Strategy

The decision to outsource your ERP applications comes down to one issue: Cost.

If your company is relatively new to ERP, odds are you're still modifying the software to match your business processes, moving around the furniture to make sure it suits your environment. But if you've had your ERP for some time, it's likely you've already done the lion's share of adaptation, and are now focusing on squeezing out costs, reducing overhead for components such as servers, application upgrades and integration with other systems. And that's a good time to consider if a service provider might be able to cut expenses in ways you can't.

The first step is to focus on what you need your enterprise application to do, then determine whether a service provider can provide the same thing. "Figure out the functionality first, then the delivery method," advises Katherine Jones, managing director of enterprise business applications at researcher Aberdeen Group Inc. That's seconded by Mitch Dickerman, CIO of Boston-based ad agency Hill, Holliday, which recently outsourced its financial applications. "The hardest part of these kinds of implementations is not the technology; it's analyzing the business processes" you want the outsourcer to support, says Dickerman.

By doing your homework, you may uncover big expenses that a service provider can whittle down for you. Take ERP upgrades, for example. Researcher AMR says 61 percent of companies responding to a survey say they upgrade—typically at a substantial cost—to get access to new functions. But an outsourcer already running that version will have amortized those new costs across multiple customers, generating savings you probably can't match. Jay Topper, CIO of Applied Graphics Technologies Inc., a creative services and printing company in New York, says he eliminated the need for up to five full-time staff positions when he outsourced his PeopleSoft system to an ASP, Surebridge Inc., shaving his monthly expenditures by nearly 40 percent—and avoiding having to pay directly for the next PeopleSoft upgrade.

Ask Your It Analysts:

How much are we spending each year to modify our ERP applications?

Ask Your ERP Vendors:

How much are we likely to have to spend on our next ERP upgrade?

Ask Potential ERP Outsourcers:

What ERP-related expertise do you bring to the table that I don't currently have?