Clear Decisions Based on Clear Definitions

Feature Article | July 27, 2005 by admin

Borrowing from a book title by the head of Accenture Germany, Stephan Scholtissek, the industry association BITKOM defines outsourcing as “The third value-added revolution”. While the first two stages – the introduction of the conveyor belt and the reduction of vertical range of manufacture – increase value added in production, it is now time to improve the value added of internal processes, such as administration or the provision of services. The fact that these processes have become largely digitized has meant that even SMEs have constructed IT landscapes that sometimes exhibit a high level of complexity.

Outsourcing – the attractive alternative

The problem is as follows: “Many SMEs’ IT systems and processes are still built around isolated solutions,” states BITKOM. The fact that obsolete systems eventually need to be replaced prompts many companies to opt for outsourcing. Gerhard Schoch, MD of SAP Business Partner ORGA, argues along similar lines. He is convinced that in future equity capital issues and an increased intensity of competition will cause SMEs to develop a stronger affinity towards outsourcing strategies in order to be able to concentrate on their core competencies.
According to a joint study by Lünendonk and Techconsult, 38 percent of German companies with fewer than 500 staff have already outsourced their IT. In their study “Der Markt für SAP-Betriebsdienstleistungen: Outsourcing, ASP und Hosting 2003/2004” (The market for SAP corporate services: Outsourcing, ASP und hosting 2003/2004), the consultants at Strategy Partners estimate the market growth of SAP outsourcing to be 18 percent in 2003 alone. They also anticipate high growth rates in the future as a result of the medium- to long-term need to change over SAP system technology. One rule of thumb, for instance, states that it is not economical for a company to operate an ERP system internally if there are fewer than 250 to 300 users.

Blazing a trail through the terminology jungle

Experience shows that the same terms are often used to refer to different things when discussing outsourcing. Moreover, the coinage “outsourcing”, derived from a combination of “outside”, “resource”, and “using”, has given rise to a variety of terminological derivatives that assume that SMEs have a more detailed knowledge of the topic than may actually be the case. In a research study into the term “outsourcing”, Holger von Jouanne-Diedrich, outsourcing expert at the Institute for Information Systems at the University of St. Gallen, states that around 40 compounds with the suffix “-sourcing” exist. The problem is that different terms often refer to the same thing, while conversely the same term may refer to different things. “These terms are often used in a very general way so that it is not clear exactly what is being referred to,” von Jouanne-Diedrich complains. “What is more, providers of outsourcing services often coin new terms to set themselves apart from others, but they are ultimately shooting themselves in the foot as this tends to deter potential SME customers in particular.”
A cursory analysis is enough to demonstrate that the term “outsourcing” does not refer to a clearly defined service, but that it comes in many different shapes and forms. For instance, depending on the legal status of the contracting partners, a distinction needs to be made between external outsourcing and internal outsourcing. External outsourcing is the partial or total transfer of company functions to an external, legally independent IT service provider. Internal outsourcing, on the other hand, refers to the process whereby IT is partially or totally handed over to legally separate corporate units or subsidiaries (which, however, can be influenced via stock ownership). As a general rule, IT outsourcing can be subdivided into the following three levels:
1. Business process level: This is where technical and organizational aspects are located and transactions conducted, for instance.
2. Application level: Here the corresponding software for supporting processes is developed and deployed (e.g. databases or ERP systems).
3. Infrastructure level: This covers the operation of data centers, hardware, operating systems, and networks.

Dazzlingly complex world of words

SMEs in particular are often reluctant to outsource their IT comprehensively across all three levels (known as full-scope outsourcing). Instead, they want to retain control of IT infrastructures and decision-making processes. Here they may turn to outtasking, where partial tasks or processes such as operating a helpdesk or maintaining technical IT infrastructures are outsourced. In outtasking, clear service level agreements (SLA) specify exactly by when and in what form the service provider needs to remedy any faults. This provides not only for a higher availability of the infrastructure, it also creates greater transparency in terms of costs, since outgoings can be planned exactly. According to Jouanne-Diedrich: “this has proved itself to be the most successful form of outsourcing, which is why it is also known as smart-sourcing or right-sourcing.”
“Managed services” are a further variation on selective outsourcing. Here, too, only partial IT tasks are outsourced. Unlike outtasking, however, the systems here do not belong to the customer, and the IT service provider is responsible for systems operation. The customer leases the required functionality, such as IT and telecom functionality at the workplace. The customer is provided with services within the agreed scope based on service catalogs and service level agreements. Companies that outsource an entire company department, such as IT, for a specific contract term to an IT service provider operate what is known as “comprehensive outsourcing”. In this scenario, the company assets and staff are also transferred.

On-demand services

Experts like Jouanne-Diedrich subsume application hosting and ASP (application service providing) under the term ‘application outsourcing’. Application hosting involves paying an IT service provider to handle a customer’s SAP applications, which are then operated in the service provider’s service data center (known as the one-to-one-approach). The customer or service recipient holds the software license. The service provider maintains and updates the software and provides support. ASP is a service that provides multiple users with a standard software application with no or little customization for a fee (one-to-many-approach).
A particular variety of ASP known as on-demand or utility outsourcing is currently proving popular. “The concept is appealingly simple,” explains Jouanne-Diedrich, “because you only access services as and when you need them. This benefits SMEs as they can be much more flexible in handling order peaks and can calculate the cost of the services used with much greater transparency.” Models such as this are provided for instance by the SAP Business Partner T-Systems for SAP Business One or the SAP Hosting Partner saardata with the qualified mySAP All-in-One solution sdpersonal, which is based on mySAP HR.

Outsourcing is more than just a cost issue

Regardless of which form of outsourcing an SME selects, the decision on whether to outsource all or part of its IT must always be carefully considered. Jouanne-Diedrich thus advises SMEs to select “an outsourcing service provider who fits the company in terms of size and company culture. If you have a trustworthy partner, you can also reach a common understanding, and also a workable solution, relatively quickly if problems occur. The future partner should also be able to deploy new and innovative SAP technologies quickly and cost effectively.”
SMEs who outsource their SAP landscape to experienced and certified SAP service providers like itelligence, TDS Informationstechnologie, AC-Service or the SAP subsidiary SAP Hosting therefore do not simply reduce costs, but become recipients of state-of-the-art technologies and transparent and flexible processes.

For further information:

Studies: www.strategypartners.com
SAP Partners: www.ac-service.com/english/, www.itelligencegroup.co.uk/, http://www.tds.de/tds.com/index.php?StoryID=3125

Dr. Andreas Schaffry

Dr. Andreas Schaffry

Tags: , , ,

Leave a Reply