Forget Speeds and Feeds: ERP Outsourcing for the Mid-Market

FOREWORD
Mid-market companies who’ve made the commitment to an Enterprise Resource Planning 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 one or all of these key functions. Infl uencing 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 white paper presents an overview of ERP outsourcing models and focuses on the critical success factors involved for mid-market companies.

THE EVOLUTION OF OUTSOURCING
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 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 dependant 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 fl ow 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, not merely a cost-reduction scheme. In fact, the leading reasons why companies outsource point to business — not technology — advantages and metrics.

> The in-house IT staff lacks the requisite skill sets to manage and support the latest ERP applications and other complex technologies.
> Management recognizes the need to outsource the care and feeding of its ERP application, as the 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.