Controlling Risk By Outsourcing

Why did VWR International, Inc. decide to hire SAP Hosting for the implementation of new analytics software instead of installing and running it themselves?
The answer? To save time and money, and to avoid risk.

“It’s all about risk and how do you control risk,” said George A. Gunther, VWR’s corporate SVP and CIO. “I wanted the project delivered on time and I didn’t want the traditional hardware infrastructure (installation) to be an issue. I told SAP this is what we’re going to run, this is what we need, and it’s your responsibility.”

For VWR, a $3 billion international supplier of scientific equipment, assigning this responsibility to SAP came after months of research and interviews with at least three competitors including IBM and Siemens. But, since the company’s European operation was already using hosted SAP software supplied from parent company Merck, hosting corporate-wide analytics this year, and HR and business planning software in 2003 (if all goes well), choosing SAP was the way to go.

Big Savings

The decision saved VWR more than 50% of the cost of installing the financial consolidation, supplier sales reporting, call center reporting, and supplier event management modules independently from best-of-breed providers, he said.

Although this alone would be attractive enough for any CIO to take notice, combined with SAP’s proven track record of hosting (they were able to produce years of customer metrics) and a RACI (Responsibilities, Accountabilities, Communication and Inform — or, in English, who does what, where, and when) that matrix competitors Corio, IBM, and Bluestar couldn’t touch, the decision almost made itself, said Gunther.

“It came down to service levels, cost and performance,” he said.

In fact, Gunther is so confident in outsourcing as a model and with SAP Hosting as a partner, if he could, he would transfer responsibility for VWR’s transactional applications over to SAP as well. But, until Y2K investments in best-of-breed software and infrastructure upgrades are off the books in 2008, he will have to wait.

Unlike many firms where control and security issues surface right along side the outsourcing/hosting question, the biggest concern for VWR has not been overcoming management objections and turf wars but ensuring gigabytes of data transfer properly every night from its systems in West Chester, Pa., to SAP Hosting’s data center in Atlanta, which is run by Hewlett Packard.

This is one of the main reasons Gunther choose SAP Hosting, SAP’s corporate hosting division, over a application service provider (ASP) partner like Corio or Bluestar. If things go awry, the buck starts and stops with SAP. Even if VWR had installed in-house, they would still call upon SAP to help solve problems so why not let SAP handle everything from the start, he said.

“We actually moved (to SAP) to reduce our risk of being down,” he said. “You have to go with people who know what they’re doing. In fact, it’s less risky because they know what they’re doing with those applications more than we do at this time.”

Leaving it to the Experts

Not that his IT staff isn’t competent, but another reason for hosting was to avoid a bad in-house install. While its European counterparts are well versed in SAP software, VWR in the Americas is not and Gunther did not want the additional headaches getting up to speed would surely bring him and his staff. Also, even though IT workers are easier to get these days, finding the right people to run the applications once installed was also a challenge he decided to live without.

Finally, SAP was also able to provide VWR the glue that will tie everyone (employees, vendors and customers) and everything (applications) together when the final install goes live in January 2003: portal software.

“I think (outsourcing) is the wave of the future, I really do,” said Gunther. “If I can get rid of the cost of that data center and provide reliable systems that perform, my business will be very happy with me and they will get all of it at much lower cost.”