Back-office Outsourcing Makes Rapid Growth Possible | Article

elderly coupleFor executives with Sunrise Assisted Living, it was the best of times and, potentially the worst of times.

Business was strong. The McLean, Virginia-based company was on a fast-track pace. It was forecast to grow from 188 assisted living facilities in the U.S., Canada and the United Kingdom in 2001 to more than 1,000 facilities internationally in four years.

The dilemma was that the company’s back-office applications for human relations, payroll, general ledger, and benefits weren’t prepared to handle the growth. Sunrise selected PeopleSoft to handle these functions in 1998 because of its scalability, knowing it could not constrain the company’s growth, says Coco Kagan, Sunrise CIO and senior vice president of information technology. But Sunrise’s Unix machines, database administrator and two developers were being stretched thin handling PeopleSoft services for the growing company, she says.

“They were working 24 hours, seven days a week. That was a key dependence that was a constraint to our growth mode,” says Kagan, adding that even the computer room had exceeded what it was expected to handle. “Our applications were running in a computer room that was too weak to function as a hub and central data center for a $500 million company.”

In June 2000, Kagan and Bill Landers, the company’s director of information technology, set out to find a suitable solution. They discovered hiring an ASP would provide the scalability the fast-growing business needed, while also ensuring they had the latest version of the PeopleSoft application.

So executives with Sunrise brought in Transchannel Inc., an Atlanta, Georgia-based PeopleSoft application service provider. Transchannel promised a solid understanding of how the product could assist Sunrise’s specific business needs, Kagan says.

Change Comes Quickly

After a two-month installation, change came quickly, says George Valentine, CEO of Transchannel. After switching the company to a Unix Oracle platform, reports are generated more quickly, allowing Sunrise executives to make business decisions faster. As the company plans international expansion, the PeopleSoft application will provide multi-currency conversions.

Sunrise eliminated one IT position and also sped up the payroll process from two days to one day.

“Can you imagine knocking off a complete day in a business-critical process?” asks Valentine, whose company serves buyers with annual revenues between $200 million and $4 billion. “People want better reporting from their Enterprise Resource Planning (ERP) application for better decision making. At the end of the day they get better reporting and can make better decisions. They now have more control.”

It’s likely that more companies will turn to ASPs as PeopleSoft becomes more complex, says Art Williams, principal with Art W Consulting Inc., in Goffstown, N.H., and a long-time analyst following the ASP industry. As software applications become harder to manage internally, and as companies face hiring more – and more skilled – staff to operate the applications, ASPs will find their client base growing, Williams says.

“The success is extremely clear with this ASP business. The software is increasingly complex, and very few companies can afford the human expertise to keep up with that complexity. With Transchannel, multiple customers share that expertise. You become time-sharing gurus,” Williams says.

Eliminating the ‘Impediments’

What’s more, buyers like Sunrise are able to avoid the costly “tactical impediments” of hardware acquisition, new employees and the real estate required to house both, Williams says.

“These tactical impediments are non-trivial,” he says. “In the long term, it will be as common to outsource the running of software as it is today to outsource the writing of software.”

Buyers like Sunrise often experience significant savings ranging from one to three times the cost of the software by engaging an ASP over buying and installing software themselves, Valentine adds. Once a piece of software is loaded, a company will have to pay for hosting hardware upgrades, post-production support, customization and staffing that can add anywhere from 50 to 70 percent to the cost of the application, he says. Once the software is upgraded, the cost rises again.

Now, Sunrise has eliminated significant costs and has a partner who knows the software and system better than any internal staffer. While Sunrise is still improving how it utilizes the application, its executives also looking to bring on other ASP services, based on what they’ve learned from their relationship with Transchannel.

“Outsourcing is a fantastic solution if it’s used in the right places at the right time,” she says. “We outsourced to remove the constraints to improve our business. And it’s working better. Now it’s not a business hurdle any more.”

Lessons from the Outsourcing Journal:

  • Before making a change to outsourcing, know your own company’s strengths – and weaknesses. This will help you identify the right ASP partner.
  • Outsourcing helps a company grow by removing major constraints.
  • Back-office outsourcing helps companies move into international locations because it can handle multi-currency transactions.
  • Outsourcing a complex application like PeopleSoft means buyers don’t have to keep up with the complexity of major applications.

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