Software testing services growth report oct 11

Growth Market
Software-Testing

Market Trends, Service Providers, and
Success Factors

A study by Pierre Audoin Consultants GmbH
on behalf of SQS Software Quality Systems AG

June 2011

Growth Market – Software Testing 2
I. TABLE OF CONTENTS
Contents
1.
Introduction .................................................................................................. 4

2.
Concept of the Study ................................................................................... 5

3.
Trends in Software-TestING and QualitY management .............................. 7

3.1.
Boom in Optimization of Test Activities................................................. 7

3.2.
Increasing Acceptance of External Testing Support ............................. 9

3.3.
Development of Demand for Dedicated Testing Services .................. 12

3.4.
Development of Demand for Blended Service Delivery in the
Scope of Testing Services .................................................................. 12

4.
Success Factors in Software Testing ........................................................ 16

4.1.
Factors for Successful Collaboration with Testing Service Providers . 17

4.2.
Important Factors in the Selection of a Testing Service Provider ....... 21

5.
SQS: Successful in the MarkEt as an Independent Testing Specialist...... 22

5.1.
Overview of SQS ................................................................................ 22

5.2.
Competency Profile of SQS ................................................................ 23

5.3.
Service Pledges of SQS...................................................................... 24

5.4.
Blended Service Delivery.................................................................... 25

5.5.
Transparent Attainment of Objectives and Performance-related Billing
........................................................................................................... 26

6.
Summary ................................................................................................... 28

© PAC 2011

II. TABLE OF FIGURES
Figures
Fig. 1: Distribution of Size Classes within the Surveyed Target Group ................. 5
Fig. 2: Planning Status of the Companies Surveyed in respect of the
Optimization of Testing Activities................................................................ 7
Fig. 3: Reasons Given by the Companies Surveyed for Optimizing
Testing Activities......................................................................................... 8

Fig. 4: Organization of Testing Activities in the Companies Surveyed ................ 10

Fig. 5: Benefits in Software Testing through Collaboration with External
Specialists ................................................................................................ 11

Fig. 6: Planning Status of the Surveyed Companies in the Collaboration
with Testing Centers................................................................................. 14

Fig. 7: Reasons Given by Companies Surveyed for the Use of Testing Centers 15

Fig. 8: Expected Flexibility and Availability of Testing
Team ........................................................................................................ 17

Fig. 9: Factors for Measuring the Achievement of Objectives of the Testing

Team ........................................................................................................ 18

Fig. 10: Significance of Results-oriented Remuneration of Testing Services ........ 19

Fig. 11: Significance of Linguistic Capability in
Testing Projects........................................................................................ 20

Fig. 12: Prioritized Competences of the Testing Service Provider ........................ 21

© PAC 2011

1. INTRODUCTION
Companies are focusing increasingly on the quality assurance of the IT application
landscape. It is pivotal for all IT operations and contributes considerably to
profitability and efficiency. Testing and quality management enable companies to
address key challenges, such as incident-free support of business processes and
efficient working practices for software users.

Today companies around the world invest more than €50 billion per year in
applications testing and quality assurance. This area is of high strategic
importance as the results of this study underline: the vast majority of the
managers surveyed – 91 per cent – confirm that software testing and quality
assurance are among the most important IT disciplines in their company.

Yet what form of software-testing and quality management lends itself to achieving
the greatest possible added value? How can expenditure and quality of testing be
harmonized? What standards do companies expect from their testing activities and
external testing service providers and how can such collaboration best be
organized?

The survey conducted by Pierre Audoin Consultants GmbH (PAC), market analysis
and strategy consultancy, and commissioned by SQS Software Quality Systems
AG (SQS), provider of software-testing and quality management services, answers
these questions. The introduction to this study, entitled “Growth Market – Software
Testing: Market Trends, Service Providers and Factors for Success”, analyzes the
trends and dynamics on the demand side. The studyʼs second section shows the
opportunities and success factors in collaboration with external testing service
providers. The study also has a practice-oriented focus: the positioning of SQS is
then compared with the survey results and market analyses.

The study is intended to help companies take decisions relating to organizing and
performing their testing activities to generate the maximum added value and to
properly evaluate the potential of permanent collaboration with providers of
software-testing and quality management services.

© PAC 2011

2. CONCEPT OF THE STUDY
This study is based on a survey of 309 managers and IT decision-makers
conducted by the independent market analyst PAC on behalf of SQS, service
provider for software-testing and quality management, between February and May
2011.

The participants in the survey provided information about the organization of their
testing activities and set out the pros and cons of integrating qualified partners.
They gave their assessment of how to optimize the performance of tests and
measure the progress achieved. Finally, the respondents identified key criteria that
a service provider needs to meet for software-testing and quality management and
specified the significance of managed services for testing.

The target group comprises companies from all sectors from Europe and North
America with a minimum size of 1,000 employees and an IT team consisting of at
least 100 employees. Just under half of the organizations surveyed currently
employ between 1,000 and 4,999 employees, and a further 52 per cent have over
5,000 employees.

Composition of sample
by number of employees

1,000 to 2,499 10,000 and more
2,500 to 4,999 Don’t know/no answer
5,000 to 9,999
Share in percentage of companies, n = 309

24%

38%
© PAC 2011

23%

15%

Fig. 1: Distribution of Size Categories within the Surveyed Target Group

© PAC 2011

86 companies are headquartered in the DACH region (Germany, Austria,
Switzerland), and more than sixty companies are headquartered in Great Britain,
the USA, and in Scandinavia (Denmark, Sweden, Norway, Finland) respectively. A
further 27 companies are based in the Netherlands.

52 per cent of all decision-makers were heads of IT, Chief Information Officers
(CIOs), Chief Operating Officers (COOs), or Chief Technology Officers (CTOs), and
27 per cent were members of the management or managing board. A further 20 per
cent were responsible for their companyʼs testing activities as heads of IT
departments.

This report is aimed primarily at IT and corporate decision-makers who are
responsible for the area of software-testing and quality management or deal with
the handling and optimization of the test activities and processes and the selection
of and collaboration with testing service providers on the strategic and operational
level.

© PAC 2011

3. TRENDS IN SOFTWARE-TESTING AND
QUALITY MANAGEMENT
The awareness of the commercial added value of flawless, fail-safe corporate
applications is increasing. Alongside quality and security, the cost factor plays a
central part at a time of limited budgets. Companies are actively looking for
opportunities to improve both the software itself and the organization of testing – at
the same time as optimizing the cost aspect.

3.1. Boom in Optimization of Test Activities

The majority of the companies surveyed are currently involved in optimizing their
testing activities. At present around a third of companies find themselves in the
optimization phase. A quarter of interviewees confirm that optimization will
commence within the next twelve months, and a further eleven per cent within the
next 24. Optimization of testing activities is on the radar of a further eight per cent,
but they have not yet set the date for implementation; and 13 per cent are
considering optimizing testing activities, but have made no concrete plans as yet.
The remaining companies are not currently considering optimization.

Readiness to Optimize Testing Activities

Yes, optimization is already in progress
Yes, optimization to start in the next 12 months
Yes, optimization to start in the next 24 months
Yes, optimization is planned but starting point is uncertain
Yes, readiness exists but no plans yet
No
Share in percentage of companies, n = 309

10%

13% 32%
© PAC 2011

8%

11%
25%

Fig. 2: Planning Status of the Companies Surveyed in respect of the Optimization of
Testing Activities

© PAC 2011

Reasons for Optimizing Testing Activities
The study investigated the motives that are prompting increasing numbers of
companies to opt for the optimization of their testing activities. The results show
that companies have identified software-testing and quality management as a
valuable instrument in improving performance.

At the forefront is desire to improve quality: in 61 per cent of companies the aim of
optimizing testing activities is to enhance product quality; and 58 per cent hope to
increase quality and transparency within the testing processes. Almost half of
respondents expect that the level of testing automation will increase as a result of
the improvement measures. For 35 per cent of companies, optimization was about
increasing the objectivity of testing activities. What is interesting is that
comparatively few respondents – just around a quarter – stated reducing costs as a
reason for optimizing testing activities. It is clear that companies see quality as
more significant.

Reasons for Optimizing Testing Activities

Increasing product quality 61
.....................................................
Increasing quality and transparency
58
of testing processes
.....................................................

© PAC 2011
Increasing testing automation 46
.....................................................
Increasing objectivity of
35
testing activities
.....................................................
Reducing costs of
34
testing activities

0 10 20 30 40 50
Share in percentage of companies that are
currently preparing optimization, n = 279

Fig. 3: Reasons Given by the Companies Surveyed for Optimizing Testing Activities

The interviewees explained that benefits such as greater objectivity in the
company’s testing activities can be best achieved in collaboration with a
dedicated, independent testing service provider. An increase in the automation
of testing can be realized via long-term managed test services engagements.

© PAC 2011

Reasons Hindering the Optimization of Testing Activities
The majority of companies have the optimization of testing activities on their IT
agenda. Only a small number of the companies surveyed have made no provision
for adjustments in this area. They state that the organization is already managing
its testing optimally (37 per cent), currently has different priorities (27 per cent), or is
not ready for optimization for economic or organizational reasons (13 per cent).

3.2. Increasing Acceptance of External Testing Support

There is currently a lot of interest in collaboration with professional service
providers for software-testing and quality management. The integration of a
professional service provider, either on a by-case or more permanent basis, is a
way of achieving high quality whilst also increasing efficiency and effectiveness in
testing. Testing is therefore one of the worldʼs fastest-growing areas within IT
services. According to PACʼs estimates, companies will spend a total of €30 million
on testing services in 2011. That corresponds to a proportion of around five per
cent of the total expenditure on IT services. PAC is of the view that the demand for
professional testing support from service providers will further increase.

The company survey shows consensus in the market: the vast majority of those
surveyed agree that a suitable service provider can be used to optimize testing
activities.

Longer-term testing engagements in the form of managed testing services
partnerships based on strictly-defined service level agreements are becoming
increasingly important. According to PACʼs estimates, this form of selective
outsourcing is experiencing double-digit annual growth and is thus one of the most
dynamic segments within IT services.

More than 90 per cent of respondents consider a longer-term, partnership-
based collaboration in testing to be indispensible and view the agreement of
performance indicators, such as are standard in managed test services
agreements, to be crucial for success.

The high demand is a result of three main trends: the significance of quality-
oriented software-testing and quality management has risen with increasing
complexity in IT and testing. Long-term collaboration with service providers is also
popular among companies that want to improve the organization and performance
of their testing activities. Additionally, strategic considerations are gaining in
significance. Long-term external support is particularly attractive for companies that

© PAC 2011

want to focus more intensively on their core competences and deploy their own IT
resources for innovative projects.

The survey conducted in the scope of the current study underlines the high
acceptance of testing services: two thirds of the companies surveyed involve
external service providers in their testing activities. The intensity of the collaboration
varies and ranges from occasional collaboration on projects through to permanent
cooperation in the scope of long-standing managed testing services agreements,
even if only a small proportion – mainly large companies – outsource all testing
activities to an external service provider. Where longer-term engagements are
involved, the service provider, often also assumes responsibility for results and
risks, for example in respect of how fail-safe the applications are – alongside fixed
tasks, the performance of which is ensured by service level agreements. The goals
of a long-term collaboration usually also include the optimization and
standardization of test processes, increasing the level of testing automation and the
use of consistent and proven methods, best practices, and suitable testing tools.

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Fig. 4: Organization of Testing Activities in the Companies Surveyed

© PAC 2011

Added Value through External Testing Services
The study examined the benefits that companies associate with the testing-services
model. For companies that already use external support, a clear advantage is
improved access to qualified testing specialists. Companies that seek to reduce
their internal IT expenditure also opt for external testing services. The clear majority
of 85 per cent confirms that collaboration with external service providers for
software-testing and quality management cuts costs and reduces the burden on
internal IT teams, freeing them up for innovative projects. More than 80 per cent of
respondents confirm that collaboration with an external testing-service provider
reduces testing times and increases flexibility in the testing process. The clear
majority of respondents also identified benefits in the increased standardization of
testing processes.

Benefits in Software Testing
through Collaboration with External Specialists

Large benefit Small benefit No benefit

Improved access to
qualif. workforce 48 38 14
..........................................
Reduction of testing
costs 48 37 15
..........................................
Reduction of burden on

© PAC 2011
internal IT/testing specialists 43 43 15
..........................................
Reduction of testing
times 41 44 14
..........................................
Greater flexibility in
testing process 41 44 15
..........................................
Standardized testing
approach 38 45 17

0 100
Share in percentage of companies
that deploy external testing specialists, n = 207

Fig. 5: Benefits in Software Testing through Collaboration with External Specialists

Averaged out, the specified factors are considered to be both large and small
benefits in roughly equal measure. Users of testing services stated that certain
benefits are produced, in particular in the scope of longer-term managed testing-
services relationships. In many cases objectives such as the standardization of
testing processes are a firm feature of corresponding contracts.

© PAC 2011

3.3. Development of Demand for Dedicated Testing Services

Most expenditure is incurred for testing activities that are part of more
comprehensive IT service agreements. As well as testing, these often incorporate
the development, operation, and maintenance of IT systems. In contrast to this are
dedicated contracts for testing and quality management, which today accounts for
more than a third of the budget for external testing services, a trend that is on the
increase.

PAC anticipates that the collaboration with specialized partners in the field of
software testing will rise as customers increasingly demand independent tests
of the application landscape. The survey provides clear evidence of this: 91 per
cent of managers surveyed consider the independence of the testing team and
the product development team to be an important or very important success
factor.

The dedicated award of contracts, particularly in the scope of longer-term managed
test services agreements, is increasing in significance as the market matures.
Companies that separate out software development and testing benefit in particular
from a clear allocation of roles, improved transparency of services and test quality,
and also the objectivity of testing performance that is guaranteed by the fact that
the testing specialist is independent of the development team. As experts in their
field, focused testers also bring special competences to the table. Their routine and
their use at an early stage in the development process contribute to the efficiency
and effectiveness of testing performance.

3.4. Development of Demand for Blended Service Delivery in the Scope of
Testing Services

For many companies today, global service provision is a factor that impacts quality,
flexibility, and price of the testing engagement. The study shows that “blended
service delivery”, i.e. the use of local resources in combination with near- and
offshore resources in testing centers, has a high importance: the clear majority (76
per cent) of companies that have outsourced part or all of their testing activities to
an external service provider currently perform software tests in collaboration with
(near-/ offshore) testing centers.

© PAC 2011

Optimum Resource Distribution in Blended Service Delivery
There is no optimum composition of resource allocation that applies to all
companies. It is dependent both on individual objectives that organizations pursue
by using blended service delivery and the maturity of the company in terms of
collaboration and control of globally-allocated resources. In order to categorize the
use of near- and offshore resources into companiesʼ current IT strategy
nonetheless, the interviewees were asked about the ideal distribution of testing
activities.

The survey concluded that the number of companies that desire a high proportion
of near- and offshore activities is currently relatively low: only 14 per cent of those
surveyed can imagine more than half of the testing activities being performed near-
and offshore. What is also interesting here is that no interviewee wants to
outsource all testing tasks to a testing center. At the same time almost all
companies consider it important to continue to perform a certain proportion of
testing activities internally.

© PAC 2011

Future Usage of External (Near-/ Offshore) Testing Centers
The study underlines the fact that testing centers are continuing to increase in
significance for performing testing services. Asked about future planning, three
quarters of all interviewees confirm that they are considering the usage of external
(near-/ offshore) testing centers. While for the majority this is due in the short- or
mid-term, the rest of the companies have no precise schedule. However, the further
development of demand can be clearly plotted: interest in the use of blended
service delivery is constantly increasing.

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Fig. 6: Planning Status of the Surveyed Companies in Collaboration with Testing Centers

© PAC 2011

Drivers for the Use of Testing Centers
For the companies surveyed, the use of external (near-/ offshore) testing centers,
and thus of blended service delivery, serves a range of purposes. For more than
half reducing costs (61 per cent) and increasing the quality of service provision (54
per cent) plays a more important role in their considerations. 48 per cent stated the
increasing availability and flexibility that can be achieved e.g. through global
distribution and across different time zones as a further motive. Around a quarter of
those surveyed consider access to additional competences to be an important
argument for the integration of near- and offshore resources into their testing
activities.

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Fig. 7: Reasons Given by Companies Surveyed for the Use of Testing Centers

Reasons for not Using Testing Centers
Companies that do not currently use an external (near-/ offshore) testing center
gave the reasons for not doing so: a good third of companies will prefer to continue
to perform testing services locally in the future. A quarter of companies currently
have other priorities. 14 per cent of companies operate their own testing center.
Further companies stated that they have not yet found a suitable partner for
implementation or already collaborate with a fixed partner.

© PAC 2011

4. SUCCESS FACTORS IN SOFTWARE TESTING
Testing activities are closely linked to the challenges that companies currently face:
flexible reaction to changes on the market and customer side, high speed of
introduction of new products through optimized “time-to-market”, and greater
efficiency in delivering services.

The results of the study show that for most companies today it is not a case of
whether to optimize their testing activities in collaboration with an external service
provider, but rather the challenge of identifying the optimum approach for doing so
and selecting the correct partner.

© PAC 2011

4.1. Factors for Successful Collaboration with Testing Service Providers

Availability and Flexibility of Testing Teams
Speed and flexibility are at the forefront for companies in terms of their testing
activities. Demand is particularly high as a result of the intensive competition
landscape. The majority of companies surveyed – 60 per cent – expect high to very
high availability and flexibility from a testing team. Maximum availability is
permanent, “around the clock” readiness (24/7). The use of globally-distributed
resources helps guarantee maximum availability and flexibility.

Availability and Flexibility Expected of Testing Team

Maximum (24/7) Low (8/5)
High (10/7) Don’t know/no answer
Medium (10/5)
Share in percentage of companies that deploy external

4%
6% 18%

© PAC 2011
30%
testing specialists, n = 207

42%

Fig. 8: Expected Flexibility and Availability of Testing Team

Close harmonization and seamless communication are equally significant. Almost
all interviewees demand direct and immediate feedback to queries from the testing
teams.

© PAC 2011


Evaluation of the Achievement of Objectives by Measuring Success
The measurement of success plays a key role in the scope of testing services. Two
thirds of the companies surveyed regularly measure whether the testing team is
achieving its agreed objectives by using selected key performance indicators
(KPIs). Of these, 76 per cent monitor whether deadlines are met. 72 per cent
evaluate the number of test cases performed and test coverage. A further 66 per
cent actively measure errors in production.

Factors Used to Measure
Testing Team’s Goal Attainment

Yes No Don’t know

Measurement of 76 20 4
adherence to deadlines
..............................................
Cost and number of 72 24 5
test cases performed
..............................................

© PAC 2011
Active measurement of 72 20 8
test coverage
..............................................
Active measurement of 66 26 7
errors in production
..............................................
Detailed KPIs 26 57 17

0 100
Share in percentage of companies that measure
the testing team’s goal attainment, n = 208

Fig. 9: Factors for Measuring the Achievement of Objectives of the Testing Team

However, Figure 9 shows that around a quarter of companies collect a detailed set
of KPIs. This result of the study shows that there is further optimization potential in
managing testing quality. Collating a selection of pre-defined performance
indicators is usual for managed test services. They provide for transparency and
increase the transparency of the testing activities performed.

© PAC 2011

Results-oriented Remuneration of Testing Activities
Companies that already use external support in testing have strict requirements in
terms of professional performance of services and fulfillment of objectives. 97 per
cent state technical competence of the testing team to be an important or very
important criterion. 89 per cent of managers surveyed consider flexible billing of
testing services based on results actually achieved to be important or very
important. Only a few interviewees stated that this aspect is less important.

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© PAC 2011

Significance of Linguistic Capability in Testing Projects
Language provides an additional facet to communication. Multi-lingual capability is
indispensable, above all in globally-operating companies and for international
testing activities. 39 per cent of companies surveyed consider this aspect to be very
important, and for a third it is important. The principal requirement is for contacts
who can speak the language of the respective country and English.

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© PAC 2011

4.2. Important Factors in the Selection of a Testing Service Provider

Successful collaboration with a provider of testing services confronts companies
with the challenge of finding a suitable partner. This demanding task is dependent
above all on an evident core competence where the deciding factor is that the
service provider concentrates on testing. Equally important is for the service
provider to have an evident quality orientation, which just under two thirds of the
companies surveyed for the study consider to be highly important, as the figure
below illustrates. Companies that already work with an external testing service
provider were considered.

Further necessary competences for the majority of respondents include industry
and business-process knowledge. Around half of companies expect a provider of
software-testing and quality management to have detailed knowledge of the
underlying technologies and the products to be tested. Methodological competence
is key for 44 per cent of respondents in choosing a service provider.

Priority of Criteria Selecting a Service Provider
for Testing Activities

Highest Priority Medium Priority Low Priority

Core competence/
62 33 5
focus on testing
..............................................

Quality orientation 60 31 8
..............................................

© PAC 2011
Industry/ process knowledge 57 34 9
..............................................
Technological/ product
51 40 9
knowledge (e.g. SAP)
..............................................

Methodological competence 44 45 11

0 100
Share in percentage of companies that deploy
external testing specialists, n = 207

Fig. 12: Prioritized Competences of the Testing Service Provider

© PAC 2011

5. SQS: SUCCESSFUL IN THE MARKET AS AN
INDEPENDENT TESTING SPECIALIST
The previous chapter looked at the trends and success factors in relation to testing
services. The results of the study show that the majority of companies are working
on optimizing their test activities and are aware of the added value that professional
external support offers. Dedicated testing services providers are being
commissioned increasingly frequently on the basis of managed test services
agreements to achieve maximum leverage of the benefits.

Chapter five presents the competences, service approach, and differentiation
features that characterize SQS in the view of the PAC market analysts.

5.1. Overview of SQS

The IT software service provider SQS specializes in software-testing and quality
management. SQS currently generates revenues of over €160 million. The
company has its head office in Germany and operates globally. True to the motto
“wherever our customers are”, SQS is represented at locations in ten countries
across Europe and in the USA, Egypt, India, and South Africa.

SQS positions itself in the growing software-testing market as a specialized and
independent provider of testing with a particular focus on managed test
services.

The company has almost 30 yearsʼ experience in the testing context. An important
differentiating feature over the competition is its exclusive focus on services in this
area. With a resource strength of currently 2,000 employees, SQS is one of the
leading specialists in testing services in Europe and globally.

© PAC 2011

5.2. Competency Profile of SQS

The results of this study show that competence and reliability of the testing team
are the ultimate in seamless service provision. Further, the objectivity of the testing
team and its independence from the product development team are highly
regarded. In PACʼs view, SQS meets these requirements.

The scope of the company’s services includes comprehensive software-testing
and quality management services that cover all requirements of the customer in
this area. SQS also offers its own software tools for quality assurance in
software development projects.

Considering the services along the value-creation chain, SQS offers “end-to-end”
services, beginning with testing consultation and the performance of testing audits
and assessments of testing specifications, performance, automation, and training
up to software quality assurance and controlling the testing activities. The tool box
known as SQS-TEST®/ Professional Suite consists of proven modules for testing
management, test design and performance, and the automation of testing
processes. The solution suite also comprises a platform for integrating various
applications in software testing.

From the point of view of PAC, SQS is marked out due to its in-depth competence,
methodology, and custom tools in software-testing and quality management as well
as its high level of professionalism. Customers choose SQS as a partner for
demanding tasks, e.g. testing of sector-specific and business critical applications as
well as strategic issues and the re-conception of the overall organization of testing.

Its technological knowledge and the evident industry and process knowledge
enable the company to cater for both trends in IT and the commercial challenges of
its customers. Finally, its innovative orientation and the development and
deployment of state-of-the-art software tools and methods, enable SQS to
contribute to driving forward the development of the market for testing services.

© PAC 2011


A special feature of the solution approach of SQS is that the company has grouped
its custom methodologies, which are offered to the customer as standardized
services or as tailored solutions under the keyword of “SQS PractiQ”. The solutions
packages cater for e.g. performance testing or test automation as managed
services or a health check, i.e. the analysis and checking of testing processes and
procedures of companies with the aim of improving them. The standardization of
the SQS solutions approach allows the customer to procure pre-defined, frequently
recurring services more cost effectively.

SQS, as a specialized provider of software-testing and quality management,
fulfills the requirement for independence.

The clear focus on testing services and the associated independence and
objectivity in performing services are features that differentiate SQS from the
competition. This has enabled SQS to position itself with a clear profile in the IT
services market.

5.3. Service Pledges of SQS

Although SQS performs standardized, performance-oriented testing services to
ensure efficiency and quality, elements of services can be put together for
individual customers and delivered on the basis of the preferred model case-by-
case. Depending on the customerʼs situation, SQS will performs testing activities
tailored to the customerʼs needs, partial or complete testing projects, or all testing
activities under managed test services agreements.

As this study shows, SQS has positioned itself appropriately in relation to the
main trends in the growth market of software testing.

The testing services providerʼs response to the sustained demand for managed test
services is continual strengthening of its resources and abilities in this area.
Successful reference projects underline the attractiveness of the concept: as early
as 2009 the St. Galler Kantonalbank (Switzerland) entered into a managed test
services agreement with SQS over several years under which SQS was
responsible for testing the core bank system. The outcome to date has been
positive: after just a short time into the contract, the most important objectives
reached in collaboration with SQS include automation of testing and increase in
efficiency.

© PAC 2011

Testing Automation at St. Galler Kantonalbank
The St. Galler Kantonalbank is a bank for private and business clients that operates
globally. The institute deploys the Avaloq core bank application to support its
central business processes.

Regular software updates and error correction mean that reliable and efficient
software tests are indispensable for the Kantonalbank. In order to achieve a high
degree of automation of the Avaloq test cases and establish optimum processes,
the bank entered into a five-year contract for managed test services with SQS in
2009.

In the first year of the contract SQS implemented a large number of automated test
cases that today are fully performed and evaluated within a few days. The
significant reduction of manual tests means that the potential for savings is high.
The testing activities have been seamlessly integrated into the existing IT set-up
such that implementation occurs without friction losses. The test cases are
conducted at the customerʼs premises while the test cases implemented are
prepared and maintained in the SQS testing center in Cairo.

The current managed test services agreement means that the Kantonalbank St.
Gallen will rely on SQSʼs support until at least 2014. The fixed-price model in
combination with defined performance indicators guarantees that the bankʼs
objectives in terms of efficiency and quality will be achieved.

References assist in evaluating the competences and experience of a service
provider. In PAC’s view satisfied customers are an important indication that a
company fulfills its service pledges.

5.4. Blended Service Delivery

SQS achieves cost and quality benefits in software testing for its customers by
means of blended service delivery.

The company deploys a mix of resources from the customerʼs local unit in
conjunction with its global delivery units. While SQS manages all testing jobs
locally, the services are performed in various countries via a “best-shore” approach.
This saves costs as the tests are performed around the clock – and thus faster –
across different time zones. Blended service delivery also enables SQS to meet
demand peaks if a customer requires many resources and specific competences at
the same time.

© PAC 2011

Contacts from the local unit are available to SQS customers at all times. The
customers benefit from this, in particular in phases of service performance requiring
intensive communication.

The global delivery locations of SQS are distributed around the world and are
located in Görlitz (Germany), Cairo (Egypt), Durban (South Africa), Belfast
(Northern Ireland), and Pune (India). Today around a third of SQS employees are
deployed at these locations. Within the international services organization SQS
scores points with well-educated, multilingual teams, low fluctuation at all locations,
including near- and offshore locations, and with a high performance orientation as
well as intensive communication between the teams within the delivery organization
as a whole.

SQS is thus in a position to fulfill further needs of its customers: maintenance of
high quality standards, the acceleration of test performance, and access to
supplementary resources.

The blended service delivery approach is widespread in todayʼs IT services
environment. The large systems integrators in particular have near- and offshore
units in numbers that considerably exceed those of SQS in terms of resource
strength and number of locations. Conversely, the global delivery unit of SQS is
comparable to that of the global IT generalists in terms of the number of dedicated
testing specialists.

However, not every company wants the integration of near- and offshore resources
for the delivery of testing services. This illustrates the issue of the ideal resource
mix that was explored in section 3.4. If required SQS realizes projects or project
phases on a wholly local basis.

5.5. Transparent Attainment of Objectives and Performance-related Billing

SQS is particularly concerned with transparency in respect of delivering services
and attaining objectives for its customers.

To ensure that the benefits of collaboration can be verified transparently,
service delivery and objectives are set down with measurable indicators and
time axes.

© PAC 2011

Active budget control and measurement of success criteria enables the customer to
establish precisely not only the efficiency of the testing services delivered, but also
their quality and effectiveness. This can be measured e.g. based on the
performance and failure-safety of the tested application.

What is significant for SQS is not so much the control of the individual test
specialists: what is much more important is the management of the overall testing
team and the transparency of the testing activities in terms of quality and efficiency.
Active and consistent measurements ensure early intervention and remedy in the
event that the objectives cannot be fulfilled at any point.

The approach in the delivery of the testing services and the tools used to do so are
selected by SQS teams in consultation with the customer and in accordance with its
requirements. In this way a verifiable result can be achieved in the conflicting
priorities between different objectives such as increasing quality and efficiency.
SQS bills its services on the basis of various pricing models.

The desire for fair, results-oriented billing is clearly increasing and is met by
SQS.

© PAC 2011

6. SUMMARY
The survey, conducted with more than 300 decision-makers from large companies
in Europe and the USA, showed that most companies today use external support
for their testing activities and benefit from doing so.

Optimization of Testing Activities
The organization of testing activities and their optimization is closely associated
with the increasing awareness of the added value of flawless, fail-safe corporate
applications. The majority of the companies surveyed are currently involved in
optimizing their testing activities. Currently around half of companies surveyed are
in the optimization phase, while 36 per cent are planning to start in the coming
twelve to 24 months. Optimization enables the managers surveyed to aim at
increasing the quality and transparency within testing processes. Companies that
have made no provision for adapting their testing processes mostly justified this by
saying that their testing activities were already optimized.

Trends in the Market for Testing Services
Software-testing and quality assurance is one of the most important IT topics for
companies, as 91 per cent of the managers in the survey conducted for the study
confirmed. At the same time, there is currently a lot of interest in collaboration with
professional service providers for software-testing and quality management: two
thirds of companies surveyed already integrate external service providers into their
testing activities, in the majority of cases regularly or on the basis of long-term
managed test services agreements.

Companies associate different opportunities with the testing services model. More
than 80 per cent of the companies surveyed see the greatest benefits in improved
access to qualified test specialists, shorter testing times, the reduction of testing
costs, relieving the burden on IT teams to free them up for innovative projects, and
in greater flexibility in the testing process.

© PAC 2011

Development in Demand for a Blended Service Delivery
Today global service delivery is hugely significant. The vast majority of companies
that have already outsourced part or all of their testing activities to an external
service provider use resources distributed across the globe for software tests, i.e.
they work with a mix of local and near- and offshore resources. The study shows
that the importance of external (near-/ offshore) testing centers for delivering testing
services continues to increase. Three quarters of interviewees confirm that they are
considering using testing centers in future.

The companies surveyed use testing centers to pursue a variety of objectives. For
the majority of respondents the most important reasons are reducing costs and
increasing quality of service provision.

What is noticeable is that none of the IT decisions makers surveyed was in favor of
outsourcing all testing activities to a testing center.

Successful Collaboration with Testing Service Providers
Customers demand high competence in service delivery from their testing service
provider. 97 per cent of interviewees stated the technical competence of and instant
feedback from the testing team as an important or very important criterion.

The majority of companies surveyed – 60 per cent – further expect high to very high
availability and flexibility from a testing team. Maximum availability means
permanent readiness “around the clock”. The majority of respondents also classify
multilingual capability as important or very important in testing projects. The
principal requirement is for contacts who can speak the language of the respective
country and English.

Measuring success on the basis of KPIs for testing services is important for the
majority of interviewees: around two thirds of companies regularly measure whether
the testing team is achieving the agreed objectives. What is crucial is the
adherence to deadlines and the number of test cases performed as compared to
the expenditure incurred. Only a small number of companies surveyed – 26 per
cent – measure a set of dedicated KPIs.

A clear majority of respondents – 89 per cent – consider the flexible billing of testing
services based on results actually achieved to be important.

Success-critical Factors in the Selection of a Testing-Service Provider
In summary it becomes clear that the demand for quality-oriented services is
increasing in the growth software testing-market, while performance is subjected to
closer scrutiny than ever before. Companies demand a lot of their software-testing
partners. The main issue in selecting a testing service provider is its focus on

© PAC 2011

testing and quality orientation, which just under two thirds of companies surveyed
for the study consider to be particularly significant. The majority of managers
surveyed have high requirements in terms of industry and business-process
knowledge and demand technological and product expertise.

Testing Specialist SQS
SQS positions itself clearly in the market as a specialized provider of software-
testing and quality management within a particular focus on long-term, success-
oriented customer relationships is correspondingly well-placed in respect of the
trends in the software-testing market. These include above all the increasing
demand for long-term contracts for managed test services and the use of a
balanced blended service delivery. The company meets the high demands of the
target group by pursuing a quality- and performance-oriented service approach
combined with outcome-oriented remuneration and has the necessary competence
and experience. The company provides evidence of this via credible references and
its active measurement of the service delivery and attainment of objectives on the
basis of KPIs. These are criteria that are essential in the selection of a testing
service provider, as the company survey has shown.

Further factors come into the mix for companies that seek a suitable partner for
collaboration in software testing and quality management, depending on the
specific circumstances. The requirements are manifold. This study cannot replace a
full analysis of either the specific requirements or the services of the testing service
providers. However, PAC as the author of the study and SQS as its commissioner,
hope that they have provided the reader with useful background information on the
growing testing market and that it provides orientation in planning professional
managed test services.

© PAC 2011

About SQS Software Quality Systems AG

SQS is the largest independent provider of services for software quality
management, quality assurance and testing, with its focus in Europe. Founded in
Cologne in 1982, SQS employs 2,000 employees. Alongside a strong presence in
Germany and the UK, SQS has subsidiaries in Egypt, Finland, India, Ireland, the
Netherlands, Norway, Austria, Sweden, Switzerland, South Africa, and the USA.
SQS also has a minority stake in a Portuguese company and a joint venture with a
company in Spain. In 2010 SQS generates sales of €162.9 million.

SQS was the first German company to undertake a primary listing on AIM
(Alternative Investment Market) in London. Further, SQS has a secondary listing on
the Open Market of the Deutsche Börse in Frankfurt/Main.

With over 5,000 concluded projects, SQS has a strong customer base, including
half of the DAX 30 companies, almost a third of STOXX 50 companies and
20 FTSE 100 companies. These include Allianz, Beazley, BP, Centrica, Daimler,
Deutsche Post, Generali, JP Morgan, Meteor, Reuters, and Volkswagen and other
companies across all sectors.

For further information: www.sqs-group.com

About Pierre Audoin Consultants GmbH

PAC provides focused and objective answers to the growth demands of actors in
the information and communication technology market (ITC) – from strategy
through to implementation.

Pierre Audoin Consultants was set up in 1976 and is an independent market-
analysis and consultancy company for the software and ITC services market. We
support ITC service providers with quantitative and qualitative market analyses and
strategic and operative consultation. We advise CIOs and financial investors on the
evaluation of ITC service providers and solutions and provide support for their
investment decisions. Public and voluntary organizations use our analyses and
recommendations as a basis of their ITC policies.

For further information: www.pac-online.com and www.pac-online.de

© PAC 2011

Contact

Editor:
Pierre Audoin Consultants (PAC) GmbH
Holzstraße 26
D-80469 München
Germany

Telephone: +49 (0) 89 23 23 68-0
Fax: +49 (0) 89 719 62 65
E-mail: info-germany@pac-online.com

Publisher:
SQS Software Quality Systems AG
Stollwerckstraße 11
51149 Köln
Germany

Telephone: +49 (0) 2203 91 54-0
Fax: +49 (0) 2203 91 54-15
E-mail: sqsmarketing@sqs.de

© PAC 2011

Software testing services growth report oct 11

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