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Should you outsource?

This article appears in the issue October 2005 [Volume 14, Issue 9]

When the going gets tough, businesses look for ways to simplify business processes, limit costs and minimize their dependence on expensive IT infrastructure. In that environment, businesses also seek "to shed all activities and resources that do not result in competitive differentiation, and focus limited resources on what is truly a source of competitive differentiation," says John M. Whiteside, president and CEO of netASPx (www.netaspx.com).

 Besides the understandable desire to stick to the knitting, there are other business imperatives that drive cost-center managers to consider alternatives: rising costs of managing applications (people and vendor maintenance payments), ROIs that fail to materialize, and risks associated with the often abrupt departure of key support personnel.

 What to do? More and more organizations are turning to application service providers (ASPs) to offload complex--and sometimes mission-critical--tasks. ASPs can provide a range of support; the "continuum" offered by ASPs includes:

1. Disaster recovery and business continuity. In this scenario, the customer retains all service delivery infrastructure (SDI, also known as the IT stuff) and full responsibility for the application. The ASP provides the ability to relocate to a hosted environment to resume business processes in the event of a contingency event. This is typically a one-off solution.

2. Remote systems management. Here the customer retains ownership of IT assets in-house, but the ASP remotely monitors and manages the SDI. This is typically a short-term solution, while the customer is retiring its IT assets and determining how to reallocate personnel.

3. Hosting. The customer retains the application maintenance, operations and support, while the ASP provides, maintains, operates and supports the facilities, technology and database SDI. This usually happens when a business solution desired by the IT staff runs on a different platform than currently in place.

 4. Remote applications management. The customer retains ownership of the SDI technology, but the ASP remotely monitors and manages it all, including the application layer. This is a steppingstone toward the complete handover of the customer's IT infrastructure.

5. Managed applications services. In this case, the customer may own the software license or subscribe to monthly usage rights, but relies on the ASP to provide the entire SDI stack and to provide continuous life cycle management to every element, including the application(s).

 If any of those descriptions fit your situation, how should you choose an outside provider? The key decision many will make is whether to "go offshore." Services that lend themselves well to outsourcing to such offshore locations as India are those for which there is a highly routine and process-segmentable labor function, such as low-level IT support and/or applications maintenance--for instance, certain help desk and/or product support functions. Other decision factors for outsourcing:

 • Hosting is susceptible to offshoring because labor is a fairly large component of total cost, and that labor is typically for routinized functions rather than service creation or problem solving.

 • Disaster recovery and business continuity are typically best located onshore in areas with low taxes and available skilled labor, because the main cost elements are facilities, technology and databases.

 • Managed application services are highly dependent on skilled labor, so those services are typically provided onshore.

Bottom line, to make this decision customers need to determine how to stop performing non-critical, non-strategic functions, and focus all their resources on the truly differentiating activities.


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