A report from The Economist Intelligence Unit. Managing application development to unlock its full potential. Sponsored by:

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1 A report from The Economist Intelligence Unit Managing application development to unlock its full potential Sponsored by:

2 Contents About this report 2 Executive summary Applications are here to stay 4 Differing roles and perspectives among application developers and C-suite 6 Models and methods of application development 8 Challenges and opportunities 11 The road ahead 13 1

3 About this report Managing application development to unlock its full potential is an Economist Intelligence Unit report, sponsored by Google Cloud. The findings do not necessarily reflect the views of the sponsor. The report draws on two main sources for its research and findings: A survey that includes responses from 1,018 senior executives and application developers worldwide, across financial services, healthcare, manufacturing, retail, public sector, and gaming and entertainment industries. Survey respondents are located in the Americas (44%), Europe, Middle East and Africa, or EMEA, (31%) and Asia-Pacific, or APAC, (25%). More than half of survey respondents (52%) are in the IT function. A series of in-depth interviews with senior executives. Interviewees Fin Goulding, international chief information officer, Aviva Finbarr Joy, chief technology officer, Superbet Martin Migoya, chief executive officer, Globant Mike Robinson, executive vice-president of product management and customer experience, Macy s Roisin Parkes, chief technology officer, Gumtree Australia We would like to thank all the interviewees and survey respondents for their time and insights. The report was written by Jessica Twentyman and edited by Michael Hoffmann. 2

4 Executive summary As hard as it may be to believe, it is more than eight years since a now-famous marketing slogan made its debut: There s an app for that. These days, there really is an application for almost everything and most business leaders agree that their own company s applications are important elements of their growth strategies, helping them to reach new customers, develop stronger links with existing ones and build new revenue streams. Indeed, enterprise applications are numerous in type and function, connecting businesses to consumers, employees and other businesses across platforms like web and mobile. As businesses have embraced application development, they have also adopted cloud technologies, providing their teams not only with a platform on which to develop and test new applications but also to run applications efficiently without relying on hardware. When an application turns out to be a big hit with customers, cloud provides the scalable infrastructure businesses need to cope with potentially huge spikes in traffic. As applications have become core to companies strategies, their development has also become an important part of corporate operations. But application development is not without its challenges, as shown by this report, sponsored by Google Cloud. The research is based on a survey of more than 1,000 business executives and application developers at large organisations across the Americas, EMEA and APAC. The report investigates best practices in application development, drawing on the real-life experiences of those managing the process, and the importance of close alignment between development teams, the C-suite and the wider business. There were marked differences in responses between these groups across a range of topics. Key findings include: More than nine out of ten (94%) of survey respondents describe application development as either somewhat or very important to their business s growth strategy. More than two-thirds (67%) of respondents have already adopted some degree of cloud infrastructure or applications and 29% plan to within the next three years. When it comes to proposing new applications, approving and developing them, and allocating budget, IT leads at most organisations, but in close consultation with heads of business and with support from the C-suite. The most common ways to organise development teams are by department (cited by 41% of respondents), function (33%) or business unit (31%), reflecting an emphasis on business needs over technical issues. When asked about the preferred methods for application development, respondents point to Agile (45%), DevOps (39%) and Continuous Integration, or CI (31%). In terms of barriers to application development, security tops the list (44%), followed by lack of funding (30%) and inflexible technology (27%). 3

5 1 Applications are here to stay Today, the technical barriers to accessing computing power have all but fallen, and people with good ideas for digital offerings can find the technical infrastructure they need to express them faster than ever before. From a simple computer database to a digitally savvy mobile shopping experience, enterprise applications play a powerful role in growth and business development across industries. Indeed, applications are widely seen as vital to organisational growth strategies, say respondents to an Economist Intelligence Unit survey of more than 1,000 business executives and application developers at large enterprises across the Americas, EMEA and APAC regions. The survey was conducted by The Economist Intelligence Unit and sponsored by Google Cloud. More than nine out of ten (94%) survey respondents describe application development as either somewhat or very important to their business s growth strategy. That s certainly true at iconic US retailer Macy s. In May 2017 CEO Jeff Gennette outlined a new North Star Strategy for the company in his first address to shareholders since taking the top job in March. He could not have been clearer about the importance of digital applications in his turnaround plan. Every experience matters, in-store and online, he said. Our mobile app and digital capabilities complement the store experience and help our talented sales associates serve our customers better than ever, he said. Much of the responsibility for taking Macy s application forward rests with Mike Robinson, the company s executive vice-president of product management and customer experience. Members of his team, he reports, understand the impact that they can have and see it through the measurement of key metrics. The constantly changing expectations of customers present a challenge, Mr Robinson adds. Speed is the name of the game and we have moved from a few releases a year to almost weekly. Our job is to make the customer journey as convenient, as relevant and as interesting as we can. Other companies are thinking about enterprise applications the same way. The survey shows that the acquisition of new customers is seen as the most important driver of organisational growth strategy (55%), followed by increased revenue from existing customers (47%), suggesting that companies see applications as a channel to reach wider audiences and sell more products or services. On a regional basis, respondents in the Americas are more likely to describe application development as very important (74%), compared with their counterparts in EMEA (59%) and APAC (60%). And on an industry basis, gaming and media most often describe application development as very important (82%), while those from the government/public sector are least likely to (46%). Figure 1 Organisations across geographic regions agree that applications are very important to their growth strategy (% of respondents saying very important ) How important is application development to implementing your organisation s growth strategy? 74% Americas APAC Europe & ME 59% 60% Figure 2 Applications are seen as very important to growth strategies across various industries (% of respondents saying very important ) Gaming & media Retail Manufacturing Financial services Healthcare & life sciences Government/public sector 46% How important is application development to implementing your organisation s growth strategy? 59% 68% 72% 71% 82% 4 Source: EIU survey sponsored by Google

6 Cloud enables modern applications One thing is clear: cloud plays a big role in the application development effort at most companies, whether by providing a platform for developing or testing applications or, as in many cases today, a runtime environment for applications in production. It s more scalable than using onpremises infrastructure so if an application proves to be a big hit with customers, there s always more capacity to accommodate spikes in traffic, billed on a pay-as-you-go basis. As the international chief information officer (CIO) of financial services firm Aviva, Fin Goulding, puts it, our leadership is very progressive here in terms of cloud as long as they see that it is used within a very secure model. They understand how it can help to get application development work done quickly and delivered at scale. More than two-thirds (67%) of respondents have already adopted some degree of cloud infrastructure or applications and 29% plan to within the next three years. That leaves a paltry 4% who are not using cloud and have no plans to. Mr Robinson at Macy s notes that cloud has helped the company shift the development timeline. We continually focus on using cloud services to accelerate our development velocity, he says. By using cloud resources, Macy s seeks to release more software more quickly, in the form of regular, incremental updates to software and new features and functions. Figure 3 Most businesses are using or planning to use cloud applications in the near future More than two apps or a significant portion of computing infrastructure in the cloud One or two apps or a small portion of computing infrastructure in the cloud Plan to use cloud-based apps and/or computing infrastructure within the next 12 months Plan to use cloud-based apps and/or computing infrastructure within 1 to 3 years Not at all and have no plans to adopt cloud technologies 4% 15% 14% 29% 38% To what extent has your organisation adopted cloud technologies? Source: EIU survey sponsored by Google 5

7 2 Differing roles and perspectives among application developers and C-suite It takes a village to develop modern enterprise applications. The breadth of people involved in application development ultimately helps leverage the strengths of the entire business, but it also introduce new challenges. The survey findings reveal that IT is out in front when it comes to proposing new applications, approving them, managing development and allocating budget. The heads of IT have the largest role overall, but they are supported by IT managers, CIOs and chief technology officers (CTOs) and, of course, the developers themselves across all stages of application development. At Macy s, application development is a true company-wide effort, says Mr Robinson. Our model is based on business sponsorship and expectations, translated through our product management team, partnering with technology to co-develop, iterate and deliver our capabilities, he says. But elsewhere in the business, others have their say. Heads of business units play a prominent role, particularly when it comes to proposing applications. Marketing or product managers may also have a distinct view of what customers expect from an application compared with developers. When it comes to proposing applications for development, for example, 27% of respondents say that heads of business units play a role here and 24% say product managers are involved. CEOs, meanwhile, are cited as having a role in various stages of development but are most often involved in having final authority over application development and allocating budget. At Macy s, application development is a true company-wide effort, says Mr Robinson. Our model is based on business sponsorship and expectations, translated through our product management team, partnering with technology to co-develop, iterate and deliver our capabilities, he says. Figure 4 Attitudes on application development vary greatly between developers and the C-suite (% of respondents saying poor or unsuccessful ) App developers C-suite Discrepancies Ease of acquiring resources 9% 39% 30% Rewarding innovation and creativity 10% 39% 29% Training and development 4% 31% 27% Flexibility throughout development 8% 29% 21% Hiring high-quality talent 7% 26% 19% Encouraging collaboration with non-it teams 7% 24% 17% Use of KPIs 6% 17% 11% 6 How would you assess your organisation s application development processes with respect to each of the following? How successful is your organisation at each of the following practices, specifically with respect to application developers? Source: EIU survey sponsored by Google

8 Internal development, as indicated by survey respondents, is generally favoured over outsourcing to a third-party development specialist, but only by a relatively small margin. Financial services more often opts for internal development than do companies in other industries (58%), whereas manufacturing (51%) and retail (43%) more often choose external development. Although the IT function works closely with the wider business to deliver applications, the data reveal striking divergences of opinion across seniority levels with respect to the role of technology in the business. At the same time, the closer respondents are to day-to-day application development, the more often they rate elements of that process as poor or ineffective, from the ease of acquiring necessary resources to the rewarding of innovation and creativity. Similarly, although most participants rate their organisation s IT practices positively, application developers more often describe various IT practices as ineffective than do directorlevel and C-suite audiences. These discrepancies suggest that application developers are not empowered to work at their full potential. In fact, those working on day-to-day application development may not even understand how the work they are doing will contribute to their organisation s growth strategy. Application developers (54%) say far less often than those in the C-suite (80%) that application development is very important to their organisation s growth strategy. This disconnect suggests that greater transparency may be helpful, not just in highlighting to developers how the applications they develop will help the organisation to grow, but also in encouraging them to use new approaches that could accelerate and streamline that work. Furthermore, these insights can be shared across all parts of the business, from the developers to the C-suite. Aviva s Mr Goulding describes the importance of putting applications at the centre of the business. That starts with new ways of working across all the technical teams. But we have to extend what we re learning there to the rest of the business, so that the whole business recognises and appreciates the importance of agility, digital in general and of apps in particular. Across the board, C-suite respondents are much more sanguine about levels of encouragement for using different tools than are application developers. More than two-thirds (69%) say that the use of cloud services is very encouraged, but only 37% of application developers agree. When it comes to open source software, almost half (49%) of C-suite participants say their use is strongly encouraged, but only 29% of application developers agree. Identifying leaders and best practices What sets apart the leaders from the followers when it comes to application development? By looking at companies that describe themselves as very successful across all five best practices in application development included in the survey training and development, using KPIs, hiring high-quality talent, encouraging collaboration with non-it teams and rewarding innovation and creativity it is possible to identify those that might be considered leaders. These make up approximately 10% of the overall sample. A key characteristic of leaders is that they report greater involvement of the C-suite throughout the application development process relative to the average, from the proposal of new applications (55% v 43%) to their ongoing management (44% v 34%). Executive buy-in certainly seems to get results. The data suggest that these leaders tend to be more experimental, for example. In particular, leaders more often feel encouraged to use new tools and technologies and report high-quality applications relative to the overall group. They adopt cloud more often compared with the overall group (77% v 67%). Moreover, they are more often very encouraged to use cloud services, technologies new to the company, open source software and bring-your-own-device (BYOD) approaches. Leaders more often report excellent flexibility throughout application development, ease of acquiring resources and quality of applications relative to competitors. 7

9 3 Models and methods of application development The pressure on companies to deliver a steady flow of robust, compelling applications has never been greater. And although IT may be heavily involved in managing various aspects of that pipeline, the overall strategic needs of the business often come first. In recent years, this line of thinking has sparked a revolution in how companies develop and bring new applications to market and how the success of applications is measured once they are out in the wild. It makes sense, then, that the data reveal that development teams today are most commonly organised by department (41%), function (33%) or business unit (31%). In this way, those groups in the business that commission an application perhaps marketing, for example, or a specific product group and therefore have the best understanding of the business needs are involved in its design and development from the very start. Various project methodologies have also come to the fore. The three leading methods for application development cited by respondents are Agile, DevOps and CI. A shared focus of Figure 5 Application developers are most often organised by department Department Function Business unit Products & services Application Operating system Type of application Programming language Vendor partner 5% How are application development teams most often organised at your organisation? 7% 19% 26% 28% 31% 30% 33% 41% Source: EIU survey sponsored by Google these methodologies is a strong emphasis on collaboration among multidisciplinary teams drawn from a wide cross-spectrum of the organisation. Here, we again see different perspectives between application developers and the C-suite, leading to some confusion over what methodologies are actually used. For example, seven out of ten application developers report using agile application development, but only 34% of C-suite respondents say this is used. But C-suite respondents more often than application developers report usage of DevOps (50% v 30% of application developers), CI (41% v 19%) and Continuous Delivery (37% v 24%). This may be a question of definitions: these are all quite technical approaches, with which application developers are much more likely to be familiar than a company s leaders. Application developers may begin by using a handful of these approaches to begin with, but they tend to incrementally add more over time as their familiarity with DevOps working practices grows. As Roisin Parkes, CTO at Ebay-owned classifieds site Gumtree Australia says: DevOps is definitely our direction of travel. I wouldn t say we re fully there yet, but we re adopting elements of it all the time and it s our intention to get to full DevOps when we can. On this journey, linking application development to the wider business remains important. People are so wrong if they think that app development is just about technology. That s not the way to deliver a great experience to customers, says Martin Migoya, CEO of Globant, a software development company that was founded in Argentina in Now listed on Nasdaq and having worldwide offices, the company builds applications for a wide range of corporate clients, including sportswear brand Puma, bank Santander and airline Southwest. 8

10 Figure 6 The C-suite and developers report varying levels of modern application development methodologies App developers C-suite Discrepancies Agile 34% 70% 36% Continuous integration (CI) 19% 41% 22% DevOps 30% 50% 20% Prototyping 15% 35% 20% Pair programming 10% 27% 17% Continuous delivery (CD) 24% 37% 13% Iterative development 26% 33% 7% Spiral 9% 16% 7% Waterfall 27% 34% 7% Incremental build 25% 28% 3% What development models and methodologies are used by your organisation s application developers? A successful app has the ownership of the whole company. This is not just about engineering, but also about design, he says. When Globant consults with a client, we ll sit down with the chief executive, the chief marketing officer, the sales team. A successful app has the ownership of the whole company. At Gumtree, Ms Parkes has her development teams organised into squads, with each squad including a project manager, a team leader, a number of front-end and back-end developers, a quality assurance engineer and the business owners of the application such as advertising or sales executives. They follow a practice she refers to as dualtrack Agile. In this approach, activities are split into discovery sprints and delivery sprints. In a discovery sprint, the teams will work on proof-of-concepts of new ideas and test them with customers. In the delivery sprint, new features are typically delivered through an A/B test. This involves opening up that new feature only to a pre-identified pool of Gumtree users and comparing their interactions with the new application with that of the existing application. Perspectives on individual development methods differ by industry. Financial services companies report a greater use of Agile (61%) relative to peers in other industries. Gaming and media companies report the greatest levels of CI, an arguably more technical practice that requires developers working together on an application to integrate code into a shared repository, typically several times a day. Application development methods also differ between companies that have adopted cloud and those that plan to in the near future. Cloud users more often report using DevOps than those that plan to adopt cloud but haven t yet done so (46% v 28%), CI (35% v 20%) and Continuous Delivery, an approach that involves regular, small updates to software, developed in short cycles (33% v 21%). These divergences may exist because cloud users do not manage on-premises infrastructure. 9

11 Applications measured on external metrics over internal metrics Once applications are delivered, what matters most is how they re received by their intended audiences. As Mr Migoya of Globant says: Impact translates into loyalty, and loyalty translates into revenue. Survey respondents agree: they say that applications success is generally measured on external metrics, in particular quality (cited by 53%) and customer satisfaction (52%). Quality of enterprise applications, in this case, refers to the software s reliability, degree of latency and compliance with functional requirements. Internal metrics are judged to be less important, while time/budget (45%) and return on investment (40%) both rank lower on the list. It s all about the outcome for the customer, about the experience they have with our apps, says Mr Joy at Superbet. External metrics also make it easier to identify when a new feature, for example, fails to hit the spot with customers and to stage an early intervention perhaps tweaking that feature or abandoning it altogether if it proves unpopular. But in order to establish those metrics, huge volumes of data need to be collected, much of it unstructured (in the form of clickstream data, for example). Those data then need to be stored and analysed. Here the cloud offers scalable storage space and a platform to derive insights from data. Leveraging timely data analytics is critical for understanding how customers use the applications and what kind of traffic patterns they attract, says Mr Joy. Instead of having a weekly or monthly dredge through usage data when it comes to features or functions, our data analytics people sit directly in the development team, giving constant directions on everything, from the touchpoints at the front end of the app, all the way through to certain usage patterns that give clues as to where we could develop richer, more personalised segments at different stages in individual games. That means we can run a lot faster with the product, in terms of constantly improving it. Feedback is also a big focus for Ms Parkes at Gumtree. With seven million visitors a month, the sheer volume of feedback can be overwhelming, but it s all vital insight, she says. She typically gets daily reports on the ratings and reviews that Gumtree s Android and ios applications receive from users, along with reports from the company s customer support teams on any issues that users are experiencing. The results of A/B testing on new features are also thrown into the mix. All this helps me draw up a list of priorities. But at the same time, I m also keeping an eye on what competitors are doing and, of course, thinking ahead about what might be the future technologies that we could use to enhance the customer experience obvious ones right now include machine learning, artificial intelligence, and even virtual and augmented reality. Figure 7 Applications most commonly measured on quality Quality Customer and/or stakeholder satisfaction Execution delivery (on time and on budget) Customer and/or stakeholder use Achieving expected ROI Contribution to strategic goals 45% 43% 40% 39% 53% 52% How does your organisation measure the success of application development? Source: EIU survey sponsored by Google 10

12 4 Challenges and opportunities Figure 8 Most businesses consider their IT practices effective Adopting cloud computing Updating legacy infrastructure Addressing interoperability and/or hybrid cloud challenges How effective are your organisation s IT practices as they relate to each of the following? Figure 9 Security is the top challenge for application development Survey respondents are largely positive about their capabilities in a number of application development and IT-related organisational practices. They consider themselves successful at training and development (87%), using key performance indicators, also known as KPIs, (86%) and hiring high-quality talent (86%). Likewise, they believe they ve been effective in IT-related practices: adopting cloud computing (87%), updating legacy infrastructure (86%) and addressing interoperability and/or hybrid cloud challenges (85%). Respondents from the gaming/media sector more often rate their IT practices as effective relative to their peers in other industries, while respondents from the government/public sector most often rate them as ineffective. Security Lack of funding Inflexible technology Inflexible culture Lack of alignment between IT and organisational strategy Lack of insight into end users Lack of technical skills Lack of tools or technology No barriers What are your organisation s biggest barriers to developing better applications? Source: EIU survey sponsored by Google 6% 17% 27% 26% 24% 24% 23% 30% 44% 87% 86% 85% A world of challenges There are still many challenges for companies across the board. The data reveal that these challenges can hinder successful application development as well as cloud adoption. Top of the list is security, cited by 44% of respondents as a barrier to application development, followed by lack of funding (30%), inflexible technology (27%) and inflexible culture (26%). The importance attributed to these barriers reflects individual concerns of different sectors. Although common across industries, security is a particular concern for financial services companies (50%), while government/public sector organisations are most likely to report lack of funding (41%). In the case of application development, security risks highlight the need for proper talent and skills to avoid preventable breaches and mitigate user error, a leading cause of successful cyber-attacks. Although executives must acknowledge the business implications posed by a potential security breach such as brand damage or customer loss it is unlikely, however, that they will or can afford to eschew application development given its importance to growth strategy. Similar barriers are seen when it comes to cloud adoption, with security once again top of the list (46%), followed by inflexible culture (25%) and lack of funding (23%). Across the survey base as a whole, the barriers to application development and cloud deployment are seen rather differently by C-suite executives when compared with application developers. More than half (54%) of application developers cite security as a top barrier to adopting cloud technologies, whereas the C-suite is more sanguine. There, only 39% see it as a barrier. 11

13 Still, as suggested earlier by Mr Goulding, executives are often comfortable using modern platforms like cloud, as long as it is used within a secure framework. Again, this stresses the importance of gathering the right people and expertise to securely implement new technologies, for the vast majority of enterprises (96%) are already using or planning to use cloud applications and infrastructure within the next three years. Only 14% of application developers see inflexible culture as a barrier to cloud adoption, while almost a third (32%) of C-suite respondents believe that to be the case. Again, it s clear that these groups need to be communicating better in order to share a more common vision of the challenges faced. Figure 10 Cloud adoption is also hindered by security Security Inflexible culture Lack of funding Lack of alignment between IT and organisational strategy Lack of technical skills Inflexible technology Vendor contract lock-in Lack of tools or technology No barriers 8% 25% 23% 23% 22% 21% 20% 18% 46% What are your organisation s biggest barriers to adopting cloud technologies? Source: EIU survey sponsored by Google A matter of perspective It s no surprise that application developers working at the coalface of new code take a different view of the tools and practices at their disposal when compared with their seniors in the C-suite, who at best are somewhat remote from these activities on a day-to-day basis. C-suite respondents more often describe their organisations as encouraging use of cloud services, for example, than application developers (88% v 69%). Similar discrepancies are seen when it comes to open source software (84% v 70%) and BYOD (68% v 30%). Although 88% of C-suite executives say that developers are encouraged to use technologies new to the company, only 73% of those lower down the hierarchy agree. Similarly, application developers more often rate various aspects of their application development process as poor or unsuccessful, relative to their higher level counterparts. For example, over one in four (29%) application developers describe their flexibility during development as poor or unsuccessful, while only 8% of C-suite executives say the same. Over a third (39%) of the former group perceive problems with acquiring the resources needed for application development, but only 9% of C-suite executives agree. In other words, the closer respondents are to application development, the less confident they were in various elements of application development management. This is a gap that urgently needs to be addressed through communications. Application developers and their managers need to be clearer about the issues they face and the resources that they need, and those at C-level need to get better at responding to what they re told about day-today realities. More effective dialogue between these two groups may help bridge that gap, giving developers more resources and greater freedom to try new tools and technologies that will help them overcome the challenges they face and set them on a clearer path to success. 12

14 The road ahead 13 Survey respondents overwhelmingly agree that application development is a vital part of their organisations future but it is also clear that many stakeholders have different perspectives on the tools and methodologies needed to successfully develop applications. As we have observed, application developers seem to have less insight than C-suite executives into the role that their applications play in overall company strategy and are less confident that they have the freedom to use the tools they need or that their chosen tools and approaches are even the most effective. That needs to change. Business leaders who recognise the importance of offering a superb digital customer experience to overall competitiveness must ensure that their application development team can forge ahead, unimpeded by obstacles or concerns. All this highlights the importance of several key actions: Fostering communication and transparency, to create deeper and more frequent dialogue between the IT function and senior managers. Greater discussion between the C-suite and application developers can help ensure understanding of the strategic linkages between development of enterprise applications and broader business objectives. Enhanced communication can also raise awareness of the day-to-day obstacles encountered by developers, such as a lack of appropriate tools or resources, and prompt those in leadership positions to enact any necessary changes. Cultivating cross-functional collaboration, to include the voices of all team members from engineering to design and marketing. Encouraging widespread participation in application development can incentivise further dialogue across the business and address cultural challenges like slow bureaucracy or resistance to new tools and ideas. Using success metrics based on business outcomes as well as communication of these linkages to application development teams, to ensure strategic cohesion and track progress with KPIs. Evidence-based assessments of success can ensure application development is tied to company strategy and delivers on business goals. Importantly, KPIs can help management reward developers that are innovating successfully and identify areas of weakness where employees may need more training. Using new technologies, to incentivise innovation and reward application developers for creativity. Many developers cite the difficulty of acquiring the necessary resources as a major challenge to the success of enterprise applications. Encouraging the use of new technologies and development methods may help alleviate some of the inflexibility developers encounter throughout the development process. Responding to employee and customer feedback, to address company-specific bottlenecks and improve flexibility throughout the application development process. Constant evaluation of feedback can help businesses continuously improve their applications in a timely fashion while also addressing specific pain-points for customers. Nuanced understanding of employee concerns can also help businesses adapt their processes to better empower developer to succeed. Together, these steps can help businesses accelerate their efforts to create a common vision of the future of application development. of the future of application development.

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