Application Performance ManagementHow End-User Experience Affects Your Bottom-Line

Poorly performing customer-facing and back-office, business-critical applications will directly impact profitability. According to a recent analyst study, “50 percent of organizations are reporting that issues with application performance are causing lost revenue opportunities and nearly half of organizations are reporting that these issues are causing declines in customer satisfaction.” Moreover, “Application performance issues have a significant impact on customer satisfaction, employee satisfaction and brand recognition. Organizations also report that these

1issues could impact corporate revenues by up to nine percent.”

Customer-facing applications, such as those used for e-commerce, online banking, news and social media, tend to be web-based and deliver value directly to customers by enabling users to efficiently order merchandise, buy music, perform banking transactions, get information and interact with friends. Poor application performance leads to lost revenue, reduced visitors and brand damage.

Enterprise applications are the lifeblood of your business. These workhorse applications have names like ERP, CRM, SCM, PLM and SFA and allow companies to manage critical processes. These processes include the ability to process orders, manage financial systems, control inventory, track patients and medical records, schedule workflows, manage logistics, design new products, manage sales organizations and support customers. Poor application performance leads to lost business, decreased productivity and inferior customer service.

Regardless of which class of application is in use, performance matters. This white paper explains the business impact of application performance and why end-user experience (EUE) is the ultimate measure of an application’s success. It outlines why applications often perform poorly — especially as they are used across multiple platforms and devices, including smartphones, tablets, PCs and hand-held scanners. Finally, this paper sheds light on how companies are successfully managing their applications, and how businesses such as yours can ensure optimal application performance.

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WHY APPLICATIONS NEED TO OPERATE AT PEAK PERFORMANCE

THE HIGH COST OF POOR PERFORMANCETHE COST OF APPLICATION

Businesses benefit when applications operate at peak performance by achieving:} increased revenues} improved productivity} decreased cost of ownership/operation} faster time to market

However, when critical applications perform poorly, all aspects of a business can suffer.

Consider these situations:} Seventy-nine percent of online shoppers who have an unsatisfying experience are unlikely

to make a purchase from the same site again.} What if a manufacturer’s supply chain is unable to deliver due to application performance

problems? If a distributor fails to quickly and effectively service customers because inventory software in the warehouse is running slowly, that shipment — needed on deadline — may be delivered late, spoiled or not at all.

} According to Manhattan Research, seven percent of U.S. physicians use online videoconferencing to interact with patients. Telemedicine applications such as these promise convenience, ease of use and lowered costs. However, to reap these benefits, providers’ web and mobile sites — the delivery channel for these applications — must be fast, reliable and consistent. Poor performance can not only diminish patient perception and

2trust, but also drive them to more expensive call center channels.} In some industries, like food and pharmaceuticals, businesses face major revenue risk if the

goods aren’t delivered on time due to an application outage. If the goods or medicines are perishable, regulations may require their destruction, negatively impacting the bottom line.

The cost of application downtime is huge and industry-specific. For instance, average downtime 3costs in the media sector are around $90,000 per hour. Downtime for a large online brokerage

firm costs about $6.48 million per hour. Most downtime costs cluster around $60,000 per hour 4with 13 percent at more than $100,000 per hour. According to Enterprise Management

Associates (EMA), large companies report that downtime for technology-dependent 5organizations can cost in excess of $15,000 per minute. EMA has seen environments where

6downtime based on financial transactions cost $1 million a minute.

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7Figure 1: A summary of the impact to businesses when applications are unavailable.

When poor application performance leads to a lost loyal customer, the impact can be far reaching (as shown in Figure 1). It is more than just the value of the purchase that is lost; it’s the lifetime value of purchases those customers might have made.

For example, if a company averages a gross profit margin of $100,000 an hour from web and telemarketing sales, it would seem logical that an hour-long order-processing system crash would cost the company about $100,000. However, that estimate would grossly underestimate the cost of that outage. While some customers would click back later or try to place an order via the phone, other customers would give up and go to a competitor. And still more may never become customers at all. Take a prospect that would have made a purchase of $100 and then repeated that purchase once a year. Using a standard discounted cash-flow rate of 15 percent, the present value of those purchases over a 20-year period would be $719.82. If that were the

8case, the company’s loss is more than seven times the value of the first lost sale.

In the abstract, these numbers are daunting. In reality, they can be devastating. Let’s take a specific example. In October of 2010, Virgin Blue Group of Airlines announced an initial assessment of the costs related to the outage of its reservations, check-in and related operating systems. In the 11 days of downtime, the estimated pre-tax profit impact was between $15 and

9$20 million.

The loss is not just in profits alone, nor is its scope limited to certain businesses. Organizations of all sizes are seeing the impact of poor application performance. Consider that medium businesses (101 to 1,000 employees) are experiencing an average of nearly 140 hours of downtime every year and in turn losing an average of 1 percent of their annual revenue, or

10 $867,000, to downtime. According to Infonetics Research, “In addition to the financial losses, downtime creates a number of other risks including lost productivity due to idle employees, loss of customer confidence, liability and fraud due to lost records and data, and safety concerns

11due to lack of surveillance or critical communications.”

When one considers that Gartner has found large organizations (i.e., more than 2,500 employees) are experiencing an average increase in downtime of 69 percent (from 8.7 to 14.7

12hours per month), the overall impact to businesses of this size is easy to imagine.

Consider that 78 percent of consumers have switched to a competitor’s web site because they encountered slowdowns, errors and transaction problems during peak traffic times. After a poor online experience, 88 percent are less likely to return to a site, 47 percent have a more negative perception of the company and 42 percent have discussed it with family, friends and peers,

13often through online social networks.

Some costs are easier to quantify than others. Consider the “soft” costs of damaged brand, productivity or customer satisfaction as shown in Figure 2. Though not easily calculated, they can hinder the business’s bottom line.

THE IMPORTANCE OF THE END-USER EXPERIENCE

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Figure 2: Year over year, more organizations are reporting that issues with applicationperformance are causing declines in employee productivity, customer satisfaction and brand reputation.

Almost all companies monitor how well their infrastructure is performing. But is that enough? After all, what’s more important — knowing that a server is overloaded or knowing that an end user can’t process a transaction and the subsequent business impact of that issue? What really matters is the EUE. An interesting demonstration of the challenges organizations face measuring application performance comes from a recent analyst study. Forrester Research

14found that 74 percent of application problems are identified by end users. Despite all of the investment organizations have made in performance monitoring, it is still common for problems to be identiἀed and reported by customers via call centers.

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THE MAJORITY OF APPLICATION PROBLEMS GO UNDETECTED Industry reports vary on the exact percentage (some have it as high as 74 percent); however, a staggering number of end-user problems are not detected with current IT monitoring tools. In fact, the top three reported application performance management challenges are:} lack of visibility into the EUE} need for proactive problem detection before users call the help desk

15} ability to measure the business impact of poor application performance.

Almost all companies monitor how well their infrastructure is performing. But is that enough? After all, what’s more important — knowing that a server is overloaded or knowing that an end user can’t process a transaction and the subsequent business impact of that issue? What really matters is the EUE. An interesting demonstration of the challenges organizations face measuring application performance comes from a recent analyst study. Forrester Research

14found that 74 percent of application problems are identified by end users. Despite all of the investment organizations have made in performance monitoring, it is still common for problems to be identified and reported by customers via call centers.

Let’s take a look at why EUE matters so much:

The rate at which frustrated customers abandon applications translates directly into increased costs, lost revenue and a tarnished brand. Consider that the Aberdeen Group found a one-second delay in web page response time decreased conversions by 7 percent, resulting in 11 percent fewer page views and a 16 percent reduction in customer satisfaction. Moreover, at peak traffic times (like Cyber Monday when most revenue is generated), more than 75 percent

16 of online consumers will leave for a competitor’s site rather than suffer delays.

Businesses deploy internal applications to make workflows faster and easier. The result of poor application performance has exactly the opposite effect. There are times when applications can be performing so poorly that users resort to manual processes. Consider the large investments made in ERP systems. When users are forced to manually perform a job meant to be automated by the ERP system, the expense is costly and unjustified. On top of the lost return on investment, think of the process delays, missed deadlines and additional money required to

17get the job done.

APPLICATION ABANDONMENT

INTERNAL AND EXTERNAL CUSTOMER SATISFACTION

BUSINESSES LOSE THOUSANDS OF DOLLARS PER MINUTEA Forrester Research survey of 250 Fortune 1,000 companies found a staggering loss of $13,000 for every minute that an ERP application is inaccessible. And when a supply-chain

18management application is down, these businesses lose $11,000 per minute.

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LOST BUSINESS AND HIGHER COSTSWhen consumers can’t conduct business online with a bank or insurance agency because of sluggish application response, they’ll either abandon the session and take their business elsewhere or turn to the help desk. In either case, the business loses money. If a consumer goes to a competitor, the company has lost a potential customer. If the consumer calls the help desk, the business incurs a higher cost to serve the customer, considering that the average

17cost to resolve a level-one service-desk call is $24.

THE NEGATIVE BUZZ

THE ORIGIN OF PERFORMANCE ISSUES

To compound matters, shareholders and customers alike respond to negative EUE. Eighty-eight percent of online consumers are less likely to return to a web site after a bad experience. Almost half of 1,500 consumers surveyed expressed a less positive perception of the company overall after a single bad experience and more than a third told others about their disappointing

16 experience. Or consider when an outage creates a disruption in the supply chain of an essential service such as medical care or a service that promises overnight delivery. With the latter example, in addition to losing the immediate revenues associated with delivery, the business may get hit with a lawsuit for collateral damages. When these situations become highly publicized, they can have a serious impact on public perception and shareholder value.

Web content and services are delivered to your end users’ browsers from multiple sources. These sources include components delivered from within your data center as well as components delivered from third parties and the cloud such as content delivery networks (CDNs), news feeds, ads, analytics, bill payment and e-commerce platforms. With so many moving parts in the data center, plus virtualization, the cloud, layers of application tiers and the staggering amount of data handled by a heterogeneous infrastructure, the functional complexity is enormous.

As multi-tier architectures, virtualization and other new technologies grow in popularity, and data centers in turn grow more complex. As a result, IT and line-of-business professionals are hindered in attempts to ensure application availability and performance. Plus, once an application transaction leaves the data center, it must traverse the service provider’s (aka the ISP’s) backbone. Even if the application transaction speeds across the service provider backbone, network peering (in other words, connection points between networks) can slow applications to a crawl.

The application delivery chain is more complex because of three changes: increased complexity in the data center due to multi-tier architectures, virtualization, web services, mobile and WAN optimization; increased complexity on the web due to third-party providers, CDNs such as Akamai or Rackspace, multiple browsers (Chrome, Safari, Explorer, etc.) and mobile devices (smartphones, iPads, etc.); and the use of cloud providers. Saturated peering points must serve a mix of third-party providers, CDNs, cloud providers, multiple browsers and mobile devices — leading to uneven performance. Moreover, if the last mile — the connection between an end user and an ISP — is slow for any reason, the EUE suffers, and so might the business if users decide to take their business elsewhere.

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When performance problems do occur for the end user, the inability to monitor across the entire application delivery chain hinders the organization’s ability to rapidly determine the fault domain of the problem. And much time is spent trying to determine where the performance problem resides: Is it in the data center or WAN, the Internet, a third-party provider or a browser or device?

Application delivery chains will continue to grow in complexity. Prior to the cloud onslaught, IT managers had a much easier time troubleshooting and optimizing application performance because all the underlying elements were within a single data center. In the new world of cloud service providers (CSPs) and composite applications, troubleshooting application issues requires IT to chase down multiple complex request paths for an evergrowing number of applications.

19Among the 50 top retailers, 44 percent use Amazon cloud services , yet organizations in north America are losing on average almost $1 million per year because of the poor performance of

20their cloud-based applications. In Europe, the figure is more than $0.75 million .

Lack of end-user performance insight and the inability to rapidly isolate fault domains across the application delivery chain leads to delays and high costs to resolve application performance problems. In fact, 40 percent of developers’ time is spent debugging applications and trying to reproduce problems. A full 50 percent of production problems could be avoided by implementing a more proactive approach to application performance management.

Figure 3: Monitoring across the entire application delivery chain.

Figure 4: Performance problems can occur anywhere along the application delivery chain.

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The application delivery chain will continue to grow as businesses continue to leverage newer technologies such as virtualization, cloud services or mobile enterprise apps to help drive better efficiencies or competitive differentiation. Applications have changed and have become “composite,” meaning that multiple elements are assembled for the first time within the end user’s browser. For instance, some services or elements come from within your data center, some through CDNs and others from third parties delivering ratings and reviews, ads, news feeds, e-commerce and more. In fact, the average web application consists of 10 separate services — each of which impacts EUE, site availability and response time. And while IT monitors pieces of the application delivery chain, they lack the complete picture of how performance is delivered to their users.

More importantly, IT doesn’t always have insight into the end-user impact of the IT infrastructure’s performance. This issue is complicated by the fact that a growing number of organizations are outsourcing critical elements of their application delivery chain to CSPs such as CDNs, outsourced data centers and e-commerce platforms. In such cases, like the USA.gov site that outsources its IT21 there is often less insight into performance issues from beginning to end. Yet without visibility into the EUE, organizations are helpless to prevent poor application performance — and the attendant business impacts.

As application architectures become more complex — featuring richer applications, and reaching a wider audience through multiple avenues such as CSPs, mobile devices, tablets or kiosks — the need for deeper, more insightful metrics will continue to increase and expand. Real insight into the application delivery chain is a must forbusinesses to confidently meet end users’ needs.

Since sluggish or unavailable applications can negatively impact businesses in a variety of ways, it stands to reason that by optimizing application performance, businesses increase productivity, brand integrity and business value. Let’s consider a few real-world examples.

The Cobalt Group, North America’s leading provider of automotive marketing services, is in the business of helping automobile dealers and manufacturers increase there retailing effectiveness and profitability.

Committed to creating and converting opportunities in automotive retailing, Cobalt creates, hosts and manages high-performing web sites designed to connect dealers with in-market buyers. These web sites and their associated applications reinforce dealer brands, provide a steady stream of referral traffic from manufacturers’ web sites and incorporate advanced organic and paid search capabilities to achieve top rankings on leading search engines.

Because customers count on Cobalt to optimally manage their online presence, the company continues to invest in the most advanced technology to ensure that dealer prospects and customers enjoy the best possible web experience. Application performance management is one such technology that helps the company achieve its goals.

“This real-time feedback helps us ensure that we deliver on the availability and performance standards we set and better manage the performance of all our web applications from the outside in,” said John Owen, director of IT Operations for The Cobalt Group.

HOW OPTIMIZED PERFORMANCE BOOSTS BUSINESS RESULTS

E-COMMERCE

“Average resolution times have dropped from 20 minutes to about five. With four call centers employing 500 people and the web handling thousands of inquires, any downtime is a big hit for us. Even 10 minutes impacts our revenue. So, for us, the value of these new solutions is literally priceless.”

- Jeff FieldsSenior Vice President & Chief Information Officer, SafeAuto

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MANUFACTURING

FINANCIAL SERVICES

MONITOR APPLICATION PERFORMANCE WHERE IT COUNTS

Unipres is a $2 billion global automotive manufacturer based in Japan that creates parts for Nissan Motors, Subaru, Honda and other clients. For Unipres, unforeseen application downtime is the kiss of death. The manufacturer must operate 24/7 and if its applications for ERP, manufacturing, ordering and accounting are unavailable for any reason, it must revert to manual transaction processing. Even when this process is possible, it is very inefficient, leading to idle employees and the inability to produce needed parts.

A major drain to Unipres’ productivity had been a required nightly application shutdown in order to properly back up data and conduct daily accounting closings. In addition, the company became concerned about the possibility of unexpected system outages, the kind that might result from disaster or equipment failure. Unipres estimates that a significant downtime event would cost the company thousands.

More importantly, in the event of downtime,“Our customers usually had to suffer,” said Jeff Dupuy, I.S. manager at Unipres USA. “With the economy the way it is, most of our customers want a guarantee that if we have a problem it won’t impact their business because their stock levels are lower these days. If a problem on our end stops their lines, they’ll fine us.” By ensuring its applications are highly available, Unipres avoids the costly drain on employee productivity — and the associated impact on customer satisfaction.22

From individuals accessing their personal banking information to online traders running transactions via online trading platforms, the financial sector experiences both the benefits and perils of application performance. One of the leading trading platforms operating in India, the Karvy Group, manages over 600,000 accounts and executes more than 150,000 trades on the National and Bombay Stock Exchange. As a result, the organization’s data centers must operate optimally to ensure trading requests are promptly processed and delivered via the company’s applications. Karvy decided it could increase the value of its services to its customers and gain a competitive edge by upgrading its customerfacing online trading application. Since the upgrade, Karvy has maintained constant application uptime and reduced response times for the Karvy Online application.

By delivering highly available and faster applications, Karvy’s customers are becoming increasingly satisfied with levels of service. “Our customers are generally pleased by the uninterrupted availability of our critical applications. This has greatly smoothed out the flow of the trading experience for our clients and brokers.”23

Businesses face incredible complexities when it comes to application performance management. This includes everything from transactional performance and EUE, to the global reach of services over a range of critical devices and applications, and content and applications being delivered by third-party CSPs such as CDNs, product ratings, advertisers, e-commerce platforms and web analytics. If your business can’t measure or even see an applications’ performance, you will always be managing those applications blindly. As a result, when problems arise — as they inevitably will — you will struggle to ward off abandonment, lack of adoption and the attendant consequences.

“We needed a better way to monitor the health of our systems. Due to the extreme complexity of our environment, troubleshooting for our IT team was complete guesswork. Application performance monitoring has given us visibility into infrastructure performance and the ability to monitor key performance indicators and react much more quickly.”

- Trever ScottIT Director of Operations for North America, Dole

“We are more proactive because we can see what the end users are experiencing when accessing our web-based applications.”

- Lee Teck Chong, Head of Infrastructure, RHB Bank

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SUMMARYOrganizations rely on a range of applications to enable business critical processes. And while the importance of application performance is increasing, it has become more and more difficult to deliver high-quality user experiences due to trends such as virtualization, mobile computing, cloud computing, browser and device diversity and globalization.

Traditional approaches to application performance management that focused on infrastructure and component health are no longer sufficient. Business executives want to know the business impact of performance problems, IT operations need to rapidly isolate faults and resolve problems, and application developers/architects need to optimize code for peak performance. All of these challenges require a new approach to application performance management that is driven by EUE.

Ensure your application performance doesn’t hinder your business by hurting your bottom line. Use an application performance management solution that monitors the entire application delivery chain — starting with your customers and end users.

RESOURCES1. Aberdeen Group Inc., “Application Performance Management: Getting IT on the C-Level’s Agenda,” March 31, 2009.

2. Hospitals and Health network Daily, “Improving Web Performance,” november 8, 2011.

3. Information Management, “How Much Does Downtime Really Cost?,” August 6, 2009.

4. Compuware, “Application Performance Is a Business Issue”

5. Sand Hill Group, “Drive Renewals and Avoid Customer Attrition by Closing the Visibility Gap in the End User Experience,” September 6, 2011.

6. Compuware, “Application Performance is a Business Issue”.

7. SIOS Technology, “Do you Seek Application Availability?,” 2011.

8. Vision Solutions, “Assessing the Financial Impact of Downtime,” 2008.

9. Virgin Blue press release, “Virgin Blue Holdings Limited - Preliminary Operating Statistics September 2010,” October 22, 2010.

10. Infonetics Research, “Medium Businesses Lose $867,000 a year to network Downtime,” March 9, 2006.

11. Kingsbridge Disaster Recovery,“The Cost of Downtime,” january 14, 2011.

12. Gartner CEO and Senior Business Executive Survey, “2010: Perceptions of IT and Tactical Fixes,” March 26, 2010, Gartner ID:G00174491.

13. Compuware, “When More Web Site Visitors Hurt your Business: Are you Ready For Peak Traffic?,” 2010.

14. Essential Solutions Corporation, End User Service Management: The Key to Optimizing the End User Computing Experience, August 2007.

15. Sand Hill Group, Drive Renewals and Avoid Customer Attrition by Closing the Visibility Gap in the End User Experience, September 6, 2011.

16. Compuware, “Why Web Performance Matters: Is your Site Driving Customers Away?,” 2010.

17. Metricnet, “How Does your Service Desk Stack Up?: Part 2: Service Desk KPIs”.

18. Cisco, “The Global Server Load Balancing Primer,” 2004.

19. Compuware, “Gomez Application Performance Monitor: An Analysis ofApplication Performance Data and Trends,” January 2012

20. Compuware, “Performance in the Cloud Survey Report,” March 2011

21. Forrester, “USA.gov Achieves Cloud Bursting Efἀciencies Using Terremark’s Enterprise Cloud,” 2009.

22. Vision Solutions Customer, Case Study: Unipres, http://www.visionsolutions.com/WebForms/Vision-Case-Studies.aspx.

23. Cisco, “Leading Trading Platform in India Delivers Enhanced Application Performance with Cisco,” 2009.

24. SOA World Magazine, “End-User Experience Management Drives ROI,” november 2, 2011.