Corporate Happenings

Mid-market companies who've made the commitment to an Enterprise Resource Planning (ERP) 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 part or all of the 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 significant 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 article presents an overview of ERP outsourcing for mid-market companies.

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 based 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 dependent 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 flow 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, rather than a mere cost-reduction scheme. In fact, the leading reasons companies outsource are for business advantages and metrics, not technology. These include:

- Management recognizes the need to outsource the care and feeding of its ERP application, as this 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 benefit 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 orworking on internal strategic projects that requires in-depth knowledge of a company's processes and procedures.
- 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; network support; phone systems; e-mail; and desktop administration.
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. 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.

About the Author:

Chuck Vermillion is CEO and founder of OneNeck IT Services, a leading Enterprise Resource Planning outsource provider helping mid-market companies improve system performance. For more information about ERP outsourcing, visit our site.

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