Executives who know how to fix computer code but also understand the IRS code are the people who run reSOURCE Partner associates (rSP), an ASP supplier in Columbus, Ohio. The two-year-old firm, which specializes in both the technical and the business side of applications, provides complete application hosting, application management and business process outsourcing using PeopleSoft's Human Resources and Financial applications. (The firm selected PeopleSoft after an extensive one-year search in 1996.)
The firm's leadership had years of corporate HR and IT experience before they became an ASP. They are a chip off the old cow: The company was the services organization for Borden Inc., then a Fortune 500 company. (Borden Foods and Borden Chemicals were rSP's first customers.) Unlike some ASP providers, "we truly understand the business side of the application," says Sam Amore, vice president of marketing.
This real world business education provides added value to the firm's customers, especially when things go wrong. An accident at the plant of one client rendered its computer network useless. ReSOURCE Partner came to the rescue. It ran the company's payroll and distributed the checks -- on time.
Of course, the firm has technology savvy, delivering applications over various networks including T-1's, VPNs and the Internet. Dreaded computer jobs at its client companies are at the top of the job description list at reSOURCE Partner. "Patches and fixes are a large part of our business," says Amore. These are basically upgrading the PeopleSoft module after each new release. Leaving the upgrading to them is one of the lures of ASP outsourcing.
The IT Personnel Shortage
Amore believes another force driving ASP popularity is the shortage of trained IT personnel. A recent Wall Street Journal report found 340,000 IT positions are currently vacant. Companies can't find the talent they need to keep their technology current and running. And the qualified candidates want to work for an IT company where they will be more highly compensated, not at a bank or broker, where their work is not the central function of the firm. Turning to an ASP may be the best way to have qualified technical people care for your application.
The high entry costs are another reason why businesses are opting for the ASP route. Infrastructure costs for data centers, servers and networks can milk a company dry. Because of its parentage, reSOURCE Partner already had an operational data center and support center staff.
Avoiding these costs make using an ASP so attractive. "Our clients are not buying infrastructure. They're just renting it. And they are accessing expertise they may not have been able to afford otherwise," says Amore.
Application delivery is changing as this relatively new field matures. Now, many clients are using dedicated lines for their more sophisticated critical applications and using the Internet for reporting and employee self-service. Amore confirms an increasing use of Internet delivery via virtual private networks. These private networks act like dedicated lines but actually transfer data over the Internet using encryption software on both ends. Amore believes virtual private networks will become a popular choice because they provide the security of a dedicated line and save dollars, too.
This ASP's target market is middle tier companies, which it defines as firms having between $100 million and $2 billion in revenues. Amore says even the ASP business model originally started at the lower end of the middle market, corporations with revenues greater than $500 million are turning to ASP's for help. "The market is exploding," Amore reports.
Divergent Players Become ASPs
That demand is driving the "phenomenal" growth of the ASP market. Divergent players are entering the marketplace including telecommunications companies, integration consultants and independent software vendors. Over time, players will consolidate. Some will target niches. And some will disappear.
Because of this Wild West atmosphere, Amore has several suggestions for selecting an ASP. First, decide what your needs are and chose a provider that can service them. A company that just needs application hosting has far different requirements from a firm that needs more in-depth customer support.
Next, select a company that can commit to and will meet the agreed upon service levels. The outsourcer must not be afraid to promise performance in its service level agreement (SLA).
Verify the provider's experience and ability to integrate these applications to your internal systems. This is a key requirement.
Make a site visit. Ask to see the data center and the call center. New buyers need to feel comfortable with the quality of the infrastructure they are "renting." If the ASP is subcontracting its server farms, is that acceptable to you? At the site, meet with the people. Is their culture going to mesh with your organization?
Then, ask for a list of customer referrals. Call those customers. Inquire about the level of service after the honeymoon period. Did they really deliver?
Finally, examine how the ASP is going to service the account. Are you going to have a dedicated account manager? How are you going to handle disputes?
Using these guidelines, Amore says client companies can enter into a beneficial ASP business relationship with an outsourcing supplier. As time goes on, the ASP should add value by adding more applications and providing even more functionality.
Lessons from the Outsourcing Primer:
- The IT personnel shortage makes ASPs beneficial because they can attract qualified personnel.
- Buyers don't have to incur large capital outlays for computer hardware and software because those costs belong to the ASP.
- An ASP who understands the underlying business functions as well as the technology involved can provide complete coverage, especially in times of trouble.
- The Internet will cut ASP delivery costs because buyers will not need dedicated lines to their ASPs.
- Integration of the applications with internal systems is key.