The times they are a’changing. So said Bob Dylan. Back then, in 1968, CinCom Systems Inc., a old line Cincinnati, Ohio software vendor, gave away its software to sell hardware.
Today it’s the software that matters. With the rise of the Web, CinCom Systems realized it had to become both an Application Service Provider (ASP) and a Business Process Outsourcing (BPO) supplier to service its customers according to their needs. In December 1999 it created CinAPPS, a combination ASP and BPO, to allow customers to use its software from the Web according to the new business paradigm while still providing traditional outsourcing services. Companies that provide both ASP services and BPO functions are Business Service Providers. (BSP)
For example, CinAPPS has a document production and management module. However, if a client company wants the documents professionally printed, the BSP will print it for the customer in its print shop and then overnight the printing to the buyer’s headquarters.
Since the company is using its own applications as well as third party software, the company shortened CinCom Applications to name the company CinAPPS . The name is a pun on the word synapse, the region in the brain where nerve impulses are transmitted across a small gap to other nerve endings or muscles. This mirrors how an ASP works on the Web. (Linguists call these words a “phonological ambiguity” because they sound exactly the same but have different spellings and meanings.)
Its first customer signed on in March. By the end of June CinAPPS was already servicing 20 customers.
Accessing, Not Acquiring Applications
Customers are jumping past the traditional outsourcing model and selecting an BSP solution because they don’t want to dedicate people to maintaining the software. Today, handing over control of vital applications is becoming an accepted business practice. “Customers like accessing applications, not acquiring them,” says Patrick Dowling, general manager of CinAPPS.
Buyers are turning to a BSP because they like the payment option. Because the infrastructure costs are spread out over the entire client base, each customer has to pay only for what it uses. This business method can translate into significant savings for BSP customers.
Since BSPs are a relatively new business model, Dowling suggests buyers should check out the experience of its BSP candidates. This includes the experience they have with the applications you need to use. Also, query the BSP about the resources that are available to support your needs.
Ask for their customer lists. Study the list. What types of customers do they have? What industry concentrations? Check out their size. Size does matter because you might not want to be the largest or the smallest customer on the roster.
It’s not too personal to ask about the BSP’s capital position. You don’t want to get burned if its burn rate is too high. “Make sure the BSP has enough capital to perform beyond six months,” continues Dowling.
“There is a business model risk, since BSPs are relatively new,” says Dowling. He believes an BSP shakeout is as certain as was the fall in the price of high flying technology stocks. For that reason, he cautions buyers to only “do business with an BSP that already has a history of success.”
SLAs Can Be Tricky
Traditional outsourcing relationships require a customer to pay the supplier a visit to get a first hand idea of the operation. While Dowling says this is not necessary when signing on with an BSP, he nonetheless recommends visiting their data centers. “With the Net, anybody can start an ASP out of their garage,” he points out.
At the data center, check out all security provisions. Is the BSP using adequate hardware for hosting? Is there back up power? And who’s watching the store and monitoring the system 24/7? Dowling says the answers to these questions provide critical input in determining if the BSP can comply with all your service level agreements (SLA).
Dowling says SLAs can be “a pitfall.” The key to success is to pen SLAs that only include processes the BSP has control over. For example, if you don’t use the BSP’s prescribed software over its backbone (the buyer uses AT&T but the supplier uses UUNet, for example), it may not be able to service you if there’s a network connection problem.
The executive adds buyers must make sure their SLAs have tangible requirements. Vague benchmarks “become worthless unless there’s outright fraud,” he says. A good way to do this is to use real life examples, Dowling says.
Can I Customize?
Buyers also have to decide if the applications they will be using need any customization. BSPs are structured to share standardized solutions. Dowling suggests asking up front if the BSP has the ability to modify or enhance the application. Some BSPs have no control over their applications. CinAPPs does since many of its applications are proprietary.
Finally, Dowling says customers should approach their BSP outsourcing relationship like a marriage. The goal is for both parties to grow and expand. Both can work together to add new services. When the relationship is good, “buyers might bring their friends,” says Dowling. We all know referrals are the cheapest way to add a new customer to the client roster.
Lessons from the Outsourcing Journal
- Customers like accessing, not acquiring applications.
- SLAs can be tricky with a BSP. Use real life examples to ensure there SLAs are clear.
- Check the financial condition of the BSP before your sign an outsourcing contract.
- Visit the data center to check on availability and security.
- Outsourcing is a relationship like a marriage. Both partners have to be committed to making the relationship work.