Tactical Hurdles: Sunk Costs, Jobs and Control
In its common form, ASP outsourcing requires writing off investments in hardware,
infrastructure and personnel. This is a huge hurdle. It is especially troublesome for
enterprise customers who often have elaborate facilities, including raised floor, air
conditioning, network connections, firewalls and on and on. Even for smaller
businesses, investments in server hardware constitute a strong disincentive.
As important and understandable as sunk costs are, the impact of outsourcing on jobs
and personnel is often more emotional. Few ASPs are willing to take on the employees
of their customers. More fundamentally, if customer costs and ASPs profits derive from
the sharing of expensive skills, then some personnel and jobs must be affected.
Control is a complex issue taking several forms. Applications, such as enterprise
resource planning (ERP), are utterly critical to a business. Customers can be wary of
relinquishing control over such business-critical processes. Of the three forms of
breakage we have discussed, control is probably the most amenable to negotiation. The
increasing complexity of information technology combined with the scarcity and
mobility of the skills required to manage it are making outsourcing difficult to
avoid. The rapid rise of the managed service provider (MSP) suggests that the control
issue can be managed.
What ASPs Are Doing About Breakage
Some ASPs are trying to reduce the sunk-cost hurdle by offering solutions in which the
physical resources (servers, routers and so on) reside on the customer’s premises.
Oracle, for example, announced its “AnyPlace” offering earlier this year. Similarly,
BlueStar Solutions offers “Remote Managed Operations”, and Qwest
Cyber.Solutions offers “Freedom for Managed Application.”
Corio’s recent acquisition of Carlson Companies as a PeopleSoft customer is described
by Carlson’s CIO as follows: “They (Corio) have joined forces with our internal IT
organization which provides us flexibility and allows us to maintain control of our
mission-critical employee data.”
Qwest describes the objective of their offering as allowing the customer to
“capitalize on your (the customer’s) current IT investment”. As observed above, it is
not a coincidence that all of these ASPs target enterprise customers. Note that such
variations on the original hosting theme can, if carried too far, reduce the
standardization from which both ASPs and their customers benefit.
Help Potential ASP Customers
Potential ASP customers can do two things to reduce tactical barriers: plan and get
help. Planning allows customers to defer investments that will complicate
outsourcing. Perhaps the most effective use of planning is the identification of new
assignments for personnel affected by outsourcing.
ASPs can be a valuable source of help for potential customers. While breakage problems
are complex and demanding, ASPs have seen most of them before and can suggest
solutions and contribute to the planning process with their awareness of technology
developments, such as the impact of technology changes, like the Web enablement of
PeopleSoft, for example.
Don’t Let Breakage Be a Deal Breaker
It is easy to say that strategic benefits should not be held hostage to tactical
inconvenience. It is much harder to actually deal with the various forms of breakage.
Nonetheless, breakage is such a fundamentally gating factor in the growth of the ASP
market that both customers and service providers should do all they can to reduce
these barriers. The single most important recommendation is to plan.
Art Williams is a freelance analyst and consultant focused on the ASP market.
Previously, he was the director at the Giga Information Group responsible for the
ASP market. In addition, he had a 30-year career at IBM career, where he managed an
“internal-ASP” data center built around IBM’s SP line of Unix
servers, which he invented. He can be reached at [email protected]..
Editor’s note: This column first appeared on ASPnews, an internet.com site.