Sources of Software-Systems Acquisition



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We can group organizations that produce software into six major categories:

  1. information technology services firms,
  2. packaged software providers,
  3. vendors of enterprise solutions software,
  4. cloud computing,
  5. opensource software, and
  6. in-house development

FIGURE 2.1. Sources of application software.

Information Technology Services Firms If a company needs an information system but does not have the expertise or the personnel to develop the system in-house and a suitable off-the-shelf system is not available, the company will likely consult an information technology (IT) services firm.

IT services firms help companies develop custom information systems for internal use; they develop, host, and run applications for customers, or they provide other services. Note in Table 2-1, a list of the top ten global software firms, that three out of ten specialize in services, which include custom systems development. These firms employ people with expertise in the development of information systems. Their consultants may also have expertise in a given business area. 

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Foundations for Systems Development 

example, consultants who work with banks understand financial institutions as well as information systems. Consultants use many of the same methodologies, techniques, and tools that companies use to develop systems in-house. It may surprise you to see IBM listed as the top global software producer. You may think of IBM as a hardware company primarily. Yet IBM has been moving away from a reliance on hardware development for many years. The purchase of the IT consulting arm of PricewaterhouseCoopers by IBM in 2002 solidified its move into services and consulting. IBM is also well known for its development of Web server and middleware software. Other leading IT services firms include traditional consulting firms such as Accenture. The list also includes HP, another company formerly focused on hardware that has made the transition to an IT services firm.

Packaged Software Producers

The growth of the software industry has been phenomenal since its beginnings in the mid-1960s. Now, some of the largest computer companies in the world, as measured by Software magazine, are companies that produce software exclusively . Software companies develop what are sometimes called prepackaged or off-the-shelf systems. Microsoft’s Project and Intuit’s Quicken, QuickPay, and QuickBooks are popular examples of such software. The packaged software development industry serves many market segments. Its software offerings range from general, broad-based packages, such as general ledger, to more narrow, niche packages, such as software to help manage a day-care center. Software companies develop software to run on many different computer platforms, from microcomputers to large mainframes. The companies range in size from just a few people to thousands of employees. Software companies consult with system users after the initial software design has been completed and after an early version of the system has

TABLE 2-1: The 2010 Top 10 Global Software Companies

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been built. The systems are then tested in actual organizations to reveal any problems or determine any improvements that can be made. Until testing is completed, the system is not offered for sale to the public. Some off-the-shelf software systems cannot be modified to meet the specific, individual needs of a particular organization. Such application systems are sometimes called turnkey systems. The producer of a turnkey system will make changes to the software only when a substantial number of users ask for a specific change. Other off-the-shelf application software can be modified or extended, however, by the producer or the user to fit the needs of the organization more closely. Even though many organizations perform similar functions, no two organizations do the same thing in quite the same way. A turnkey system may be good enough for a certain level of performance, but it will never perfectly match the way a given organization does business. A reasonable estimate is that off-the-shelf software can at best meet 70 percent of an organization’s needs. Thus, even in the best case, 30 percent of the software systems used don’t perfectly match the organization’s specifications.

Enterprise Solutions Software

As mentioned earlier, more and more organizations are choosing complete software solutions, called enterprise solutions or enterprise resource planning (ERP) systems, to support their operations and business processes. These ERP software solutions consist of a series of integrated modules. Each module supports an individual traditional business function, such as accounting, distribution, manufacturing, and human resources.

The difference between the modules and traditional approaches is that the modules are integrated to focus on business processes rather than on business functional areas. For example, a series of modules will support the entire orderentry process, from receiving an order to adjusting inventory to shipping to billing to after-the-sale service. The traditional approach would use different systems in different functional areas of the business, such as a billing system in accounting and an inventory system in the warehouse. Using ERP systems, a firm can integrate all parts of a business process in a unified information system.

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All aspects of a single transaction occur seamlessly within a single information system, rather than in a series of disjointed, separate systems focused on business functional areas. The benefits of the enterprise solutions approach include a single repository of data for all aspects of a business process and the flexibility of the modules. A single repository ensures more consistent and accurate data, as well as less maintenance. The modules are flexible because additional modules can be added as needed once the basic system is in place. Added modules are immediately integrated into the existing system.

Enterprise solutions software also involves some disadvantages. The systems are complex, so implementation can take a long time to complete. Organizations typically do not have the necessary expertise in-house to implement the systems, so they must rely on consultants or employees of the software vendor, which can be expensive. In some cases, organizations must change how they do business in order to benefit from a shift toward enterprise solutions.

Several major vendors offer enterprise solutions software. The best-known vendor is probably SAP AG, a German firm, known for its flagship product R/3. SAP stands for Systems, Applications, and Products in Data Processing. SAP AG was founded in 1972, but most of its growth has occurred since 1992. In 2009, SAP America was the seventh largest supplier of software in the world (see Table 2-1).

The other major vendor of enterprise solutions is Oracle Corp., a U.S.-based firm, perhaps better known for its database software. Oracle is fourth on the list of the top ten software companies for 2009 (Table 2-1). At the end of 2004, Oracle acquired PeopleSoft, Inc., a U.S. firm founded in 1987. PeopleSoft began with enterprise solutions that focused on human resources management and expanded to cover financials, materials management, distribution, and manufacturing

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before Oracle acquired it. Just before being purchased by Oracle, PeopleSoft had boosted its corporate strength in 2003 through acquiring another ERP vendor, J.D. Edwards. In 2009, SAP held 31 percent of the global core enterprise applications market. As the higher end of the market has become saturated with ERP systems, most ERP vendors are looking to medium and small businesses for growth.

Cloud Computing

Another method for organizations to obtain applications istorentthemorlicensethemfromthird-partyproviderswhoruntheapplications at remote sites. Users have access to the applications through the Internet or through virtual private networks (VPNs). The application provider buys, installs, maintains, and upgrades the applications. Users pay on a per-use basis or they license the software, typically month to month. Although this practice has been known by many different names over the years, today it is called cloud computing. Cloud computing refers to the provision of applications over the Internet, where customers do not have to invest in the hardware and software resources needed to run and maintain the applications.

You may have seen the Internet referred to as a cloud in other contexts, which comes from how the Internet is depicted on computer network diagrams. A well-known example of cloud computing is Google Apps, which provides common personal productivity tools online, while the software runs on Google’s servers. Another well-known example is Salesforce.com, which provides customer relationship management (CRM) software online. Cloud computing includes many areas of technology, including software as a service (often referred to as SaaS), which includes Google Apps and Salesforce.com, and hardware as a service, which allows companies to order server capacity and storage on demand.

Merrill Lynch has predicted that by 2013, 12 percent of the world’s corporate computing will be done by cloud computing. The total market for cloud computing is expected to be $160 billion, which includes $95 billion in business and $65 billion in online advertising. The companies that are most likely to profit immediately are those that can quickly adjust their product lines to meet the needs of cloud computing. These include such well-known names as IBM, which has built several cloud computing centers worldwide; Microsoft, which in 2008 announced its Azure platform to support the development and operation of business applications and consumer services on its own servers; and Amazon.com, which provides storage and capacity from its own servers to customers. As these growth forecasts indicate, taking the cloud-computing route has its advantages.

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The top three reasons for choosing to go with cloud computing, all of which result in benefits for the company, are: (1) freeing internal IT staff, (2) gaining access to applications faster than via internal development, and (3) achieving lower-cost access to corporate-quality applications. Especially appealing is the ability to gain access to large and complex systems without having to go through the expensive and time-consuming process of implementing the systems themselves in-house. Getting your computing through a cloud also makes it easier to walk away from an unsatisfactory systems solution. IT managers do have some concerns, however. The primary concern is reliability, but other concerns include security and compliance with government regulations such as Sarbanes-Oxley.

Open-Source Software

 Open-source software is unlike the other types of software you have read about so far. Open-source software is different because it is freely available—not just the final product, but the source code itself. It is also different because it is developed by a community of interested people instead of by employees of a particular company. Open-source software performs the same functions as commercial software, such as operating systems, e-mail, database systems, Web browsers, and so on. Some of the most well-known and popular open-source software names are Linux (the operating system), mySQL (a database system), and Firefox (a Web browser). Open source also applies to software components and objects. Open source isdeveloped and maintained by communities of people. These communities can sometimes be quite large. Developers often use common Web resources, such as SourceForge.net to organize their activities. In December 2010, SourceForge.net hosted more than 260,000 projects and had over 2.7 million registered users. Without question, the open-source movement would not be having the success it enjoys without the availability of the Internet for providing access and organizing development activities. If the software is free, you might wonder how anybody makes any money by developing open-source software. Companies and individuals can make money with open source: (1) by providing maintenance and other services, or (2) by providing one version of the software for free and selling a more fully-featured version. Some open-source solutions have more of an impact on the software industry than others. Firefox, for example, has been very successful in the Web browser market, where it is estimated to have 24 percent of the market share. Other opensource software products, such as mySQL, have also been successful, and open source’s share of the software industry seems destined to continue growing.

In-House Development

We have talked about several different types of external organizations that serve as sources of software, but in-house development remains an option. Of course, in-house development need not entail development of all of the software that will compose the total system. Hybrid solutions involving some purchased and some in-house software components are common. Some in-house software components are reused. compares the six different software sources.

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