YantraJaal : Application Outsourcing

This article describes the concept of application process outsourcing, explains the rationale behind it and provides a roadmap that corporates should follow to derive significant business advantage

The Internet changes everything. This axiom is the fountainhead of eBusiness - the new paradigm that is currently sweeping through the CEO mindscape in India. eBusiness is different from eCommerce - a concept that focusses narrowly on the mechanics of selling goods and services through the Internet. eBusiness is something far bigger : it encompasses the tools, techniques and business processes that ties an organisation to its suppliers, service providers, distributors, retailers and consumers through a variety of communication technologies, including the Internet, in a manner that maximises value to the final consumer.
eBusiness has created a new breed of organisations that have appeared from anonymity and derailed established players. Dell upstaged IBM and Compaq, Amazon redefined bookstores, eBay - the auction house, has left Sotheby's far behind while eSchwab has transformed the way people play the stockmarket. Common to all these cases is the fact that technology has been used extensively to transform business processes. This is another significant shift in corporate thinking. For years it was believed that business processes were sacrosanct and computer technology must be tailored to meet existing process requirements, but this is history. Companies that are using new technology to transform their business processes are the ones that are perceived to be successful, not only by technologists but more importantly by the stockmarket.
This critical dependence on technology is not restricted to the Internet. Enterprise Resource Planning, Supply Chain Management, Client Relationship Management and Knowledge Management - appropriately leveraged through the Internet, are frontiers where the new businesses processes are being defined and this is where the titans of tomorrow are focussing on. But the management of the new and rapidly changing technology blurs the corporate focus from the actual business process - the company gets bogged down into managing technology, leading to a Catch22 situation. Technology is critical for business but is not substitute for the real thing - so where does the company focus on ? Technology or business ?. This is where Application Outsourcing steps in.

Why Outsourcing ?
Automobile manufacturers don't make the entire car - they outsource the production of many parts, components and assemblies. Food processors don't grow all their crops - they outsource crop production to agricultural co-operatives or independent growers. Companies do not store or manage their money - they entrust it to banks and other financial institutions. Indeed, companies in many industries are outsourcing more and more of their business processes to outside service providers that are leaders in their fields, and that can provide best-in-class systems and services. Information technology is no exception.
Outsourcing information technology effectively means that the company does not own or operate the hardware or software through which it carries out routine business processes like maintaining financial accounts, planning production, managing materials and inventory, running payroll or monitoring sales and distribution. The staff who use these systems see the same application "screens" on their PC workstations, but the server from where these applications are run are not in the EDP/MIS department down the hall but many many miles away in the premises of an Application Services Provider (ASP). The only magic in this process is provided by advances of communication technology- Internet, leased lines, ISDN or VSAT - that makes the distant ASP premises as easy to communicate with as the EDP/MIS department within the company premises.

Fact or Fantasy ? If all this sounds too far-fetched, consider the following examples of application outsourcing that are already in operation today. All of us have heard of HotMail, pioneered by Sabeer Bhatia, and widely used by millions of people all over the world. In the past, eMail was an application that was provided by a company to its employees. The mail servers was owned and operated by the company and staff would use their PC to send, receive and view mail. But today, many of us send and receive mail without knowing where the mail server is. Hotmail provides us the service but shields us from all the hassles of maintaining the server and upgrading technology. When a security bug was found, they rectified it but we as users never needed to know what was the problem and how it was rectified - which is perfectly fine with a majority of users who are only interested in sending and receiving mail and nothing more. Hotmail is a classic case of application outsourcing and in this case, the application happens to be eMail.
A second application that is commonly outsourced is websites. A website is an application through which a company communicates and interacts with a of host internal and external entities like consumers, business partners and staff at remote offices. Setting up a website is serious business - round the clock power supply, reliable communication links and leading edge technology, but companies get around this by "renting" web space from "web farms". In fact major Internet companies like Yahoo!, Amazon and others do not own or operate web servers. Instead they outsource this to companies like Exodus (once again owned by two very low profile Indians, Chandrasekhar and Jagdeesh) and focus on building and refining their new and emerging eBusiness models. In this case, web hosting is the application that is being outsourced to an ASP like Exodus.
But eMail and webhosting are "new age" applications - can this be extended to mainline applications like financial accounting and payroll ? Why not ? Consider the website www.netledger.com which will help you do your financial accounting. NetLedger is the world's first online small business accounting application. It has an easy to use interface that's familiar and friendly to both Web users and those who've used small business accounting software. With almost no training other than a five-minute tour, you can start using NetLedger. If you know the basics of small business accounting and you know how to fill out a form on the Web, you know how to use NetLedger. No software to install, nothing to download. Just point your browser on any Internet-capable device to netledger.com to see or manage your company's finances. Your accountant can check your books from his office. Your bookkeeper can work from home. You can check your income statement while you're on the road, or when you wake up in the middle of the night. All your customers, vendors, items, and transactions are available 24 hours a day, seven days a week. You can have as many users as you need and access your NetLedger data simultaneously from anywhere in the world. Security is not an issue. You can have your accountant only see your balance sheet, income statement, and Chart of Accounts, your bookkeeper only enter and edit transactions, but not delete them, and your VP of Sales only run Sales reports. NetLedger backs up your data constantly, instead of the at-your-leisure approach to backup offered by shrink-wrapped accounting software. There are no hassles associate with upgrades and incompatible versions! . When you log on, you are notified of any new enhancements that have been added since you used NetLedger last. And all this for a cost of USD 4.95 per month !!
Applications like NetLedger may be good for small companies but may prove to be inadequate for larger organisations that need a full suite of business functionality that is typically offered by mainline ERP solutions like SAP, Oracle Applications and PeopleSoft. However NetLedger is a perfect model that exhibits all the characteristics of the application outsourcing paradigm. Can this be extended to more complex applications like ERP, SCM, CRM ?

Extending the Model Outsourcing applications like eMail, webHosting and even simple accounting functions may be relatively simple but doing the same with mission critical systems like ERP systems - that form the backbone of the company's business process, is a different ball game. ERP application service providers rarely follow the HotMail or webhosting model of supporting hundreds of clients from a single server, though NetLedger is a step in this direction. Instead, the ASP would in general create the appropriate infrastructure for a single client and develop a long term relationship. This calls for a meticulous appraisal of the technical feasibility including disaster contingency planning plus an act of faith in entrusting the company's ability to operate in the hands of an outside agency. But the benefits are enormous. You have access to the latest technology resources that allows you to compete with the world and yet the liberty to concentrate on your business without bothering about hardware, software and people to install, operate and upgrade them. Costs are also significantly reduced if you consider the hidden overheads of running a state-of-the-art datacentre.
Outsourcing business critical applications involves the following steps :
o Identification of an appropriate service provider (ASP). Do they have the skills to install, configure, operate, manage and upgrade a complex product like SAP or Oracle Applications ? Do they have the appropriate infrastructure in terms of scalable hardware and disaster proof installations ?
o Determining the feasibility of the communications channels. The Internet may not be the most appropriate means of connecting the applications service provider to the end users because of security issues as well as bandwidth (or capacity) constraints. Alternatives are terrestrial leased lines with adequate backup through ISDN and VSAT links. The entire architecture must be developed, points of weakness identified, and adequate redundancies must be built in to ensure the same level of reliability as in-house applications.
o Creation of an appropriate organisational model that allows adequate comfort levels - both corporate comfort in terms of business confidentiality as well as personal comfort in terms of career progression, across the organisation.
o Creation of appropriate service level agreements that ensure that all requirements and contingencies are addressed in a transparent and equitable manner. Since this would be a long term relationship between the user and the ASP, expectations must be managed with extreme care.

Speed : From Advantage to Imperative Whether in terms of reduced operating expenses, release of capital, sheltered downsizing or leveraging the expertise of others, the historical driver for outsourcing was cost. Early outsourcing deals were seen as a way to bring IT costs in line with perceived benefits. Recently, the focus has shifted to better performance and stability, faster response, risk and gain sharing and other quality or service level improvements. But in the future, outsourcing will be the key that ensures ready access to state-of-the-art IT knowledge and expertise and access to high quality IT professionals without losing sight of core business processes and capabilities.
A recent study by the US Military identified several disturbing trends in the nature of military operations. One of the most severe was that 80% of the technology required and planned for the BattleField/2002 scenario does not exist yet except as rough prototypes. Forty percent of current technology is 20 years old and thirty percent is over 30 years old. The military tools and techniques available to the next generation soldier can only be delivered through extensive re-training.
The scenario is no different in the commercial world. The technology - of ERP, SCM, CRM and KM, that is shaping tomorrow's successful business processes, is moving so fast that speed is no longer a competitive advantage : it is a competitive imperative, and outsourcing is the enabler. The pivot point to success is Application Process Outsourcing.

This article describes the concept of application process outsourcing, explains the rationale behind it and provides a roadmap that corporates should follow to derive significant business advantage
	The Internet changes everything. This axiom is the fountainhead of eBusiness - the new paradigm that is currently sweeping through the CEO mindscape in India. eBusiness is different from eCommerce - a concept that focusses narrowly on the mechanics of selling goods and services through the Internet. eBusiness is something far bigger : it encompasses the tools, techniques and business processes that ties an organisation to its suppliers, service providers, distributors, retailers and consumers through a variety of communication technologies, including the Internet, in a manner that maximises value to the final consumer. eBusiness has created a new breed of organisations that have appeared from anonymity and derailed established players. Dell upstaged IBM and Compaq, Amazon redefined bookstores, eBay - the auction house, has left Sotheby's far behind while eSchwab has transformed the way people play the stockmarket. Common to all these cases is the fact that technology has been used extensively to transform business processes. This is another significant shift in corporate thinking. For years it was believed that business processes were sacrosanct and computer technology must be tailored to meet existing process requirements, but this is history. Companies that are using new technology to transform their business processes are the ones that are perceived to be successful, not only by technologists but more importantly by the stockmarket. This critical dependence on technology is not restricted to the Internet. Enterprise Resource Planning, Supply Chain Management, Client Relationship Management and Knowledge Management - appropriately leveraged through the Internet, are frontiers where the new businesses processes are being defined and this is where the titans of tomorrow are focussing on. But the management of the new and rapidly changing technology blurs the corporate focus from the actual business process - the company gets bogged down into managing technology, leading to a Catch22 situation. Technology is critical for business but is not substitute for the real thing - so where does the company focus on ? Technology or business ?. This is where Application Outsourcing steps in.
Why Outsourcing ?	Automobile manufacturers don't make the entire car - they outsource the production of many parts, components and assemblies. Food processors don't grow all their crops - they outsource crop production to agricultural co-operatives or independent growers. Companies do not store or manage their money - they entrust it to banks and other financial institutions. Indeed, companies in many industries are outsourcing more and more of their business processes to outside service providers that are leaders in their fields, and that can provide best-in-class systems and services. Information technology is no exception. Outsourcing information technology effectively means that the company does not own or operate the hardware or software through which it carries out routine business processes like maintaining financial accounts, planning production, managing materials and inventory, running payroll or monitoring sales and distribution. The staff who use these systems see the same application "screens" on their PC workstations, but the server from where these applications are run are not in the EDP/MIS department down the hall but many many miles away in the premises of an Application Services Provider (ASP). The only magic in this process is provided by advances of communication technology- Internet, leased lines, ISDN or VSAT - that makes the distant ASP premises as easy to communicate with as the EDP/MIS department within the company premises.
Fact or Fantasy ?	If all this sounds too far-fetched, consider the following examples of application outsourcing that are already in operation today. All of us have heard of HotMail, pioneered by Sabeer Bhatia, and widely used by millions of people all over the world. In the past, eMail was an application that was provided by a company to its employees. The mail servers was owned and operated by the company and staff would use their PC to send, receive and view mail. But today, many of us send and receive mail without knowing where the mail server is. Hotmail provides us the service but shields us from all the hassles of maintaining the server and upgrading technology. When a security bug was found, they rectified it but we as users never needed to know what was the problem and how it was rectified - which is perfectly fine with a majority of users who are only interested in sending and receiving mail and nothing more. Hotmail is a classic case of application outsourcing and in this case, the application happens to be eMail. A second application that is commonly outsourced is websites. A website is an application through which a company communicates and interacts with a of host internal and external entities like consumers, business partners and staff at remote offices. Setting up a website is serious business - round the clock power supply, reliable communication links and leading edge technology, but companies get around this by "renting" web space from "web farms". In fact major Internet companies like Yahoo!, Amazon and others do not own or operate web servers. Instead they outsource this to companies like Exodus (once again owned by two very low profile Indians, Chandrasekhar and Jagdeesh) and focus on building and refining their new and emerging eBusiness models. In this case, web hosting is the application that is being outsourced to an ASP like Exodus. But eMail and webhosting are "new age" applications - can this be extended to mainline applications like financial accounting and payroll ? Why not ? Consider the website www.netledger.com which will help you do your financial accounting. NetLedger is the world's first online small business accounting application. It has an easy to use interface that's familiar and friendly to both Web users and those who've used small business accounting software. With almost no training other than a five-minute tour, you can start using NetLedger. If you know the basics of small business accounting and you know how to fill out a form on the Web, you know how to use NetLedger. No software to install, nothing to download. Just point your browser on any Internet-capable device to netledger.com to see or manage your company's finances. Your accountant can check your books from his office. Your bookkeeper can work from home. You can check your income statement while you're on the road, or when you wake up in the middle of the night. All your customers, vendors, items, and transactions are available 24 hours a day, seven days a week. You can have as many users as you need and access your NetLedger data simultaneously from anywhere in the world. Security is not an issue. You can have your accountant only see your balance sheet, income statement, and Chart of Accounts, your bookkeeper only enter and edit transactions, but not delete them, and your VP of Sales only run Sales reports. NetLedger backs up your data constantly, instead of the at-your-leisure approach to backup offered by shrink-wrapped accounting software. There are no hassles associate with upgrades and incompatible versions! . When you log on, you are notified of any new enhancements that have been added since you used NetLedger last. And all this for a cost of USD 4.95 per month !! Applications like NetLedger may be good for small companies but may prove to be inadequate for larger organisations that need a full suite of business functionality that is typically offered by mainline ERP solutions like SAP, Oracle Applications and PeopleSoft. However NetLedger is a perfect model that exhibits all the characteristics of the application outsourcing paradigm. Can this be extended to more complex applications like ERP, SCM, CRM ?
Extending the Model	Outsourcing applications like eMail, webHosting and even simple accounting functions may be relatively simple but doing the same with mission critical systems like ERP systems - that form the backbone of the company's business process, is a different ball game. ERP application service providers rarely follow the HotMail or webhosting model of supporting hundreds of clients from a single server, though NetLedger is a step in this direction. Instead, the ASP would in general create the appropriate infrastructure for a single client and develop a long term relationship. This calls for a meticulous appraisal of the technical feasibility including disaster contingency planning plus an act of faith in entrusting the company's ability to operate in the hands of an outside agency. But the benefits are enormous. You have access to the latest technology resources that allows you to compete with the world and yet the liberty to concentrate on your business without bothering about hardware, software and people to install, operate and upgrade them. Costs are also significantly reduced if you consider the hidden overheads of running a state-of-the-art datacentre. Outsourcing business critical applications involves the following steps : o Identification of an appropriate service provider (ASP). Do they have the skills to install, configure, operate, manage and upgrade a complex product like SAP or Oracle Applications ? Do they have the appropriate infrastructure in terms of scalable hardware and disaster proof installations ? o Determining the feasibility of the communications channels. The Internet may not be the most appropriate means of connecting the applications service provider to the end users because of security issues as well as bandwidth (or capacity) constraints. Alternatives are terrestrial leased lines with adequate backup through ISDN and VSAT links. The entire architecture must be developed, points of weakness identified, and adequate redundancies must be built in to ensure the same level of reliability as in-house applications. o Creation of an appropriate organisational model that allows adequate comfort levels - both corporate comfort in terms of business confidentiality as well as personal comfort in terms of career progression, across the organisation. o Creation of appropriate service level agreements that ensure that all requirements and contingencies are addressed in a transparent and equitable manner. Since this would be a long term relationship between the user and the ASP, expectations must be managed with extreme care.
Speed : From Advantage to Imperative	Whether in terms of reduced operating expenses, release of capital, sheltered downsizing or leveraging the expertise of others, the historical driver for outsourcing was cost. Early outsourcing deals were seen as a way to bring IT costs in line with perceived benefits. Recently, the focus has shifted to better performance and stability, faster response, risk and gain sharing and other quality or service level improvements. But in the future, outsourcing will be the key that ensures ready access to state-of-the-art IT knowledge and expertise and access to high quality IT professionals without losing sight of core business processes and capabilities. A recent study by the US Military identified several disturbing trends in the nature of military operations. One of the most severe was that 80% of the technology required and planned for the BattleField/2002 scenario does not exist yet except as rough prototypes. Forty percent of current technology is 20 years old and thirty percent is over 30 years old. The military tools and techniques available to the next generation soldier can only be delivered through extensive re-training. The scenario is no different in the commercial world. The technology - of ERP, SCM, CRM and KM, that is shaping tomorrow's successful business processes, is moving so fast that speed is no longer a competitive advantage : it is a competitive imperative, and outsourcing is the enabler. The pivot point to success is Application Process Outsourcing.

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