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This chapter is from the book

Outsourcing—Another Method of Achieving Your Solution Vision

Outsourcing is what I consider the fifth technology perspective, after the Conservative, Mainstream, Close Follower, and Leading Edge approaches. Most of this book assumes that your company owns and manages the SAP infrastructure necessary to implement your SAP solution. I also assume that the members of your SAP Technical Support Organization are employed or contracted by you, and not by a third-party outsourcing firm. In these final few sections of Chapter 3, however, I open the door to considering outsourcing these key assets instead, as illustrated in Figure 3.8.

Figure 3.8Figure 3.8 From both a business and IT point of view, outsourcing represents a unique technology perspective.

What drives organizations to outsource? In a recent IDC study, the volatility of our global economy was labeled as the primary consideration. The study put forth the following ideas:

  • Making large investments in computing infrastructure is not wise in today's economy.

  • A company should instead let experts in the field of enterprise computing resource management make these investments, leveraging their core competencies in these areas.

  • All non-core functions should be considered for outsourcing, allowing an organization to instead invest time and resources in its own core competencies.

This is really no different than in the past, when companies turned to outsourcing firms to cut costs. But today things are a little different, and cost is less a factor than pure adaptability, which is the ability of a company to make changes quickly so as to stay competitive or position itself better with their customers, vendors, suppliers, and so on. In a nutshell, adaptability equates to strategic benefits, rather than the simpler and more tactical cost-cutting benefits realized a decade ago through traditional outsourcing.

Intelligent outsourcing represents one method of becoming more flexible and adaptive, while still cutting costs. Outsourcing can mitigate risks relative to economic uncertainty as well, especially when the outsourcing agreement leverages the core competencies of each party. The really good outsourcing organizations, confident in their ability to execute, are more than willing to assume incremental risk. And with other risk-reward elements coming into play, such as those around meeting service-level agreements and availability targets, the best outsourcers are so convinced that they can do a better job of managing your resources and minimizing your downtime than you can that they're betting their revenue stream—your company's monthly check to them—on it.

With all of this in mind, exactly what should you outsource and what should you keep in-house? The short answer includes anything that is technology-intensive or complex from a process perspective. This easily explains why outsourcing SAP Disaster Recovery responsibilities is growing in popularity—DR meets both criteria in a big way.

Prerequisites of ITO—Information Technology Outsourcing

Although companies today can outsource technology or business processes, my focus in the remainder of this chapter is on Information Technology Outsourcing (ITO); Business Process Outsourcing (BPO) is the label given to process-oriented outsourcing. A quick list of ITO prerequisites is in order before we move on, however. To really benefit from an ITO relationship with an outsourcing partner, consider the following "must haves":

  • The outsourcer must be flexible and able to adapt to your needs, both short-term and long-term. Thus, a clear understanding of the iterative nature of successful outsourcing is needed, as both tactical and strategic needs will morph over time. A rigid engagement and change-management model will leave you worse off than before.

  • Your company's goals and objectives must align with the outsourcer's capabilities—if the outsourcer does not specialize in mySAP, or is uncomfortable providing references that otherwise prove their capabilities, walk away.

  • A well-defined and articulated set of expectations must be communicated to the outsourcer. For example, your service-level agreements, requirements surrounding any systems management information you want to see on a regular basis, and so on, all must be clearly communicated up front.

  • For global outsourcing arrangements, a good cultural fit is very important, too. At minimum, understanding your outsourcer's culture is essential. But it's really helpful to understand specific traits and tendencies. For example, in some cultures people tend to avoid sharing bad news with their clients, or in other cultures, it is not acceptable to answer a question with a simple "no" without providing details as to why.

If both parties meet these prerequisites, and you are comfortable with your potential outsourcer, you are a good fit for at least considering outsourcing.

Potential Benefits of Outsourcing SAP Infrastructure

The benefits you should reap from an ITO outsourcing relationship, compared to retaining control of your SAP assets internally, include the following:

  • Less downtime and better availability. This includes both planned and unplanned downtime, as the outsourcer can presumably leverage their economies of scale, superior maintenance processes, and access to talented mySAP personnel.

  • The same or greater level of flexibility. As your business needs change, so too should the system that supports these needs. This should manifest itself in a number of ways, including a full life cycle offering and "one-stop shopping."

  • Better consistency from a personnel perspective. Although employee and contractor turnover is not what it has been in the past—it's quite reasonable today—a successful outsourcing provider should still be able to retain its scarce technical resources longer than you can.

  • Simplified budgeting and financial management of assets.

  • High-quality approach and delivery.

  • Reduced IT and supporting costs and little or no up-front capital expenditures on hardware and infrastructure equate to more cash. This is especially true when it comes to using offshore outsourcing partners.

To this last point, offshore outsourcing has been described as "counter-recessionary" simply because offshore costing models are so dramatically lower than U.S.-based models—recession or not, you are saving more money than otherwise possible by holding on to SAP assets internally. And with so many other countries beginning to compete successfully with India, which has dominated offshore outsourcing over the last five years (and currently owns 85% of all offshore outsourcing, according to Meta Group), the cost models will only continue to improve over time.

The Shortcomings of Outsourcing in the Real World

Historically, it has been difficult to find more than a few success stories where the company was so enthralled with their outsourcing partner that they could not help but tell everyone. My direct experience with outsourcing is pretty shallow, but from the stories my colleagues have shared with me, the following points seem to hold true:

  • Loss of control seems to be the biggest concern. This relates directly back to the flexibility and adaptability that outsourcers today tout as compelling benefits.

  • Less than overwhelming cost savings is another. Organizations that expect an order-of-magnitude cost reduction may be disappointed. Numbers like this are possible, true, but only if your own organization is so fat and bloated with overhead that you simply couldn't help reducing your IT bill in half.

  • No perceived difference in the amount of time it takes to resolve system problems. This is especially true if your company's IT organization does their job quite well, leaving little room for improvement for an outsourcing partner.

  • Outsource contract timelines vary considerably. One of my large SAP customers was persuaded to sign a seven-year outsourcing agreement a few years back. Seven years! That's an eternity in the world of IT, and they are "locked in" until the contract expires, lest they turn over a hefty penalty for early termination.

  • Another customer of mine signed an outsourcing deal structured such that incremental processing power required by the customer during the life of the contract would be billed "per server." Less than a year later, they began to understand what that meant, as the outsourcer increased its revenue stream by meeting their new mySAP requirements with many two-processor servers instead of fewer larger servers.

  • I've been told by customers that they sometimes feel "nickel and dimed to death" by their outsourcing provider. Every unplanned change to their environment, every new addition to the SAP system landscape, and so on add up to incremental and costly fees that were never envisioned by the original contracting team.

In looking back at the preceding list, it seems to me that many of the stumbling blocks stem from contractual issues rather than true outsourcing shortcomings. That is, performance problems were hard to find, and it seemed as though service-level agreements and general system availability were not issues, either.

Analyzing Outsourcing Versus Doing It Yourself

Just like hosting and managing your infrastructure internally, outsourcing touches every facet of your end users' experience with their mySAP solution. However, if an outsourcer can provide the same or better levels of service, responsiveness, and system availability, while successfully retaining the skillsets and expertise needed to keep an SAP solution humming along, and do all of this more cost-effectively than you, by all means outsourcing should be considered the forerunner in achieving your SAP solution vision.

The next step is to verify not only that the outsourcer is built upon a foundation of sound business fundamentals, but that it can demonstrate the following abilities:

  • Can be effectively held accountable to deliver what it promises, through penalties and similar service-level-based fees

  • Can show you proof of how it has accepted responsibility for its mistakes and shortcomings in the past

  • Can point to a clear and time-proven methodology for planning, deploying, upgrading, supporting, and otherwise managing the mySAP enterprise computing resources of other customer organizations

  • Can show you how its own processes and procedures are subject to continuous improvement

Why are these so important? Because they give an organization a way of comparing themselves to the best that outsourcing can provide. And because there is really no cost savings that will ever make it acceptable to circumvent these basic business fundamentals! In other words, flexibility, service, system availability, and authentic customer-service values mean a whole lot more to your end users than price ever will.

ASP Hosting for SAP

Another approach to managing resources outside the boundaries of your internally housed data center is through an Application Service Provider (ASP). What exactly is an ASP? According to IDC, ASPs provide a contractual service offering to deploy, host, manage, and rent access to an application from a centrally managed facility. ASPs are responsible for either directly or indirectly providing all of the specific activities and expertise aimed at a managing software application or set of applications. Different ASPs tend to focus their services in different application areas—hosting traditional file, print, and Web services, and enterprise applications like mySAP make up the bulk of these. This is what tends to differentiate ASPs from general ITO and BPO outsourcing providers.

According to Gartner Group, ASPs deliver application functionality and associated services across a network to multiple customers by way of a "pay as you go" pricing model. As in traditional outsourcing, the value proposition clearly has to do with providing access to customer applications without the systems, staffing, and manageability challenges. After dramatic consolidation over the last two years, the strong remaining ASPs are growing again because they provide the following:

  • Access to expensive and skilled IT professionals

  • Knowledge in hosting mySAP and other applications

  • Better reliability than most customer organizations enjoy, in regards to network and other infrastructure resources

  • Alternative and flexible financing arrangements available

  • Ability to include value-adds like e-trading, home pages for different organizations, and other Internet-focused offerings

Of course, like ITO outsourcing providers, an ASP's specific knowledge and experience in supporting mySAP solutions, its reputation, an installed base of customer references, and overall financial stability are important considerations prior to securing their services.

HP's Utility Data Center

Another very different method of accessing and provisioning scarce hardware resources is promised by HP. Announced in November 2002, HP's Utility Data Center (UDC) does not seek to simply partition hardware platforms in a different way, or enable software-based workload management. According to HP Software's Chief Technology Officer, Rick Hayes-Roth, "UDC is a software and services package that creates a data center infrastructure that administrators will wire once, then reconfigure dynamically." Ultimately, a UDC data center administrator transparently redirects computing resources to any application that needs it, thereby bringing true dynamic provisioning to the SAP Data Center by enabling different mySAP applications to access needed point-in-time resources.

In doing so, UDC promises to reduce data center costs by as much as 50%, a compelling proposition not only to large corporate enterprises but perhaps even more so to outsourcing vendors, managed service providers, infrastructure application service providers, and the like. To achieve these goals, UDC customers actually receive the following:

  • HP consulting services, to architect the data center infrastructure.

  • HP services, which are leveraged to keep the infrastructure up and running.

  • HP OpenView's Integrated Services Management (ISM) software, necessary to manage and control resources under the umbrella of UDC.

  • Cisco-based networking solutions, tying all assets into one computing fabric.

  • An end-to-end solution vision that can easily evolve as an organization evolves. UDC supports multiple operating systems (HP-UX, Windows, Linux, and other UNIX variants), for example, and by tying these all together, enables the creation of huge compute and storage pools.

UDC will deliver on the ROI that all customers hope for but never fully achieve with current solution deployment models, simply because over-sizing and otherwise building scalability into each mySAP enterprise component, for example, is expensive!

There will be challenges that must first be overcome by companies wanting to adopt UDC, however. The most unusual will be related to the fact that UDC is not a single product or approach—instead, it's a marriage of hardware, software, people, and service-level agreements. Bringing all of this under the umbrella of ISM will be nothing compared to the time it takes to simply review current assets and then plan for a UDC solution.

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