Trend

Software testing: shadow of consolidation looms

The global push for better software development standards, reduced time to market and increased demand for software stability, not to mention reduced costs have translated into the emergence of software testing as one of the primary outsourced services and a $45 billion business worldwide. By Satyam Pati

The lure of independent firms that provide specialized testing services—be it performance testing, security or functional testing or test automation—with a reasonable price advantage without sacrificing quality was what drove first US enterprises and then other multinationals to Indian service providers. Development, in itself is a difficult job to outsource, was already something Indian service providers were comfortable with and outsourcing testing made significant business sense. Gangadharaiah CP, Senior Vice President and worldwide head of Wipro Testing Services cites a Gartner report according to which Testing Quality Assurance outsourcing has the maximum potential savings and the least associated risk and is therefore the easiest piece of the software development lifecycle (SDLC) to outsource.

Initially independent testing firms provided a significant advantage and governed the direction that testing services outsourcing firms in India would take. The prime examples of standalone firms whose primary if not the only domain of expertise was testing are Applabs, Disha and Relq. Of these three, only Applabs continues to exist and grow as a standalone testing specific enterprise. Relq and Disha are examples of a relatively recent trend that could have a substantial impact on testing services in India. Disha was acquired by Aztecsoft and Relq went over to worldwide quality assurance enterprise EDS recently. There are however, certain trends that are emerging in the testing sector which can possibly herald a turning point in an industry which has recently shown signs of maturing.

Technology and domain expertise

The focus today is on both technology as well as domain expertise. Even traditionally sensitive areas such as BFSI are witnessing a surge in test outsourcing. This according to Ashwin Palaparthi, Founder and Principal Architect, Valueminds, and Sai Chintala, VP technology at Applabs is a direct result of the steady increase in the quality assurance standards of Indian testers. It also points out that testing companies in In dia have succeeded in establishing a stable, productive and steadily growing relationship with outsourcing clients who would be especially concerned about quality standards. In fact BFSI organizations rely heavily upon the stability of their applications and accord great importance to testing.

Subodh Parulekar, AVP Aztecsoft itest practice, emphasizes that there is a greater push than ever to outsource testing during the early stages of the SDLC. He points out that it is not simply manual test execution that is being outsourced, but also high-end work such as Test Strategy, Test Planning, and Test Automation Design and development. Furthermore, according to Parulekar, the Business Intelligence technology domain is also expected to see a high volume of test outsourcing.

Gangadharaiah CP says that although integration, system and performance testing are all critical components of testing projects to provide quality assurance for a software product or application, functional and performance testing will continue to account for the largest share of the pie. Gangadharaiah adds that the newer areas of growth are Packaged Application Testing which is mirroring the trend of enterprises adopting various CRM, SCM and ERP packaged applications. Localization and globalization testing is also on the rise as enterprises focus on global markets and need to localize or customize their products and services. Service Oriented Architecture (SOA) and virtualization testing are emerging areas.

Another emerging area, points out Gangadharaiah, is security testing since security is increasingly becoming an area of concern for all enterprises as applications are becoming Web and SOA enabled. In a recent seminar in Mumbai, ‘Security development lifecycle’, organized by the Indian Merchants Chamber, one of the speakers said that, ‘’Security breaches impact business very severely. 70 percent of all security breaches are due to software defects, arising from technical and logical flaws.”

Parulekar predicts strong growth in the area of performance engineering, which includes performance testing, analysis and tuning. Growth is also expected in areas covering other quality attributes such as internationalization, application compatibility, Web security and in data quality testing. The increased importance of SOA also implies that it will be a sought after area during the coming fiscal.

An area which, according to Sai Chintala, has emerged as a major domain in test outsourcing is the testing of real-time mission-critical systems, especially in the case of embedded systems. He says that, BFSI continues to remain a major source of test revenue and as such it will be high on the priority list of testing companies for some time to come. This however means that domain expertise in areas like trading platforms will be a sought after skill for testing companies along with security testing focused areas like threat detection and management.

HR challenges

The testing services sector has come a long way from its humble beginnings. The importance that testing has gained in the country is apparent from the image change that testers have undergone. Gone are the days when testers were mere mortals in a world ruled by developers. Arun D Rao, VP, Human Resources, Applabs points out that the increased importance of testing has translated into more refined HR practices at testing firms. “A strong analytical perspective, the ability to deconstruct and the ability to look at a product as a whole and also as a sum of its parts are, some of the major factors that define a good tester,” says Rao. These all are qualities that testing firms look for in prospective employees whether freshers or experienced ones. Testers themselves have higher expectations these days. Job satisfaction and peers play a major role apart from financial considerations for testers today. Rao emphasizes that merely a good salary is not sufficient to retain good employees; a peer group which enables productive interaction has gained substantial importance for employees. Palaparthi points out that testing used to be an easy to enter domain for a fresh IT graduate. In the recent past, however, testing companies have become more discerning in their choice. It was usual for engineers to think of testing as a launch pad into development but that is no longer the case. The quality of manpower in testing has increased by many magnitudes largely as byproducts of the success testing firms have met with.

The shadow of consolidation

The test outsourcing market has been driven by independent testing companies in India. However, how long pure test-only companies can survive is the question that the industry is asking itself. Applabs is perhaps the largest surviving testing focused enterprise and it has continued to grow. The recent growth plans and rebranding strategy unveiled by Applabs in Hyderabad point towards an emerging trend of expansion, both globally and regionally. Applabs CEO, Sashi Reddy pointed out that a public issue could be on the horizon for the company to fund its expansion, especially in the emerging European market. Reddy predicts consolidation in the Indian testing industry as practically inevitable and thus mergers and acquisitions of testing companies are going to see a marked increase. This has already been seen in the case of Relq and Disha. Applabs itself acquired KeyLabs in 2005 and IS Integration in 2006.

To further strengthen the case for consolidation Parulekar says,” As companies use product quality to gain a competitive advantage, the bar for quality in the software industry will continue to rise. Accordingly, there will be higher demand for independent testing services. There will be an upward trend in the growth of the outsourced testing market, with a corresponding increase in mergers and acquisitions. I expect mergers and consolidation in this space to be primarily driven by the need for firms to acquire experience in additional industry verticals such as BFSI, or technology domains such as SOA, mobility and wireless, data warehousing etc.”

Gangadharaiah CP feels that the offshore testing services industry in India are highly fragmented with the largest players having market shares in single digits with many standalone testing companies focusing on specialized testing in specific verticals and domains. He confirms that mergers and acquisitions are inevitable as larger companies look to acquire competence in niche areas, focus on non-linear growth and look for talent.

The question that comes to mind is ‘does the brand equity of an acquired testing company risk getting diluted?’

Parulekar believes that the acquisition of smaller testing companies is a relatively recent trend. However he denies that such acquisitions may dilute the brand equity of the acquired company especially if it is operated as an independent test practice, and the same is translated into sales and marketing efforts. Gangadharaiah CP says that once smaller companies are taken over, they more often than not are integrated with the operations and processes of the larger company. Their brand gets discontinued. He feels that testing only companies play in a limited market and may have limited exposure to domains. Since many of them focus on niche areas, they may not have the knowledge and competence acquired by bigger end-to-end IT services companies with their experience across verticals, the ability to cross fertilize ideas, innovate and ultimately give the customer greater productivity benefits. Effective knowledge management, rotation of talent pool within divisions and exposure to the whole SDLC gives end-to-end IT service companies a unique competitive advantage as they understand the nuances and pitfalls across the complete lifecycle of operations.

Maintaining growth in a consolidating market

The major challenges that the offshore testing industry in India will face, according to Applabs, Aztecsoft and Wipro, primarily involve maintaining its current level of growth while allowing for consolidation in a mature market. Gangadharaiah feels that testing services is a people dependent business and the industry constantly faces a challenge in terms of recruitment to match growing business potential. The other significant challenge is retention of talent. Parulekar believes that maintaining the quality of deliverables without sacrificing growth will be a major challenge for the testing sector. He adds, “As customer organizations adopt newer development processes such as the agile methodology, offshore testing services organizations should come up with customized engagement models and methodologies which enable effective outsourcing. Also, testing companies in India should move into high-end and specialized services such as quality consulting, test automation strategy and development to differentiate their offerings from those of other vendors offering low-cost commoditized services.”

Testing is maturing and the challenges of consolidation are a major test that the testing sector faces today. The questions of survivability of standalone testing only companies and how testing survives the very challenges that are a result of offshoring will be answered only in coming years. Nevertheless, the substantial experience that testing companies have acquired is perhaps the best advantage Indian offshore testing has as a weapon in the coming struggle of consolidation.