Imagine
an approach to information technology where company wide applications are
deployed in a matter of days or weeks, at one-third to one-half lower cost
than is typical today. Imagine an approach to running your business where
end-to-end business processes are created by snapping together software
applications both those within your company and those used by your trading
partners. Imagine an approach to financing these capabilities that eliminates
the up-front investment and replaces it with a flat monthly charge that
doesn't begin until it all goes live.
Such an approach is called e-sourcing. It exists today and it is being delivered to thousands of companies by hundreds of application service providers ASPs all around the globe. Application service providers are redefining the way we think about our businesses and about how to leverage the software that has become so central to our business processes. Certainly everyone is not there yet, says Virender Ahluwalia, head of finance for Vertical Networks, Inc., the Sunnyvale, California, creator of integrated voice and data products, and an early adopter of the ASP model, but I absolutely believe that everybody will embrace this approach over the next three to five years. And in a world where every business must accelerate to Internet-time in order to survive, any executive who ignores the experience of leaders like Ahluwalia is doing so at his or her organization's risk.
It
is sometimes difficult to recognize the significance of a change while
it is happening; the impact is often not fully understood or properly defined
until seen with 20/20 hindsight. That's the problem in trying to put too
firm a definition around e-sourcing and application service providers.
Probably the safest and broadest definition of an ASP is any company that
is remotely hosting a software application and providing access and use
of it to clients over a network on a recurring fee basis. Eighteen months
ago, the term had not even been coined; today there are hundreds of firms
that fit this definition.
Industry-watcher estimates for annual ASP spending by U.S. organizations by 2003 range from a low of $2 billion to a high of $22.7 billion. The newness of the e-sourcing solution, combined with definitional differences, helps explain this wide range. While the crystal ball may be cloudy, what is clear is that ASPs are quickly emerging as one of the most important business revolutions yet to emerge from the dot-com world. Its power comes from the convergence of three unstoppable forces the Internet, robust software applications, and process-centric thinking. In many ways, says Traver Gruen-Kennedy, chairman of the ASP Industry Consortium, an international industry advocacy group, application service providers are doing for software what the Internet has already done for data making software applications universally available, affordable, and ubiquitous.
The central idea is quite simple: Take software applications, host them on powerful servers, make them network-accessible, and allow users to run the application directly through the browser software on their PC or other network-enabled device. For corporate clients from the smallest start-up to the largest FORTUNE 500 this software as a service approach offers real advantages. Applications can be deployed much more quickly, with far fewer up-front costs. And ongoing operational and maintenance headaches are moved from the client's organization to the ASP. Because the corporation's users access the application over the network via standard browser software, the problems of PC compliance and software release upgrades, so typical today, go away.
On top of this are stacked all the advantages associated with outsourcing in general, from freeing capital and internal resources especially today's scarce IT resources for other purposes, to being able to take advantage of the latest technologies, with lower risks and lower total costs. The bottom line is that almost any software application, from the most essential data archiving application to the most sophisticated e-commerce application, can be rapidly implemented through an ASP in a fraction of the time and at a fraction of the cost seen before now. This new approach to e-sourcing the corporation may well prove to be, as one observer put it, as revolutionary as the PC was in the 1980s.
If
the early adopters, such as Vertical Network's Ahluwalia and the many other
executives interviewed for this report, have one defining common characteristic,
it s the need for speed. Speed has emerged as the essential factor of any
successful business, and speed, without sacrificing any of the other elements
of a complete high-quality solution, is where ASPs really shine. ASPs can
deploy office applications on a company wide basis in hours. Entire e-commerce
platforms, based on top-tier enabling software, can be delivered in days.
End-to-end integrated enterprise resource planning solutions can be designed,
tested, and delivered in weeks. The need for speed is an unmistakable driver
of e-sourcing.
Another's word that's important to what's happening in business today is scalability the ability to ramp up a solution quickly as the firm moves forward. As a company's customer set grows, as the number of purchasing transactions or types of buys it must make increases, as the number of products in its product line expands, and as the number of sites it s operating increases, that company needs to have business processes and enabling technologies that can grow with it quickly and incrementally. The ASP model fits well here. Providers add capacity for their customers by replicating the software across more and ever-larger servers. The fee structure used by most ASPs is, by design, scalable as well fees are typically based on the number of users per month. These two factors speed and scalability make e-sourcing particularly attractive to rapidly growing companies, whether in traditional markets or dot-coms.
At the same time, individual divisions and functional units within larger firms are e-sourcing as well. Here, the issues are just as often ones of access to capital and to the most valuable commodities in most organizations today IT time and talent. Business process leaders in areas such as human resources, finance, and purchasing often find themselves unable to get the applications they need because of the internal competition for IT resources. As Terry Hucks, chief information officer at Richmond, Virginia-based furniture retailer Heilig-Meyers, puts it, Payroll, for example, is an application of utmost importance to us, but it can t be our number one IT project. E-sourcing enables business executives to work collaboratively with their IT team while at the same time purchasing much of the desired capability as a service through an outside provider.
Finally, ASPs are making software much more affordable. Midsize firms that in the past simply couldn't afford the high-end software solutions available to their larger competitors are relying upon the ASP model to close that gap. At the same time, small companies that have not yet made a traditional IT investment are using ASPs to avoid this internal investment completely. In both cases, this is making the right software package affordable from the beginning and eliminating the enormous costs of periodic migration to larger, more robust systems.
Newcomer on the scene though it may be, e-sourcing has become an important way to gain access to software, reduce its total cost of ownership, and deliver capability to the desktop of every employee who needs it. Even more importantly, ASPs are creating a new way of thinking about business, about how best to enable business processes, and, in an increasing number of cases, how to connect these processes all across a company and among its trading partners. Indeed, the ultimate value of e-sourcing the corporation may not be inside at all, but in the ability to aggregate best practices and transactions across entire groups of companies. As Ron Sanderson, president and founder of Vsource, an ASP that provides integrated procurement services through its proprietary application, observes, We' re not simply providing our customers with technology, we' re really providing process management and helping our clients build trading networks that drive down costs while freeing time to focus on more strategic issues. Speed, focus, flexibility, connectivity, scalability, and price are all leveraged and taken to Internet-time through e-sourcing. The case studies found in this special section demonstrate this new business model in action.
All
around the world, e-business has changed the way business is conducted
by removing the limitations of time and space, transcending traditional
boundaries, and expanding business opportunities. Organizations that have
embraced e-business are realizing the benefits of tangible reductions in
costs, new channels to market, improved quality of products and services,
and information-rich interactions between customers and suppliers.
PricewaterhouseCoopers views e-business as more than just a new Web site, says Cathy Neuman, deputy global leader of PricewaterhouseCoopers E-Business offerings. We approach e-business as a source of significant strategic advantage distinguishing one company from another, transforming entire business relationships, as we know them today.
E-business is an important and integral part of PricewaterhouseCoopers outsourcing services, as companies are turning to electronic commerce, intranets, extranets, and the power of the Internet to change the fundamental way they do business. Working with hundreds of the world s leading multinational companies, PricewaterhouseCoopers has helped clients improve profitability, extend performance, and increase shareholder value.
PricewaterhouseCoopers ASP model represents the convergence of outsourcing and technology, says Bill Batiste, North American leader for Business Process Outsourcing, PricewaterhouseCoopers LLP. As the world's largest professional services firm, with 155,000 people in 150 countries, PricewaterhouseCoopers doesn't advise its clients just on their business processes and implementation of systems, but also on the ongoing management and operations of the supporting technologies. Prior to adopting the ASP model, the management and operation part of the equation was accomplished through a number of more traditional methods. In some cases, PricewaterhouseCoopers would bring in its technical resources and people and operate the systems at the client's premises, using the client's platforms. In other situations, the client's processes, people, and applications would be moved into a PricewaterhouseCoopers Solution Center and operated remotely.
PricewaterhouseCoopers ASP offering has brought two very important new elements to this solution set. First, we are now remotely hosting these applications and Web-enabling them through the client's intranet and over the Internet. Second, we've gone to Subscription Based Pricing, which affords our clients a monthly fee per user based on the scope of applications enabled. It becomes a variable cost item that is very controllable, says Rick Genovese, U.S. leader for PricewaterhouseCoopers application outsourcing business.
Applying a new delivery technique is really just the starting point for the changes taking place. We're good on the application side, including the full systems life cycle and e-enabling our clients, says Genovese, but the real requirement here is for software vendors, infrastructure specialists, and firms like PricewaterhouseCoopers to collaborate in the delivery of these solutions to the market. Success is going to demand a real partnership model, and we're well down the path of architecting all the requirements needed to be differentiated in this space.
The result, as Bill Batiste sees it, is a very focused offering that provides our customers with a one-stop shopping solution that is consistent and global. Human resources are an example of this type of solution. There is a wide range of HR activities benefits administration and payrolls are just two examples that naturally lend themselves to remote application management. PricewaterhouseCoopers has been an early, rapid adopter of the ASP model in its delivery of business process solutions for the HR department.
Batiste sees three groups of clients that can greatly benefit from this approach for HR and many other business processes. First are the small and intermediate-size companies that must implement solutions quickly and without interruption to their business. They need standard processes and application offerings that integrate easily and can grow as their business grows. The second group would be mid-level companies. They can also take advantage of many of the standardized offerings, but may require some level of customization to fit special business requirements. Finally, there are high-end global companies that require unique solutions combining an equal measure of customized and standard features to serve their customers and work with suppliers around the world.
The ASP model needed to create these solutions looks beyond PricewaterhouseCoopers and its alliance partners. PricewaterhouseCoopers ultimate vision is the aggregation of clients and their common needs. This will enable the development of even more robust, efficient, and e-enabled solutions that will streamline entire industries.
Batiste says: PricewaterhouseCoopers is uniquely positioned to be the trusted third party that can implement and operate multi-client cooperative arrangements. We repositioned to be able to develop common solutions that apply vertically within industries as well as horizontally across industries. For example, many entertainment and media companies require applications that handle the accounting and payment of residuals and royalties. A trusted third party, operating as a clearinghouse, could become the outsourced ASP-based operator who oversees the application processing, completes the reconcilement process, and administers the payments to the artists and entertainers.
In the energy industry, it's the large number of joint venture arrangements and resulting accounting complexities that are common challenges to oil and gas companies. By aggregating best practices for an industry and delivering them through common applications, the ASP model will leverage the very best industry solutions available.
Similarly, Batiste and Genovese see procurement as the type of activity that cuts across industries. By aggregating and standardizing the processes of many firms and then connecting more buyers and sellers, even greater efficiencies and increased buying power are possible. The opportunity for PricewaterhouseCoopers clients is for them to gain access to these types of collaborative application and hosted solutions that take advantage of common features, shared arrangements, and shared alliances. But, what s enabling all of this is the ASP model. We are making these offerings available to clients as we speak, says Genovese.