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"
Outsourcing ERP and other IT services has become a common practice for
many businesses. With OneNeck, each customer solution is uniquely designed to boost the performance of existing
IT systems while minimizing costs."
Source : OneNeck
Forget Speeds and Feeds-ERP Outsourcing for the Mid-market
Outsourcing is also known as :
Outsourcing Information,
Outsourcing Management,
Easy Outsourcing,
Successful Outsourcing,
Offshore Outsourcing,
Outsourcing Company,
Technology Outsourcing,
Outsourcing Solutions,
Business Process Outsourcing,
Outsourcing Benefits,
Outsourcing Disadvantages,
Outsourcing Advantages,
Outsourcing Services,
Outsourcing Industry,
Outsourcing Software,
Affordable Outsourcing,
Strategic Outsourcing,
Outsourcing Portal,
Outsourcing Companies,
Outsourcing Leadership.
FOREWORD
Mid-market companies who've made the commitment to an
Enterprise Resource Planning system have several options for
deployment. Each option brings with it varying levels of company
involvement, efficiency, completeness, and cost.
Perhaps the most difficult decision on the table is whether to deploy,
manage and maintain the system in-house, or outsource one or all of
these key functions. Influencing the outsourcing decision is the fact that
ERP systems cast a huge footprint across an organization - consuming
as much as 90 percent of the total IT infrastructure. Consequently, a
commitment to ERP requires signifi cant human, technical, and financial
resources that may be out of reach for
smaller companies.
Increasingly, mid-market companies are seeking out specialized
outsourcing partners to manage their complex applications such as
ERP. The process of finding the ideal outsourcing partner is no longer a
cut-and-dried matter of determining how many servers are needed, or
how much bandwidth is available. ERP outsourcing partners now must
understand your business, all of your applications, and your short- and
long-term business goals. Only then can they create the optimum
solution comprising hardware, software, strategic planning, and services.
This white paper presents an overview of ERP outsourcing models and focuses
on the critical success factors involved for mid-market companies.
THE EVOLUTION OF OUTSOURCING
In the early years of the outsourcing industry, vendors of IT infrastructure
services were selected primarily on price. Companies of all sizes and
stages of maturity chose their IT outsourcing partners on how much of
a given specification – for example, bandwidth, disk storage, or number
of users – they would receive for a given price. In general, outsourcing
decisions were made by analyzing classic build-versus-buy scenarios,
with the lowest-cost solution often the winner.
In hindsight, it's safe to state that many outsourcing decisions were
based on corporate politics rather than on what was best for the
company at the time. IT managers and staff grappled with the issue
of staff reductions every time the word “outsourcing” was mentioned,
and often turned away from outsourcing for just that reason. But when
businesses were forced to reduce headcount and the scale of their
operations during the tech downturn of 2000-2003, companies who
hadn't turned to outsourcing wished they had.
Corporate data centers began to empty. Elaborate hardware systems
sat idle. And corporations were increasingly forced to look outside their
walls for ways to continue operations that had become dependant on IT,
without spending precious capital to acquire, manage and maintain the
equipment, often through the course of a long-term lease.
The ability to scale the breadth and depth of your IT infrastructure can
be a corporate life-saver. This need for economical scalability caused
many outsourcing companies to position themselves as providers of a
utility service. If you need more of any data center commodity, open the
outsourcer's faucet to receive exactly the quantity you need. When your
need diminishes, reduce the fl ow back to its normal state.
However, “utility” really doesn't connote a deep partnership between
companies. Utilities can be switched on and off at will without human
intervention. As companies explored the software side of the IT equation
for ways to remain competitive, tight partnerships became more
important than ever.
In our so-called New Economy, outsourcing has taken its rightful place
as a business strategy, not merely a cost-reduction scheme. In fact,
the leading reasons why companies outsource point to business - not
technology - advantages and metrics.
- The in-house IT staff lacks the requisite skill sets to manage
and support the latest ERP applications and other complex
technologies.
- Management recognizes the need to outsource the care and feeding
of its ERP application, as the function is either too difficult to
manage or out of control. If the outsourcer restores calm, management
frequently follows their ERP decision with a desire to
outsource other applications and IT functions as well.
- The company needs to deploy applications and enhancements
quickly in either start-up, transitional, or expansion modes of operation.
- To reduce and control recurring operating costs by eliminating
redundancies.
- Extract greater business benefi t from the IT infrastructure by standardizing
as much as possible on a single ERP backbone.
- Improve the company's focus on core competencies by reducing or
eliminating the distraction of managing their IT infrastructure.
- Free the internal IT resources for other purposes such as developing
strategic enhancements and future-state planning.
- The company gains access to world-class capabilities without tying
up capital or taking the time to build the function in-house
With the advent of Application Service Provider models, wherein core
applications are managed by a vendor or third party – often from a
remote location – the criteria for a strong outsourcing partner expanded
to include the skills necessary to manage the key applications required
by a modern business. Outsourcing is no longer about either hardware or
software. Now, it's about total solutions for the business, not just IT.
This need in recent years for specialized expertise has caused many
companies to turn to their software vendors for help. While software
vendors are obviously highly knowledgeable about their products, most
lack expertise outside of their core solutions. This creates a need for
multi-sourcing, the practice of using multiple outsourcing partners for
a variety of specialized needs within a single company such as data
center operations; application and database administration; application
development and functional support; WAN/LAN support; phone system;
e-mail; and desktop administration.
No doubt, counting on a multi-sourced IT environment
to support a complex ERP application can be risky
business for mid-market companies.
Multi-sourcing has attracted a lot of attention in the large-enterprise
market, where outsourcing needs are greater than what a single service
provider can provide. However, for mid-market companies, multi-sourcing
brings additional difficulties, including higher costs than originally
anticipated; the necessity to contract with and manage more than one
provider; and a general lack of accountability among the outsourcers for
problems of interoperability and integration that almost inevitably arise.
No doubt, counting on a multi-sourced IT environment to support
a complex ERP application can be risky business for mid-market
companies.
In addition to sorting through the hardware, software, and services
offerings of outsourcing providers, you'll need to consider factors that
are specifi c to the size and available resources of your company. For
example, in their 2005 outsourcing report, the well-known investment
banking fi rm TripleTree writes, “ ... the ongoing cost and challenge of
application management far exceeds the cost of the initial software
license and implementation. This is especially true for companies with
less than $2 billion in revenue.”
While not unique to mid-market companies, application management
expenses are a signifi cant part of the total cost of IT infrastructure. A
hidden contributor to these costs is the decreased number of qualified
and certifi ed software technicians in the post-dotcom era. In short, a
lot of good people left the software support industry through layoffs,
reductions in force, and frustration with shrinking corporate IT budgets.
The difficulty in attracting and retaining top IT personnel at mid-market
companies is another strong reason to consider outsourcing.
Supporting TripleTree's fi ndings, industry consultants at research fi rm
IDC have discovered through a customer survey that, “Well over 50
percent of the companies with $50M-$2B in revenue responded that the
ongoing cost to maintain their critical applications exceeded their initial
license fees by two-to-fi ve times. It's not surprising to see these statistics
reported among middle market companies who, despite their relatively
small size, often have very complex business processes that drive signifi -
cant software management requirements. This challenge is exacerbated
by the fact that most middle market companies have comparatively
small IT staffs relative to their Global 1000 counterparts.”
For mid-market companies, the process of selecting an outsourcing
partner must consider how well potential partners understand both the
company's mission-critical applications and their business. The adoption
of complex, business-critical applications such as ERP has played an
important role in heightening the need for outsourcers to possess both of
these skill sets.
WHAT'S MORE IMPORTANT IN AN OUTSOURCING PARTNER - APPLICATION OR BUSINESS ACUMEN?
From the mid-market perspective, the popularity and widespread
adoption of ERP, coupled with the maturity of the applications
themselves, has effected a shift in the way companies regard their
installations. What was once a strategic advantage is now at the core of
enterprise-wide infrastructure. And on the hardware side of IT, virtually
all technologies have become commodities. Performance differentiation
among manufacturers is now apparent only at the highest ends of the
product spectrum, essentially leveling the
playing fi eld.
Consequently, successful mid-market companies will be those that
select outsourcing partners with a strong grounding in ERP and business
process management as well as the technical capabilities to provide an
IT solution that satisfi es all the infrastructure demands through a single
point of contact.
Application Management Expenses for Companies with revenue Ranging from <$50 million - $2 billion IDC Survey 2004
|
Companies with Revenues <$50m |
Companies with Revenues $50M-$500M |
Companies with Revenues $500M-2B |
| Less than software purchase price |
19.8% |
11.6% |
8.8% |
| Equal to software purchase price |
12.3% |
7.0% |
5.3% |
| 2x-3x software purchase price |
25.3% |
36.1% |
28.1% |
| 4x-5x software purchase price |
8.3% |
17.5% |
19.3% |
| 5x software purchase price |
8.3% |
5.8% |
14.0% |
Source: IDC
In addition to understanding the IT infrastructure needs of its customers,
the extent to which an outsourcing partner understands the business
personality of the mid-market company is a distinguishing characteristic
that's key to the success of a relationship. For example, how much do
company executives want to “notice” their outsourcing partner? Should
the relationship be completely transparent, or should communication be
frequent and detailed?
Research indicates that most mid-market companies prefer a high level
of communication with their outsourcing partner. Because the ERP
application and supporting IT infrastructure are critical success factors
for these companies, frequent communication provides a comfort
level on current states of performance and problem resolution, should
diffi culties arise. This high level of communication, often referred to as
“high-touch,” is what enables companies to focus on their core business
without diverting time and attention to infrastructure issues.
Advantages and Disadvantages of Outsourcing Models
Buyers looking to outsource can choose from among several types of
providers, although some are better suited for mid-market companies
than others. Some outsourcers provide shared-services centers that
allow them to share infrastructure, people, and software with many
customers, frequently creating economies of scale for their customers.
Some have years of IT experience and the industry's best data
processing prowess, but lack the knowledge of modern applications
such as ERP. And certain providers merely supply hardware platforms and managed services only for the operating system and network.
Buyers must evaluate these differentiating factors and select a service
provider based on the best fi t for their business needs.
FOLLOWING IS AN OVERVIEW OF THE MOST COMMON OUTSOURCING MODELS
Application Service Provider (ASP) - An ASP hosts and
manages a single or limited number of packaged software applications
located in its own or a third-party's data center. In general, an ASP
provides hosting on their hardware with standard confi gurations or very
limited customization available. An ASP is essentially a “one-to-many”
provider - they use one environment to support many customers.
Among the advantages of working with an ASP are expertise in its
software application(s), and, because of its one-to-many business model,
the ASP can usually market itself as the low-cost provider of its specific
services.
One disadvantage of the “one-to-many” model is either very limited
or non-existent customization. If the ASP does provide for customized
environments, the pricing for it often eliminates any potential savings.
Many companies are unwilling or unable to deploy ERP software that
does not take into consideration the unique requirements of their
business.
An additional disadvantage is that ASPs generally offer neither skills
nor expertise in non-core applications and further lack the abilities
to integrate the ERP applications with others. As a result, customers that do not have in-house expertise to manage and integrate their
applications are forced into a multi-sourcing scenario.
A final disadvantage in working with ASPs is they often rely on thirdparty
providers to host and manage their data centers, provide database
administration, and manage the back-end infrastructure, networks,
and other subsystems. This can result in a lack of accountability for the
customer when problems arise.
Vendor-Hosted Application Provider - This type of outsourcer
sells its proprietary software application, then hosts and manages it for
customers. This type of provider is generally best for applications with
relatively limited functionality.
An advantage to the vendor-hosted model is that the software provider
generally has a deep understanding of, and expertise in the software
application. In reality, the developers within the software organization
seldom manage the applications, preferring to offl oad this function to a
separate support organization.
Among the advantages of working with an ASP are
expertise in its software application(s), and, because
of its one-to-many business model, the ASP can
usually market itself as the low-cost provider of its
specifi c services.
Moreover, designers are usually not the best users of the tools they
design and build. For example, you won't fi nd employees of Louisville
Slugger on the roster of any Major League Baseball team. Can you
imagine their slogan? – “Let us do the hitting for you – we designed the
bats!”
In managing a customer's IT environment, knowledge of the software
application or design is only a single, albeit important element in
providing high service levels. Perhaps more critical is knowledge
of, and experience with the IT management processes - change
management, release management, confi guration management,
problem identifi cation, and problem resolution, among others.
Successful outsourcers will know how best to deploy these processes in
the customer's IT environment.
Another disadvantage of the vendor-hosted model is that, like ASPs,
vendor-hosted application providers cannot integrate their software with
the customer's ERP solution, e-mail or other applications. For example,
customer data and information from an ERP system must be integrated
with a Customer Relationship Management (CRM) system, and vice versa, to drive the greatest effi ciency and effectiveness. Furthermore, these providers
offer no support for non-core applications and force the customer to multisource
if they lack the in-house expertise to create, manage and integrate
the applications.
Platform IT Outsourcer - These are usually large-scale vendors that
manage all or part of a customer's IT environment, including transfer
of the customer's IT facilities, hardware and even staff. Key examples
include EDS, CSC, and Perot Systems.
An advantage to this model is that, because of their size and scale,
they're generally able to bring the requisite resources to bear to satisfy
a customer's demands. Typically, they have the fi nancial resources to
purchase the IT equipment and personnel from their customers as part of
a transaction. This frequently provides a fi nancial incentive to customers to
agree to outsource their entire IT function.
Among the disadvantages of working with a platform IT outsourcer is
that in attempting to be all things to all people, they may take on an
environment in which they have no expertise. For example, they may
undertake a particular ERP application without having a focus in that
application, since they inherit only what the customer already has
onboard.
Another disadvantage for mid-market companies is connected to
the fact that since these outsourcers are typically involved in billiondollar
contracts, it's questionable how much attention mid-market
companies will receive from them. Recently, one of the largest platform
IT outsourcers announced they are currently pursuing over 100 contracts
with a value of $1 billion or greater. With this kind of opportunity in the
Fortune 1000 sector, it's clear where their priorities lie.
This outsourcing model is further complicated by the fact that providers
often charge a per-service-request fee. This tends to place a continuous
focus on maximizing incremental revenue as opposed to delivering
exceptional customer service and support. In the end, this type of feefor-
service structure often leaves customers frustrated and disappointed
with an outsourcing relationship that complicates billing while delivering
“just enough” support.
Utility/On-Demand Hosting - These outsourcers provide hardware
and/or software on an as-needed basis, typically priced according to the
number of users. Customers pay only for what they use, as they would for
any utility, such as electricity.
Among the advantages of this model is that the outsourcer, in providing
a one-to-many service, uses economies of scale to offer a presumably
low-cost, fl exible service. Also, because services are generally billed only
as used, the up-front investment by the customer can be reduced.
A disadvantage is that customers could be misled on their total
savings since both hardware and software components of an ERP
implementation (those elements which are addressed by the on-demand
concept) are increasingly smaller elements of the overall costs.
For example, in the mid 1990s, in a moderately sized business, a single
Unix server that supported a 100-user environment cost from $300,000
to $500,000. Today, a server with similar capacity costs less than
$100,000. Additionally, software that previously cost $6,000 to $8,000
per user now costs between $3,000 and $4,000 per user. Conversely,
other costs such as implementation and ongoing support are rising. As
a result, the on-demand solution tries to save money on the smallest
cost components of an ERP implementation while ignoring the largest
components.
Another disadvantage is that customer costs rise in a linear fashion as
the number of users increase, with each new user resulting in increased
fees. This situation actually defeats the IT cost savings that should
result from using a third-party provider. In reality, the incremental cost
of adding an additional user to a service provider is very small. Most
service providers don't need to increase their resources to support the
environment unless a larger block of users is added. But according to the
on-demand model, the costs to the customer rise with each additional
user.
The utility/on-demand concept implies a demarcation line of the
outsourcer “outside the wall,” just as the water provider's responsibility
ends at the water meter outside the house. However, mid-market
companies need outsourcers to provide service beyond the demarcation
line directly to the end user, enabling them to become more effective
users of the ERP environment. This is accomplished only when the
outsourcing provider has knowledge of using the software to enable
better business processes. The on-demand concept ignores the
extension of services to business process enablement.
The on-demand concept is cleverly designed to simplify marketing a
complex solution. Its limited success in delivering the promised cost
reductions, together with the market's slow adoption of the concept,
have resulted in significant losses by large providers that are now
abandoning the concept.
Remote Systems/Application Management - In this model,
services are provided at the operating system, database, and/or
application levels by organizations and individuals remote from the
technical environment. Its advantage is in supplying professionally
managed services without the expense of transitioning a technical
environment to the outsourcer's location.
However, a disadvantage is that since other organizations and
individuals will likely have access to the system, the outsourcer can
provide only limited guarantees of security and systems availability in
their service level agreements. If the customer requires 99.9 percent
system availability of the application, database, server, network, or other
subsystem, a remote management provider simply cannot guarantee
it. Most users find a lack of availability to be unacceptable in an
outsourcing relationship.
Since the capital investment required to provide these services is
limited, remote management organizations can be a loose collection
of professionals without integrated management of the environment.
This situation could lead to poor system documentation and little if any
redundancy, resulting in a single point of failure in the management
of a company's mission-critical ERP environment. In addition, without
rigorous system documentation, the customer simply cannot comply
with Sarbanes Oxley section 404 requirements.
WHAT'S MISSING IN THESE OUTSOURCING MODELS?
Two common shortcomings run through these outsourcing models.
The fi rst is a shift away from one-to-one to one-to-many relationships,
making individually customized solutions extremely rare. The second is
the inability to integrate the service provider's main offering(s) with the
customer's other applications. As a result, customers must multi-source
if they lack the requisite IT expertise in-house.
None of these outsourcing models offers the right solution for the midmarket
company that wishes to outsource its ERP or other applications,
yet integrate them tightly to achieve maximum effectiveness for the
company. Mid-market companies require an outsourcer that can do
it all – one that can customize, integrate and manage the entire IT
environment – and do so without multi-sourcing. In other words, the
company needs a provider that offers a total solution. The only ERP
outsourcing services provider that offers mid-market companies a total
solution is OneNeck IT Services.
THE TOTAL SOLUTION – ONENECK IT SERVICES
OneNeck is the leading mid-market outsourcer that can both manage
customers' ERP applications and integrate them with other systems.
Unlike other providers, OneNeck does not force its customers to multisource.
In typical relationships with its customers, OneNeck personnel
provide all necessary IT services. OneNeck does not subcontract
recurring outsourcing services. Rather, as its name implies – “Ours is the
one neck on the line” – they take full accountability for issues affecting
their customers' environments.
By not needing to cross barriers between different service providers, as
is common in multi-sourcing, OneNeck seamlessly provides integrated
services to its customers, leading with a high-touch customer interaction
approach.
OneNeck customer Mark See, CIO for Targus Group International,
confi rms the value of the single-source model. “Targus had no organized
IT infrastructure - even at the regional level. We were challenged with
creating a scalable IT environment that could be centrally managed
and supported in order to serve as the foundation for globalizing Targus'
communications, supply chain and fi nancial systems. We wanted to
do all of this without creating a signifi cant in-house IT department. We
reviewed all the big players and decided a middle-market specialist with
deep ERP expertise and global experience would be the best fi t for us.
We chose OneNeck, and we're very glad we did.”
OneNeck seamlessly provides integrated services
to its customers, leading with a high-touch customer
interaction approach.
ONENECK'S CUSTOMERS BENEFIT FROM THE BREADTH AND DEPTH OF ITS SERVICES
Breadth – OneNeck can host and manage any and all the applications
of its customers. This is critical because as customers look to ease their
IT “pain,” they often prefer to outsource everything, not just their ERP
system. OneNeck gives its customers a single solution, a single service
provider to work with, and a single set of contracts to manage.
OneNeck often manages the following applications for a single
customer:
- ERP Application
- CRM Application
- Warehouse Management Systems
- E-Commerce Solutions
- Bar Code Solutions
- Business Intelligence/Reporting Solutions
- E-mail/Messaging
Depth – OneNeck's Application Outsourcing model provides the
comprehensive suite of technical and functional/business process
support necessary to enable businesses to effectively utilize their ERP
systems to drive measurable business benefi ts. These services include:
TECHNICAL SERVICES
- Operating Systems Administration
- Application Administration
- Database Administration
- Network Administration
- 24x7 Support/Service Desk
- Desktop Support/End-User Device Management
FUNCTIONAL/BUSINESS PROCESS SUPPORT SERVICES
- Functional Support Services (finance, manufacturing, logistics, project management support) performed by personnel experts in
both the application software and the business processes
- EDI Administration and Implementation Services
- Development Services
- Business Analysis
- Customization
- Application Development
STRATEGIC AND PROJECT MANAGEMENT SERVICES
- Software Selection Services
- IT Due Diligence Services
- Audit Support Services
- Program Management
- Project Management
The best way to build great outsourcing relationships is to wed the
buyer's true business objectives with the strengths of the service
provider. This allows them to travel down the tough road of business with
the same destination.
ONENECK'S DIFFERENTIATION RESULTS IN THE BEST TOTAL SOLUTION
Basing your selection of an outsourcing partner on a service provider's
strengths, it can be diffi cult to make an apples-to-apples comparison
among the various models. The best way to assess service provider
strengths in a thoughtful and effective way is to develop individual
specifi cations matching buyer needs with service provider strengths to
make an enduring match.
OneNeck offers a single focus on the mid-market with dual expertise
on major ERP packages and related applications. The company has
developed the ability to integrate and support these applications,
not only from a technical perspective, but from a business process
perspective as well.
Customers that contract OneNeck's full suite of services realize the
greatest benefi ts from their ERP system by using them to support
strategic business decisions that advance their businesses faster. While
other providers implement applications for customers and then manage
the environment, OneNeck is the only outsourcer that also functionally
supports the applications after they become operational. This major
difference sets OneNeck apart.
OneNeck's service strategy is built on “customer intimacy,” a value
discipline described by Michael Treacy and Fred Wiersema in their book,
The Discipline of Market Leaders. This is an approach of delivering
what customers want by completely understanding and fulfi lling their
needs. OneNeck designs the optimum solution to meet those needs
and oftentimes the solution is unique and may never be replicated for
another customer. However, the result is the best total solution – exactly
what one should expect from their outsourcer.
Although OneNeck can provide all necessary services, the company
remains flexible. It crafts solutions that are well integrated with
customers' existing IT staff when necessary. OneNeck is also adaptable
in the way it designs the technical solution, most often combining
hardware components from its own technical infrastructure with required
components or systems from the customer's infrastructure.
OneNeck's family of satisfied customers includes Russell
Stover Candies, Targus Group International, Sunny Delight Beverage
Company, and Herman Miller, among many others. As the leading
ERP outsourcing services provider to mid-market manufacturing and
distribution companies, OneNeck supports most major ERP applications,
including J. D. Edwards, Microsoft Business Solutions - Axapta, SSA Baan
and Khameleon, and manages more than 70 additional applications.
OneNeck's global ERP solutions have enabled customers to improve ERP
system performance, enhance revenue fl ow, and streamline operations.
5301 North Pima Road, Suite 100
Scottsdale, Arizona 85250
Fax (480) 609-4308
info@OneNeck.com