10 Things You Need To Know
1. What is Outsourcing/Hosting all about?
The rise of the internet has given new life to ASP’s (Application Service Providers). It is now possible to outsource your entire SAP system – hardware, software, implementation, support and all the rest - and pay a fixed monthly fee for access to it.
2. Why might a company do it?
The primary reason we can think of is to enable companies to focus on their core business … and not have to redirect resources and energies on systems implementation and support. In essence, companies who buy SAP (or any other true ERP) are outsourcing their systems development effort. Many of these companies utilize the services of consultants to implement their systems – which is tantamount to outsourcing the systems implementation. Many people – especially the ASP’s - believe that Outsourcing/Hosting is the logical next step – where companies outsource the infrastructure and running of their SAP systems.
3. What – according to the ASP’s - is the value proposition?
Traditional SAP Implementations required large up-front capital expense for things like the purchase of new hardware platforms, design and building (or extension) of data centers, recruiting of additional permanent and consulting resources with the necessary skills, and the training of additional IT (and other) resources. Furthermore permanent help-desks support operators and system administrators were required.
With Outsourcing/Hosting for a flat monthly fee, you do not pay an up-front fee, your costs are predictable, you do not have to buy hardware and find a place to put it, and you do not have to spend time and energy on recruiting/training people with the right skills. Furthermore, the ASP value proposition states, you are shielded from costs associated with changes in technology. Guaranteed network uptime and disaster recovery services are also provided.
4. What is SAP doing in this space?
SAP have( interestingly) lumped Hosting in with the three other mySAP.com offerings (read this article if you don’t know what they are). At this point SAP’s strategy is to offer Hosting during systems design and build phases, and pass you to your ASP partner at or just prior to go-live. Watch this space for future developments.
5. Is Pandesic an ASP?
Not really. Pandesic (the 1997 joint venture between Intel and SAP) is more like an end-to-end systems solution for an e-business including web storefront, transaction processing, BackOffice systems, hardware, security and ongoing support.
6. Apart from Pandesic - SAP’s joint venture with Intel - who are some of the other SAP ASP’s?
We noticed the following at SAPPHIRE’99 - eOnline, HostLogic, Qwest Cyber.Solutions, Systems America and Metamor Enterprise Operations.
7. Who might have the most to benefit from Outsourcing/Hosting?
Most of the ASP’s are targeting small and medium size businesses – which makes intuitive sense (to us anyway) as they usually have to watch their cash flow more closely. This solution isn’t only for small and medium sized businesses, however; for example eOnline’s first two customers (announced at SAPPHIRE’99) were a start-up of 20 people and a multi-national with 17,000 employees.
8. What does it cost?
HostLogic – one of many ASP’s offering this service – touted a flat monthly fee of $495 (US) per user at SAPPHIRE’99. This price includes implementation, software, hardware, networks, technical and business process support, internet backbone and security. The price is based on a 36-month contract with 200 users (or, as they call them, seats). NOTE: THIS IS NOT INTENDED AS AN ENDORSEMENT OF HOSTLOGIC- MERELY AS AN EXAMPLE OF ONE PRICING PLAN WE HAVE COME ACROSS.
9. Are ASP’s certified by SAP?
Yes. The only one (we saw) claiming to be certified at SAPPHIRE’99 was eOnline.
10. What are the potential pitfalls of pursuing this strategy?
Any outsourcing agreement requires close management to avoid it spiraling into breakdown. The "flat" monthly fee might turn out to be anything but "flat" when the inevitable change requests start rolling in … so read the fine print. Some IT departments may resist a perceived loss of control, and of course you are dependent on the long term success of your ASP partner. SAP Upgrades are a regular occurrence, so factor those changes in as well.