Outsourcing Eliminates ERP Headaches | Article

avoid business headachesThe evolution of Application Service Provider (ASP) solutions in managing day-to-day IT tasks continues at an accelerated pace, even as the industry itself remains in a contraction mode when it comes to the number of ASP firms.

The surviving ASP providers find themselves needing to more clearly define their niches and, at the same time, strengthen their relationships with the prominent software vendors, which form a primary component of an ASP’s infrastructure backbone.

Adept ASP providers are still finding a wealth of clients who need them. San Jose, California-based Electroglas saw the advantage of outsourcing its IT responsibilities to an ASP with a solid track record and SAP expertise. The 40-year old supplier of hardware and software process management tools to semiconductor manufacturers was behind the times when it came to managing its in-house IT management tasks. This shortcoming was underscored by the fact that it had customers in Europe and Asia as well as North America.

Moving IT From the Horse and Buggy to the 21st Century

“We were using 20-year old IT procedures,” says Steve Hmelar, vice-president of Electroglas’ IT division. “We knew a change was necessary. After several months of research, we chose SAP’s enterprise resource management (ERP) solution as our replacement. From there, we looked at three ASPs and decided to choose one with as deep a commitment to the SAP model as we had.”

Enter BlueStar Solutions. The Cupertino, California firm provides enterprise application outsourcing services to more than 50 customers in 20 countries, focusing on reducing IT costs and mitigating risks in their clients’ operational infrastructures. Withofferings revolving around SAP’s applications, BlueStar provides customized outsourcing solutions for various vertical markets, from pharmaceuticals to process manufacturing.

“Fundamentally, SAP is very complex,” says Dave Budnick, BlueStar’s director of Marketing and Alliances. “It does an awful lot, providing robust solutions and wide product lines. But it’s high maintenance. You have to build a rather large infrastructure in order to manage it properly.”

Building another network was not what Electroglas had in mind. “We were not interested in building our own SAP network or supporting one,” says Hmelar. “Rather, we wanted to focus on our core business of servicing the computer chip manufacturing industry. And, we needed to ramp-up quickly, which also made outsourcing very attractive.”

Electroglas required high availability, a strong technical team to back up its executives on the rapid implementation, and assistance in adding additional users and divisions as the company moved forward with its SAP application.

BlueStar’s business model around deploying SAP in its standard core horizontal service often involves customization of that basic service. Sometimes only minor modification is needed; at other times major work is necessary.

BlueStar completed development two months ahead of schedule and, according to Hmelar, “implementation was the easiest aspect of the entire process. We spent months getting to the point where our outsourcer was ready to deliver. But once we reached it, things happened fast.”

BlueStar provides customization modifications at the outset of the outsourcing relationship, or as the relationship matures and the buyer identifies other needs. “Many are integrating other interesting software products with SAP since it’s so versatile,” says Budnick. “So one of the things we do in the evolutionary phase is encourage them to migrate their processes to our one of data centers, since we’re responsible for ultimate performance.”

The Secret to Outsourcing Success

Hmelar reports the results. “We’ve realized a one-time $1 million in implementation cost savings and estimate a 25 percent ongoing savings” over a year.

Communication is one reason for those results. Budnick says his BlueStar staff communicates with its clients how much they are valued. “We go to great lengths to nurture a one-on-one relationship and develop solutions unique to each specific customer,” he says.

A primary reason for this ASP’s success is its thorough understanding of SAP. “We run it for every one of our clients,” says Budnick. “When we guarantee performance, it’s not just our reputation that’s on the line, but also SAP’s. We have to be very comfortable with our existing and future relationship with SAP if our clients are going to be confident with our services.”

Budnick explains that companies considering outsourcing to an ASP are best served by investigating the relationships their outsourcing suitor has with external vendors, assuring that those relationships will support the ASP’s client needs for the life of the outsourcing agreement.

Art Williams, president of ArtW Consulting, and an independent analyst for the ASP industry, concurs, although for different reasons. “SAP America seems to have gone to great lengths to support this relationship because they see BlueStar as a means of expanding SAP America’s market share. Not all application service providers see it that way.”

“There are thousands of ASP’s, but there are only a few that offer SAP,” he adds. “BlueStar is certainly the most focused and arguably the most successful. We’re so pleased, we recently contracted BlueStar to take over our customer relationship management (CRM) processes,” says Hmelar.

Typically, one good job leads to another.

Lessons from the Outsourcing Journal:

  • Potential buyers of outsourcing services need to be very comfortable with the relationship between an ASP and its external vendors to ensure the ASP will be able to satisfactorily support the buyer’s future needs.
  • Communication between service provider and buyer goes a long way in building a successful outsourcing relationship.
  • Most companies don’t have the ability or want the headache of implementing a complicated ERP program. ASPs can do this better and faster.

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