Mid-size companies have IT problems too, much like large companies. And just because they are mid-size doesn’t mean their problems are. They need the same type of ERP solutions that Fortune 1,000 companies are getting. Until recently there really wasn’t any place for them to go. A mid-size company either sought the services of a small ERP supplier that more than likely lacked the resources to properly serve their mid-size clients, or the mid-size companies created makeshift in-house applications because of the capital it would take to work with large vendors.
But as the ERP business grew so did the technology and new solutions came to the rescue. Customers can now access ERP applications through an Internet browser over secure Internet connections, 24 hours a day, seven days a week, from any location in the world. The solution is usually based on a per-user price structure and a one-time installation fee. And a company can be up and running in one to four months without the risk of investing in hardware.
Through this methodology customers have access to a variety of world class ERP applications. CorpCare, an ERP applications management company, can implement several different top notch applications. CorpCare’s focus is on finance and administration, and also the supply chain which interfaces with financials like purchasing, inventory, production control and order entry.
“A lot of mid-market companies want world class applications, but can’t afford to buy them,” says Walter Lazuka, president of CorpCare. “By using this outsourcing model a company can afford it because of economies of scale. Companies are able to save because the applications are centralized and the cost of the technology is spread across shared resources.”
Moving Towards Business Process Outsourcing
As easy as it is to hook up to this new technology, clients can also benefit from an entire business solution through business process outsourcing (BPO), Lazuka says. CorpCare and similar companies act as their customer’s finance department for transaction processing and some analysis functions. The direction of the department and the setting of policies are determined by the client, and the client manages the vendor through a service level agreement that defines the service criteria and the specific activities that they want the supplier to conduct on its behalf.
“The big difference is that suppliers can now manage the business users, who are doing data entry, transaction processing and report generating — all of the actual day-to-day work,” Lazuka says. “And when we add that layer to the outsourcing equation, we can provide a true business process solution. It allows us to reduce costs dramatically, since we are now dealing with an entire department or function and not just a technology.”
Lazuka says that this layer of outsourcing is something that many companies haven’t hooked on to yet. Mid-size companies are only beginning to get familiar with application outsourcing, so it will take some time for them to fully understand the added benefits of BPO.† But studies show that 75 to 80 percent of a company’s financial costs are tied up in labor or labor support. “So any realistic attempt to reduce or manage costs in the finance and administration area has to focus not only on improved technology, but also on labor issues — the high costs of labor and the shortage of skilled labor,” Lazuka says.
Using a Best-in-Class Model
Lazuka says the best-in-class approach is optimal for the ERP scenario. He notes that when a company implements ERP applications it is going to lose some functionality because what companies are usually using before implementing ERP packages are their own in-house programs. These applications, of course, are much more in tune to the exact requirements that a company needs, but they are slower and less productive.
Lazuka says that using best-in-class providers will also help resolve most functionality issues. A company that needs to upgrade its technology has a choice. They can go with one vendor and upgrade all of their suites of applications for HR, manufacturing, finance, etc. “By doing this they get the integration benefits, but typically no single vendor is best-of-breed in each of those functional areas,” he continues. “Or they can use the best-of-breed approach, when a company take the best application for each business function — finance, manufacturing and HR, all individually. If they did that they may end up with a hybrid of the best solution for each area, but you do have to integrate them.”
CorpCare’s feeling is that the best-in-class approach is winning in the marketplace. What has happened is that ERPs were popular in the past because of the integration, but what has been learned from those efforts is that many of them have been unsuccessful, he says. “Now there is new technology powered by the Internet that reduces the impact of integration on a company, which allows them to go for a best-of-breed approach. Using best-of-breed allows a company to have most of its functionality fulfilled immediately because a lot of the applications are so feature rich.”
Lessons From the Outsourcing Primer:
- Senior management must support the cause to have a successful outsourcing.
- A sense of urgency must be instilled throughout the entire company.
- Grassroots and up have to understand that if the company doesn’t change the company won’t survive.
- Employees must have the tools, the skills, the technology and the training to enact those changes.