InformationWeek

January 19, 1998

Next Wave: ERP Outsourcing

PeopleSoft, other vendors loo k to handle operations as well as implementations

eopleSoft is creating a business unit dedicated to installing and operating customers' enterprise resource planning applications and running the business processes associated with them. The program points to a trend among vendors: giving customers an alternative to doing their own complex software implementations and alleviating their need for pricey in-house IT expertise.

PeopleSoft plans to offer outsourcing of customers' entire ERP infrastructures, including hardware, software, and networks, as well as business processes, such as the collection of accounts receivable and the administration of employee benefits. The vendor plans to form alliances with existing outsourcers to offer these services. PeopleSoft says it won't di scuss partners or strategy until the second quarter, when it will officially unveil the program. But one possible partner is Automatic Data Processing Inc., a payroll services outsourcing vendor and a PeopleSoft partner in Europe.

Analysts see big growth ahead for the ERP outsourcing market. Meta Group analyst Dean Davison expects the market to rise from about $1 billion this year to between $6 billion and $8 billion within the next three to four years.

Oracle said last year it would offer outsourcing services to small and midsize companies that lacked the IT personnel and the wherewithal to implement and manage ERP applications on their own. Oracle said it would manage the software from a remote location as well as offer application sharing, in which users pay for software based on the number of transactions they make. So far, however, Oracle hasn't disclosed the names of any customers.

Market leader SAP says some 70 customers have already outsourced the management and maintenance of their R/3 s oftware to such third-party firms as EDS and Andersen Consulting. But Kevin McKay, chief operating officer of SAP Americas, says the next big wave will be in the outsourcing of business processes such as order entry, financial services, and human resources. SAP has ties with about 10 business-process outsourcing firms, he says.

But many ERP customers remain skeptical. "The key issue is matching up our software to the business and making sure the applications are optimized for our company," says Walter Curd, VP of IT at SAP customer Fujitsu Microelectronics in San Jose, Calif. "I'm not sure a third-party outfit could do that for you."

Adds Don Tew, manager of customer orders at Carolina Power & Light Co., a PeopleSoft user in Raleigh, N.C.: "If it saves money, we'd look at it. But we like to be in control of our applications."

Back to News in Review