Dij` vu all over again: The return of time sharing: Page 2

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The risks of a risk-avoidance strategy

PHONE COMPANY AS AN SAP ASP? THE MIND BOGGLE!
BusinessManager, British Telecom's offering to the insatiable, techno-hungry small and medium enterprise (SME) market in the U.K., is intended to allow smaller companies to run cut-down versions of state-of-the-art ERP software. Historically, this software has only been available to the most wealthy of organizations.

BusinessManager initially provides the basics of the SAP R/3 accounting and payroll modules on a per-seat rental basis. The service will be provided via ISDN lines and BT supplied routers from the server farm at Bletchley (near London), to quality standards reputed to be such that the data owner is rendered oblivious to the fact that he or she no longer actually owns the data!

Plans to extend the program to encompass other business processes by utilizing different vendors are already well underway. Interestingly, BusinessManager also provides a route to millennium compliance and euro support for smaller companies that may still be struggling to rationalize the onerous associated costs.

The big picture

Small to medium-sized companies could previously only dream of halcyon days of operating a major ERP product, such as SAP. Such daydreamers will no doubt stir when they catch scent of BusinessManager, which follows the American trend of hosted applications. By offering SMEs access to such products, BusinessManager levels the playing fields of business and industry further still, allowing SMEs to leverage the competencies of ERP systems that large enterprises have enjoyed for many years now. This has obvious ramifications for the SME market and will no doubt change the way in which such companies are able to compete.

Butler Group analysis

This move by BT demonstrates, if there was ever any doubt, its commitment to the development of a rounded e-business strategy. It is also indicative of the trend to provide scaled-down enterprise solutions and services to the relatively untapped waters of the SME market and may give a boost to the flagging ERP market.--OpinionWire, Butler Group

Source: April 1999 Butler Group. For further information, contact Mark Towse.

When you read between the lines of comments from senior managers who have outsourced ERP, you really are reading about risk avoidance at companies unwilling to commit scarce capital. Tom Nance, IS vice president of Borden Foods of Columbus, Ohio, and Alan Fraser, president and CEO of Vertical Networks Inc., of Santa Clara, Calif., among others, acknowledge that cost is a key factor (see the May 1999 story "erp Outsourcing" in Managing Automation). Since Fraser has already outsourced manufacturing of his network gear to a contract manufacturer, it made sense for him to outsource the software as well.

I understand their enthusiasm for this ERP risk avoidance strategy, but here are some downsides to this "solution:"

Many vendors want a five-year commitment. If your CEO or CFO thinks this kind of fixed-price approach looks like the ultimate in risk management, you need to have a long talk with him or her. Within five years, an ERP system could be bundled with a PC and given away inside Cracker Jacks boxes.

Loss of flexibility. The features and performance specs you're buying today from an ERP outsourcer may be irrelevant in your business tomorrow. Think of all the manufacturers that, seemingly overnight, have had to build a direct-to-consumer infrastructure because of the Internet and the Web. (Mattel will be selling Barbie via the Web by the end of this year, I'll bet.)


Loss of core competency. Manufacturers that outsource their core ERP processes to a third party are launching themselves on a slippery slope to oblivion. Remember when General Motors outsourced its IT to EDS? It has taken GM years to rebuild that infrastructure. Keep that agony in mind as you start to negotiate with an ERP outsourcer.

Clueless providers. In mid-April, I exchanged e-mails with a Web hosting service that was hot to go into the ASP business. Top managers figured that since they could build a Web site with a transaction server, they were ready to offer ERP transactions. The fact that no one in the company had ever used an ERP system, let alone configured one, was only a temporary impediment. Would you want to be this company's guinea pig?

Don't get me wrong--ERP outsourcing and the ASP subset may make sense for some companies in very specific circumstances (See the recent analysis by Martin Butler of the Butler Group). But don't get overly enthusiastic about the latest fashion in technology management. You could end up with the IT equivalent of a closet full of leisure suits. //

EARLY ADOPTERS OF ERP OUTSOURCING SERVICES

Larry Marion is an editor and consultant with more than 20 years of experience in the use of computer technology in manufacturing and finance. He is the former editor of Datamation, Electronic Business, and LOTUS magazines. He can be reached at lmarion@mediaone.net.



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