Unexpected Benefits

Sometimes, when you take a risk on a new service or technology, you get more than you paid for. Rodric O'Connor discovered that his customer relationship management (CRM) application service provider saved his company an unexpected $800,000 a year in paper costs, but that wasn't even the best part of the deal.

Janet Lecuyer learned that by adding a step to the approval process for new online investor education modules developed by her ASP, her company actually got better and faster results from its vendor.

Mark Esdale found an entirely new market for his business by piggybacking a new service on top of his ASP's.

In the experience of these and other pioneering users, ASPs aren't risky, experimental vendors; they're just one more mainstream technology option for IT shops in both large and small companies.

That sets up the ASPs themselves for the explosive growth being predicted by many analysts, but it also means that all IT managers will have to be ready for the new reality of the IT landscape. They'll be faced with a growing array of options for outsourcing everything from enterprise applications to travel and entertainment reports. They'll have to develop internal standards for ASPs for such things as data security and prepare to fit outsourced applications into ongoing integration plans. Finally, ASPs often arrive in a company through departmental back doors, without IT's knowledge, much like the PCs of old, undermining IT managers' efforts to maintain control over IT assets.

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Under The Radar

One key problem ASPs create is that because their services are inexpensive and don’t require a capital investment, they can bring critical IT resources into an organization without the approval of IT managers. In that regard, the emergence of ASPs is like the arrival of PCs at companies in the 1980s. With ASP resources often priced at $50 per user per month, business unit managers can rent them without IT’s knowledge.

That was the case at Thomas Cook Currency Services Inc. in Toronto. A division of, Germany’s Thomas Cook AG, a global travel services company, Thomas Cook Currency Services needed to automate its sales process but didn’t have the resources to develop and support a major application. It had tried advanced contact management software such as GoldMine from Colorado Springs-based FrontRange Solutions Inc. but found that synchronization issues always made it a problem. So it turned to an ASP and skipped IT management review.

“We flew underneath IT’s radar,” says Michael DeSimone, vice president of e-commerce at Thomas Cook Currency Services.

He remembers fessing up to his deployment of Salesforce.com’s CRM software only after learning from an IT executive that a global deployment of a Siebel application was planned. Given Thomas Cook’s decentralization, DeSimone didn’t have to part with Salesforce.com, which his users have come to depend on. Also, he says, his upfront and ongoing costs to support the Siebel application would have been far more than the ASP’s hit on his budget.

— Mark Hall

As you would expect, the Web-dependent ASPs got their share of bad press during the dot-com death march. Headlines trumpeted the demise of high-profile ASPs like Pandesic LLC, which hosted e-commerce sites for Oshkosh B'gosh Inc. and other online retailers, and the major retrenchment of others like Xuma Inc., whose online application middleware was used by dozens of companies. But those are minor setbacks in the sizzling expansion of this market. According to a report published this summer by IDC in Framingham, Mass., U.S. spending on ASPs will grow to $15 billion by 2005, up from $770.5 million last year.

Tangible Intangibles

That kind of astounding growth will happen only if users integrate these services into the fabric of their IT operations the way San Francisco-based Putnam Lovell Securities Inc. did.

The investment bank discovered that its use of San Francisco-based Salesforce.com Inc.'s software cut $800,000 from its paper costs after its first year in production because the company could rely on a single data source to contact customers electronically, reducing the need to send physical mail on a regular basis.

But O'Connor, vice president of technology at Putnam Lovell, says he likes the service because it helped consolidate customer information from nine separate databases. Before the ASP service began early last year, that dispersal made it nearly impossible for one person to always see the latest information in every system.

Now, armed with the depth of information available through Salesforce.com, when Putnam Lovell's investment bankers go into a client meeting, they have a comprehensive view of a prospect's or customer's situation, O'Connor says.

"The intangible benefits are more important than the tangible ones," he explains.

"We had no enterprise record of events," he says. The wealth of customer knowledge is a far greater strategic plus to the company than the money saved from using the CRM program to automate mailing and printing projects inside the company.

At Charles Schwab & Co., executives were struck by the irony that it became easier to hit deadlines when another step was added to the process of approving their ASP's custom development work.

Lecuyer, vice president of investor e-learning at the San Francisco-based financial services provider, said her group has worked with Digital Think for nearly two years to develop online investor software that, while a part of the Schwab Web site, is hosted and managed by the ASP. In December of 1999, the company went live with the first three modules in its Getting Started program for investors. It now has 16 modules.

During that time, Lecuyer added a pre-alpha testing phase before rolling out a new module in order to speed deployment. Although it's counterintuitive to think that adding a step would help a process move faster, Lecuyer says it makes perfect sense. Before the pre-alpha stage was added, Digital Think, which is located a few blocks from Schwab, would show Lecuyer's staff alpha modules and get feedback. Sometimes, the change requirements at the alpha stage would necessitate complex, time-consuming work. By adding the pre-alpha review stage, they were able to catch the most significant changes at a point when making them would be far less time-consuming.

In Scarborough, Ontario, Canada's top computer-aided design integrator, CAD Resource Centre, launched an online proposal-generating application of its own that it could bolt onto an online sales force automation application from its ASP, Upshot Corp. in Mountain View, Calif.

Esdale, who is president of CAD Resource Centre, which is a division of $420 million Rand Worldwide in Mississauga, Ontario, said his company used Upshot for 18 months and liked the service but built another site, Quotegen.com, that could overcome Upshot's lack of a proposal module.

Now, salespeople link Upshot and Salesforce.com services to create sales proposals within the online CRM and sales force automation programs. It saves salespeople time and reduces the number of errors, since the data is taken directly from the ASP software.

Narrower Is Wider

Naturally, not all of the lessons learned about ASPs have been so upbeat. Lots of companies have been hurt badly by service providers going belly up or not being able to expand to meet their needs.

One problem may be that some ASPs reach beyond their grasp, making promises they have trouble fulfilling.

"There is a lack of depth" to the services of many ASPs, says Craig Watson, CIO at FMC Corp., a Chicago-based manufacturer of chemical, energy and other goods.

"The problem is that no single provider does what we need equally well across hosting, network management, secure access, Internet, firewall management and SAP processing," Watson says.

At Boston book publisher Houghton Mifflin Co., managers tried to outsource some IT help desk operations to an ASP to save money. But they brought those operations back in-house because quality began to suffer, says Phil Stice, vice president of information and support services. For example, Houghton Mifflin uses both PCs and Macintoshes, but the hired help desk didn't have the same level of knowledge of both systems.

That bad experience didn't sour Houghton Mifflin on ASPs overall. Stice says the company has used an ASP to run its PeopleSoft application for more than 18 months, and success there led it to recently move its account receivables software to an ASP.

Mark Mooney, Houghton Mifflin's chief technology officer and Stice's boss, says, "We'll continue to select ASPs in areas where it makes sense. It's about more than cost. You have to look at your skill set needs and develop those that are strategic and outsource what you can that isn't."

Outsourcing IT infrastructure and well-established applications is a key and well understood part of the utility that ASPs offer IT managers. But narrow-cast, targeted applications for corporate or divisional use have seen the most success to date because they help balance IT's limited resources with the apparent insatiable end-user demand for new software and services.

For example, Ocean Spray Cranberries Inc. in Lakeville, Mass., automated travel and entertainment reports with Concur Technologies Inc.'s Web-based service more than a year and half ago. Assistant Treasurer Bill McBain says that going into the project, he knew that "there are always more requirements than there are IT resources."

The ASP approach fit the bill. Still, McBain says, IT needed to audit Concur's security and mapped the travel and entertainment program to Ocean Spray's SAP system. IT also oversees a weekly file transfer between its SAP system and Concur's application.

However, technical support and application development are all handled by Concur. Ocean Spray's experience with the Redmond, Wash.-based ASP "will help us embrace more service providers," says McBain. "We have to look at our businesses. We are not in the [travel and entertainment software] business."

ASPs may be able to deliver dramatic savings and improved customer service, but they can't change behavior. At Nicholas Applegate Capital Management in San Diego, the rollout of Concur's travel and entertainment service sputtered after two years, with only 60% of the 450-employee subsidiary of Allianz Insurance Co. signed on.

According to Mel Nutter, systems project manager, top managers didn't give the ASP's approach their full support. As a result, the company continues to process more than one-third of its travel and entertainment reports in the old-fashioned, prepaid, paper-based system it's had for more than a decade, despite clear financial advantages of using the ASP.

Nutter says, "The old way of doing things was ingrained in our culture for 15 years."

Choosing and, more important, staying with an ASP is based on the value it brings to the overall business. And in the past three years, the broadly defined ASP market has found most of its success by filling gaps in IT operations at companies large and small.

As FMC's Watson says about the steady uptick of ASP usage in his company, "We've known all along they were important, and their value and importance are increasing."

Copyright © 2001 IDG Communications, Inc.

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