Caveat Emptor

Caveat Emptor

Once you decide what you want, choosing a service provider comes down to culture—both yours and the provider's.

Of the many potential hurdles to outsourcing ERP, the greatest is companies' lingering skittishness about adopting the model. Aside from the megadeals that traditional outsourcers have offered for years, and notwithstanding powerhouse outsourcing relationships like J.P. Morgan Chase & Co.'s decision to offload huge pieces of its IT infrastructure to IBM Corp., many companies just feel uncomfortable handing off chunks of their IT infrastructure to someone on the outside. The critical nature of ERP software makes it seem even more risky—especially through service providers. "All of those ASP types have top Fortune 100 companies" as customers, says Delphi Group chief analyst Nathaniel Palmer, "but in none of those cases are they an enterprise play."

Yet interest in outsourcing is on the rise, in part because service provider offerings have become more sophisticated, and in part because users have a clearer sense of their requirements. Service-level agreements have become far more sophisticated, too, detailing exactly the business value to be provided and the penalties if they're not met. "Customers are definitely getting smarter about SLAs," says Forrester's Chew, "because the SLA drives the vendor's behavior."

Is outsourcing a panacea for the continuing costs of enterprise applications? Not by a long shot. It can't magically make legacy systems disappear, and potential culture clashes pose a major hurdle. Resistance lingers from the historical "not invented here" mentality, both in IT and on the business side: If we don't own it, the reasoning goes, we won't be able to control it. Yet the unrelenting focus on cost-cutting in many companies, as well as the increased flexibility of service providers, are encouraging many IT shops to at least kick outsourcers' tires to see where major gains might be found. Just make sure your potential outsourcer has the same maniacal focus on the customer that you do—because in this case, the customer is you.

Tell Your It Staff:

Count how many total seats we would need an outsourcer to support—and find several for your short list who've already supported that many.

Ask Your Legal Staff:

How well prepared are we to write iron-clad service level agreements?

Tell Potential Service Providers:

Give me examples where you've gone the distance—in both service and cost-cutting—for your customers.

This article was originally published on 06-16-2003
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