Application outsourcing -any benefits for SMBs?

By travelstan ·
In today's tough situation of making margins which are anyway wafer thin, does it make business sense for a small and medium business to outsource its application management?

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that depends...

by oldbaritone In reply to Application outsourcing - ...

How's that for a good "Consultant's answer"

It sounds to me like you've heard a "cloud" sales pitch from a potential vendor.

Yes, there are some major advantages to oursourcing, particularly in minimizing initial capital outlay.

But TANSTAAFL - "There Ain't No Such Thing As A Free Lunch." The vendor has to make a profit too, and with Cloud, part of those "wafer thin margins" will go to the vendor.

An even bigger risk, IMHO, is that if the business gets in a cash-flow bind, the cloud vendor may shut down access if payments aren't made, summarily putting you out of business. Harsh fact, there is a lengthy process a creditor must pursue before they can seize and sell assets purchased with a loan. In the end, you'll pay penalties and charges, but you'll still be in business. But as a service, the collection of past-due amounts is bound by a process, but there is usually no obligation to continue providing service if the account is in arrears. And many terms of service require full payment after termination before access will be reinstated. That's a HUGE risk - you can be put out of business because of bad receivables. When the computers are dead, the business is dead.

OTOH, if you have your own equipment and software, at least for routine business processes, you can stay in business while you scramble to collect open receivables.

And honestly, the savings from outsourcing are also "wafer thin", when you look at TCO - and may really be nonexistent.

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Margins is a poor way to look at it

by Tony Hopkinson In reply to Application outsourcing - ...

Cost/benefit is better.
Basically you are buying a package. That means you will get some things you don't need, won't get some things you do need and be forced to accept some changes in operation and practice.
Customising it to fit will cost you as it doesn't make commercial sense for the vendor unless they sell customisation, and that's a dramatic increase in complexity and therefore cost.
If you are happy and will stay happy with their offering, then may be...
If you rely on being able to dynamically change the application to meet evolving business needs, you are going to be let down big style.
The real killer though is you've binned your kit, people and in house domain knowledge. So in the all too likely event of your and the vendor's needs diverging even more, how much will it cost in source again?

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Application outsourcing is suitable for organizations of any size

by dstahl In reply to Application outsourcing - ...

We completed a research effort examining Application Outsourcing a short while ago.

Based on our customer interviews Application outsourcing provides a number of benefits, such as the ability to:

*Gain access to staff with specialized expertise in application development or the customization of a particular packaged application.

*Develop applications quickly under tight timelines.

*Reduce costs and financial risk by offering the ability to increase or decrease staff as needed, as well as providing access to offshore professionals.

*Improve overall business processes/workflow as the organization learns more efficient processes from the outsourcer.

The top four motivators for application outsourcing were reported to be:

1) Gain access to specialized expertise
2) Faster application delivery
3) Improve overall business processes/workflow
4) Cost reduction

From our survey Application outsourcing:

% of respondents who outsource by number of Employees

1-100 33%
101 ? 250 7%
251-500 13%
501-1000 12%
1001-5000 19%
5001+ 17%
(source: Info-Tech Research Group)

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by Tony Hopkinson In reply to Application outsourcing i ...

Were they desires or outcomes ?

I've been on both sides of the equation, and I wouldn't say any of them was a given.

Not saying it can't work, but you are putting it across as a free lunch...

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re: Motivators

by dstahl In reply to Motivators

Those were 'desires'. I don't think I was putting it across as a free lunch - I was sharing data points we have that indicate "size" doesn't matter.

Outcomes are hard to achieve. Take for example Reduce Costs. 64% of respondents wanted it. But it was the least commonly accomplished goal: 40% got it. The most significant challenge encountered in reaching that goal, Cost Overruns (47%).

What we see in our research is that the customers with successful application outsourcing projects were very effective with governance and project management.

Based on our data Application outsourcing success is primarily influenced by project management characteristics and proper governance - not the demographic characteristics of the outsourcing organization.

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The thing is, if it's an established

by Tony Hopkinson In reply to re: Motivators

IT function, that has been through a few revisions. Designing and implementing it again in house would give comparable results.

A small firm might not have the technical resource and managerial resource either. But without the latter, even going external might not yield a good result.

How often has outsourcing failed because not only did they got rid of the techs who performed the function, they got rid of the people who managed it as well.

Like I said it can work, but not if you just rattle on about he good bits as though there are no downsides.
There are, and ignorance will soon be proven not to be a virtue.

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Damn, Baritone

by santeewelding In reply to Application outsourcing - ...

And, Tony too: those were damned good tutorials.

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