Outsourcing

Rising Above Risks

26.08.2002 von Ann Toh
Das Auslagern des Netzwerkmanagements oder die Zusammenarbeit mit einem ASP kann mit Risiken verbunden sein. Alles hängt ab von der Wahl des richtigen Providers als Partner.

Quelle: CIO Asia

In a world dominated by vendors providing one-to-one serviceofferings, application service providers (ASPs) and management serviceproviders (MSPs), whose services are targeted at and customised forthe mass market, remain a silent minority. However, more companies arebypassing the traditional service provision mode in which vendorscraft unique services and dedicate unique resources for them, toentrust their networks and applications to ASPs and MSPs. "They are aslowly rising trend," says Gartner chief analyst RolfJester.

ASPs and MSPs are very different creatures, although the twothree-letter acronyms are often used interchangeably. MSPs provide ITmanagement services for networks, desktops, et cetera, without anytransfer of the customers' applications to the service provider. ASPs,on the other hand, own the applications and provide customers accessto them.

Over the past year, MSPs havemade large strides into the outsourcing market and have even overtakenthe use of ASPs as the more commonly adopted outsourcing model withincompanies. Is this because the MSP business model is less obtrusivethan the ASP, since MSPs allow companies to outsource the maintenanceof their applications without outsourcing the applicationsthemselves?

Gartner's Jester doesn't think so. "What's driving [the MSP uptake] isa real shortage experienced by users in skills, particularly innetwork management. Most users - midsized and large ones - also can'tafford to have someone manage a network device or piece of software 24hours a day, so it's very logical to outsource that. The viability ofservices from MSPs to help people with that has been much in demand,"he says.

The fine differences between ASPs and MSPs aside, outsourcing to thesevendors and other xSPs, is going to be an inevitable part of thecorporate IT services scene during these difficult times as companiesshun capital equipment purchases.

But if you are thinking of using ASPs and MSPs to take some of theload off IT, don't expect a problem-free process when choosing theright vendor, as the vendor market is still in a state of flux and thelandscape is far from stable.

"There are many vendors today who will not be dependable for the longterm. The market has not matured, and there will be many mergers andacquisitions in the next few years till the industry reaches a levelof maturity," says Jester.

The vendor community has also not perfected the art of sellingmass-customised solutions. "Current service providers have not fullydeveloped and marketed mass-customised solutions. This is not atechnological issue but a business and marketing one. It takes time toround up an offering and offer it effectively to a large market,"Jester says.

It doesn't help that ASPs andMSPs suffer negative connotations caused by their predecessors whofolded in droves during the dotcom days. These companies went bustbecause they made two fatal missteps: they did not have the rightbusiness models and could not survive when funding dried up; they werealso not well known, trusted brand names.

"Currently in the region, 'ASP' is a dirty word. Many vendors talkabout their offerings and carefully avoid the word 'ASP', even thoughthey are offering an application delivered across a network using arental-pricing model. We are at the bottom of the hype cycle. We arestill trying to reach the state where people begin to realise thenegative side is untrue, and begin to see how the business model fitsinto their world," says Jester.

Wealth of Experience

The ASP and MSP market consists of both big and establishedinternational outsourcing companies such as EDS Corp. and IBM GlobalServices, as well smaller local and regional players.

One of the few regional players that has survived the ASPdisillusionment is Singapore-based CrimsonLogic (formerly known asSingapore Network Services or SNS), which has been providing trade andlogistics services since 1993. SNS was synonymous with EDI andTradeNet, the online community for exporters and importers to submittrade transaction papers electronically. With a total of 7,000customers from the trade and logistics, government, legal andhealthcare sectors - chalking up millions of transactions everymonth - it has achieved the economies of scale necessary for an ASP tooperate viably.

CrimsonLogic's CEO V. Mathivanan says the company's basic businessproposition is to operate like a megamart that offers its customersvolume discounts. "We build a data centre and invest in the people, avery heavy investment that is mitigated by each customer taking asmall share of the cost. If they go it alone, they would have to forkout half or a quarter of the investment."

Another principle on which Mathivanan runs his business is to makesure service maturity never becomes part of his vocabulary. Thecompany is thus always on the lookout for new services that can addvalue to its customers' businesses. "[In devising new services], wetake the approach that [the new service] is what the customer needs,rather than what he wants. Sometimes, the customer may need somethingthat he is not aware technology can deliver."

Over the years, its services have expanded out of trade and logisticsinto healthcare, law and government. Just five years ago, 80 percentof its revenues were derived from TradeNet; today, only about 55percent are.

"The ASP business in this part of the world is very different fromthat in the U.S. There, transactions are high and ASPs can surviveproviding just one service. Here, transactions are low, and peopledon't want to pay a high price, so an ASP has to provide moreservices," he says.

Service expansion has helped CrimsonLogic keep costs low for itscustomers, in additional to aiding in defraying its upfrontinfrastructure costs. Since it implemented TradeNet, it has not raisedcharges at all. Users pay S$20 (approx. US$11.30) for a log-on ID fora service such as TradePalette, and pay on a per-transactionbasis.

An ASP also needs to know what its customers want, as there are nomore killer applications in the business. CrimsonLogic's answer to theabsence of such a killer application is to bundle services fordifferent users within a company on the same platform. "Users want asingle log-on ID and a single portal, and as much access as theyrequire. It could be a financial user who wants to come in and use arange of financial services, or a logistician who wants to use thelogistics services. They don't want to log on to a financial orlogistics portal but [still rely on] a single sign-on," saysMathivanan.

Good customer service also means being able to recover from poorcustomer service. Mathiva-nan believes it all boils down to how avendor responds during service failures. His word of advice? "If youmake a mistake, make sure you apologise and recover, and your clientwill trust you more, because no one expects you to be 100 percentinfallible."

Operating a credible ASP not only means getting customer serviceright. It means getting technology in tip-top shape, and knowing thecustomer's business well enough to prescribe the right technologysolutions. Crimson-Logic recently standardised on a J2EE (Java 2Enterprise Edition)-based architecture just so that its people couldbe deployed flexibly to service different verticalindustries.

IT Worked

Sony Logistics Singapore's managing director Mitsuo Tanikawa secondsMathivanan's notion that the right ASP can do an IT job morecritically and cheaply. Sony Logistics is using CrimsonLogic's ASPservice, eTrade-Xchange, to streamline its trade documentationprocess.

"We felt there was a need to streamline our trade documentationoperations and engaged CrimsonLogic to provide us with an appropriatesolution that is customised to fit our in-house processes," saysTanikawa.

Today, ASP services can be customised according to a company's needs.CrimsonLogic, for instance, offers two types of services. The first,TradePalette, is targeted at smaller-scale, more cost-consciouscustomers. But if, like Sony Logistics, a customer already has its ownautomated system, the ASP can package and customise its eTradeXchangeapplications to fit into the customer's operations, and to integratewith the customer's systems.

That was exactly what Sony Logistics needed. "Our challenge was tocommunicate our requirements [for integration], one of which wassecurity. When we outsource, we are actually getting our outsourcer tosupport and add value to our main system," says Foo Say Chyn, manager,Logistics Service Division, Trade Service Department, Sony LogisticsSingapore.

With the new application, Tanikawa says Sony Logistics is able todevote more of its internal resources to focusing on its core businessin logistics management as well as in soliciting newbusinesses.

Internal efficiency has also improved. As the system provides a singlerepository for logistics information, Sony Logistics staff can viewthe status of trade documentation processing real-time. They can alsocreate multiple documents at the same time without having to re-keydata, and the electronic documents generated can be sent automaticallyto customers, thus improving customer service.

Sony Logistics estimates that using the ASP service has allowed it toshave as much as 30 percent off its operational expenses, due toincreases in staff productivity, and decreases in paper and hardwaremaintenance costs.

"The intangible benefits include the ability to coordinate online withmultiple parties, thus allowing us to have a more efficient workingrelationship with our external stakeholders," says Tanikawa.

Before it used Crimson-Logic, Sony Logistics had a paper-based processthat started from a print-out from its host systems to a manualfreight consolidation process, finally culminating in multiple enddocuments being created. This resulted in duplication of work, and, insome instances, lost documents as hard copies were passed from onedepartment to another. Now it can have a single officer process acustomer shipping instruction from start to finish.

It isn't just the ASPs that are winning converts. MSPs are capturingtheir fair share of believers as well. Kent Yap, chief technologicalofficer of Fairex International Financial Systems Pte Ltd, usesNational Computer Systems Pte Ltd's (NCS') co-location services topower its IT infrastructure as well as its security monitoringservices, for its business in Singapore. It uses SingTel's and NTT'sMSP services in Hong Kong and Tokyo, respectively.

"The cost would be higher if we bought the space and hardware to houseour infrastructure. We need our applications to be highly available,24 by 7, and to constantly deliver high bandwidth. We don't want tohave an electricity generator running 24-hour support, or anair-conditioning system - that would cost us an arm and a leg," hesays.

Despite these positive reviews, customers who spoke with CIO Asia aremore comfortable having reputable ASPs and MSPs providing theirdesired IT services.

Says Sony's Tanikawa: "One of our key criteria in using an ASP is thatit must be a trusted ASP, which means that we must be able to trustits integrity in maintaining the confidentiality of our sensitivecorporate and customer information. We evaluated and felt thatCrimsonLogic's 12-year track record in managing sensitive data on anASP basis was good.

"On top of that, we require a good service level and high availabilityfor our mission-critical applications. Our assessment of the vendor'strack record and customer base in the ASP arena also gave us goodassurance that their service levels and availabilities wouldbe good."

Sony Logistics has also been using CrimsonLogic's e-procurement andelectronic inventory visibility services for the past few years, so atrustworthy relationship had already been established. "We have beensatisfied with their performance in linking up all our suppliers,"says Tanikawa.

Similarly, Fairex chose NCS, SingTel and NTT based on their solidreputations. "We also look at the strength of the party in systemsco-location. But it isn't always the case to choose a big name - wehave to look at the service level agreement and the cost,"says Yap.

ASPs like CrimsonLogic know that earning the trust and credibility oftheir customers is paramount. Mathivanan says of his facility inSingapore's Science Park 2: "We are not an office in the sky. We haveinvested heavily in our data centre and 24-hour call centre. We arenot a three-man show, and we have banks to back us."

Hype or not, business sense ultimately rules. The ball is thus in thevendor's court to prove they can be trusted and can provide credibleservices. "They have to come out with credible, trustable offerings:on a small scale, by vendors who are known in their vertical markets;at the other end of the scale, to have a mass market brand name," saysGartner's Jester.

Make IT Work

Anytime that you are dealing with a relatively new market as the ASPand MSP, it is difficult to be sure what service you end up getting.To protect yourself, you should first look at your vendor's financialstability and if possible, have a backup strategy in place. "You needto understand who owns the intellectual property of the software andthe data, and where it is backed up. What happens to the data if thecompany is acquired by someone else? All these need to be built intothe evaluation and business case," says Jester.

It is also important to ask for references. There is no betterindicator of how an MSP will handle your business than how it handlesothers. "If we have not worked with the vendor before, they shouldcome recommended by some of our counterparts," says James Ng, managerof Business Strategy Department, Logistics Service Division, SonyLogistics Singapore.

Observers of the ASP and MSP market like Jester predict a hugeshakeout over the next year. For one, more players will come in.Gartner predicts big, brand name players will enter and offerapplications to small- and medium-sized companies, or verticalmarkets.

"We are aware of some 30 major clients - some of them major companiesin the telco industry, seeking to leverage their existing brand nameand technical skills around the world, region or within countries toenter the MSP market. It takes players who are trusted brandnames - and this is one reason the telcos are so interested in this.They have got, in most countries, a fairly well known brand name,reach into the SME business, infrastructure, assets, and people," saysJester.

"The reason they have a chance of succeeding is if they go out with abrand name that people trust, targeted at certain market segments, andif they have the partnerships with the software developers and networkcompanies to deliver on their promises, users will be willing to buy,"he adds.

What is certain is, the ASP and MSP will eventually become a featureof the corporate IT outsourcing landscape. As hardware and softwarecosts go down, the cost of people and time go up. The emergence ofASPs and MSPs is thus a predictable macroeconomicdevelopment.

Companies like Sony Logistics also believe outsourcing ultimatelyhelps them to focus on their core business, rather than on IT. "Itboils down to letting each party do what it does best. In our case,the service provider contributes its expertise in implementing qualitylogistics IT solutions, while we focus our efforts on core logisticsmanagement," says Ng.

Mathivanan says: "ASP acceptance is on the rise. Otherwise, we'd haveto close shop. The reason is, people realise how costly it is to buildand maintain [applications and infrastructure] themselves. Why wouldyou want to spend hundreds of thousands of dollars every year tochange your software and hardware when you can get someoneto do it?"

Surveys by Gartner also support this optimism. "Over a year ago, weasked if people would use ASPs. The companies surveyed were in theAsia Pacific region. Thirty-six percent said they would use an ASP todeliver their applications, and would be happy to consider such anoffer. That's a huge market, and the companies surveyed were not smallcompanies. So the demand is there, but latent," says Jester.

"The ASP and MSP market will evolve, but it will be two or three yearsbefore we see it develop as a sizeable market in the Asia Pacificregion," he predicts.