marketplace was valued at $1.11 billion in 2001, tools (distributed segment of this marketplace) made up about 50% of this at $610 million. The tools market grew to $740 million in 2002, a 21.3% growth that is expected to continue and dominate the automated software tools market by 80% in the next two years.
This leaves the non-distributed services and products around these tools to share in the 20% share of a forecasted $1 billion in 2004 and $1.9 billion by 2005, of which North America consumes roughly two thirds, and Western Europe about a quarter.
4.2 Service Business Analysis
Companies are combating IT project costs by outsourcing segments of the IT project. Currently, it is estimated that 30% of project work is outsourced. There are a number of advantages to this strategy.
By outsourcing, companies can take advantage of a specialized experience base without paying the personnel price tag to retain the talent on payroll. By negotiating a price for the outsourcing, companies can also cap development cost. More importantly, as a few companies compete in the marketplace for dominance, a number of service firms will emerge to fill the demand for quality QA personnel and testers that are necessary for specific projects, much like the rest of the IT industry. It is estimated that product development in the software industry can save upwards to 30% of development costs by outsourcing key elements of the development process.
