InformationWeek
Defining The Business Value Of Technology
January 4, 1999
ServicesOutside Help Wanted
Demand for outsourcers and integrators will grow as companies seek partners to manage changing technologies
By Bob Violino
|
|
|
|
|
|
|
|
ctivity in the IT services sector promises to intensify this year as companies continue to seek out expertise in technologies that change even as they're being deployed.Among the new offerings from outsourcers and systems integrators are post-implementation enterprise resource planning services designed to help businesses wring every possible financial benefit from their ERP systems. Other hot services include customer services such as call-center management, sales-force automation, and data warehousing and mining. Web and E-commerce services should continue to grow in importance and sophistication. And year 2000 testing services will be as popular as ever. Also expect to see the emergence of so-called IT utilities, such as the outsourcing of IT solution centers, as well as greater use of metrics and benchmarking to track the performance of service providers.
Post-ERP Services
There has been a flurry of ERP implementations over the past few years--many of them to phase out older systems that weren't year 2000 compliant. Many companies that have installed these complex, expensive applications need help managing them, extending them into the supply chain, and finding the best payback. Other areas of development include integrating ERP and other strategic applications and creating new business applications on top of the ERP platform.
"We expect to see a lot of systems converted in the next six to nine months," says Karl Newkirk, managing partner of the global enterprise business solutions practice at Andersen Consulting. "Once they get done, managers want to see exactly what they're getting out of this."
Virtually all of the major service providers have or are launching some type of post-ERP analysis, consulting, or management service to help businesses reap the financial rewards of ERP. "We're expanding ERP further into the supply chain to clients' customers," says Rod McGeary, vice chairman of consulting at KPMG Peat Marwick.
Nikon Precision Inc., a microelectronics manufacturer in Belmont, Calif., completed an implementation of Oracle applications for financial, distribution, inventory, and sales about three months ago. It now relies on KPMG to help manage applications and create new ERP functions, such as integration with its customer calling center and a logistics and dispatching system. "It's very difficult for any company to have all the skills and experience to do this in-house," says Greg Sasaki, IS manager and controller at Nikon Precision. The company plans to use KPMG's post-ERP support program for at least a year, but it's evaluating the service on a monthly basis to determine the level of support needed.
Construction and engineering company Fluor Corp. is putting together a business plan for an ERP project that it's starting this month. Fluor, in Irvine, Calif., already anticipates it will rely on an IT service provider for post-ERP help. "We'll roll out the ERP system and then go back and tune it up as needed," says Dennis Benner, VP and CIO. His department will rely on service providers to help it periodically evaluate product enhancements, changes in business conditions, and evolving customer requirements.
Benner expects post-ERP services to be a standard part of Fluor's support strategy. "Everyone's business is changing, as is the functionality of ERP software," he says. "Change is so rapid that you couldn't install an ERP package and not go back and adjust it."
Consulting firms are also developing expertise in customer relationship management and its underlying technologies. "This area of customer dynamics is exploding," says Stephen Sprinkle, managing director of service lines at Deloitte Consulting. He predicts spectacular growth in demand for services that help companies implement and manage sales-force automation applications, call centers, E-commerce, and data warehouses.
Pitney Bowes Inc., the Stamford, Conn., maker of postage systems and office equipment, hired Deloitte to help it develop and roll out a notebook-based sales automation system that lets sales representatives access the latest product prices and provide price quotes to customers on the spot.
Pitney Bowes, which expects the program to sharply boost sales and wanted to deploy it quickly, turned to an outside firm with the needed expertise, says Dave Thomas, project director of sales automation. "The danger with these projects is that they can take too long to start up," says Thomas. "You want to reap the benefits as quickly as possible." Pitney Bowes turned to consultants that had deployed this type of system for other customers.
Solution Centers
When it comes to solution centers, everyone in the IT services business seems to be getting into the act. Solution centers are facilities where teams of experts use repeatable or reusable processes, models, and architectures in areas such as ERP and year 2000 remediation to save customers time and money. The centers often are either industry- or technology-specific and are linked electronically to other centers to ease information sharing.
At these centers, service providers gather the latest data on products and processes that have worked for their clients and attempt to use them for similar applications at other companies, but with necessary customization. There is ongoing collaboration between the centers and conventional system integration teams that work at clients' sites.
Andersen Consulting has built one of the largest networks in this area, operating 42 solution centers in 12 countries with 5,000 staffers. The centers provide shared expertise on technologies such as E-commerce and supply-chain-management software, and for a variety of industries such as financial services and utilities.Deloitte Consulting is also a major player; it operates nine solution centers--six in North America--that provide expertise in ERP package integration, custom client-server and systems integration, networking, and customer service. EDS, Ernst & Young, IBM Global Services, and PricewaterhouseCoopers are also providing and expanding solution centers.
Companies that use solution centers say one of the benefits is being able to test solutions in a laboratory setting before putting them into production. For example, Sacramento Municipal Utility District, a California electric company, is using Deloitte's San Francisco solution center to develop and test a call-center upgrade.
Deloitte personnel at the center are working with representatives from vendor companies that are supplying components of the call center to ensure that the hardware and software components work well together. "This wasn't just a PowerPoint presentation," says Winston Ashizawa, CIO at Sacramento Municipal Utility District. "We could actually see the system running and ask questions."
Fluor is looking into using a solution center operated by one of the major outsourcing companies to help with its ERP project. "These shared centers are a viable business approach," says CIO Benner. "They will be able to recruit people with the right skills better than we will. The people shortage will get a lot worse before it gets better."
Benchmarking
Senior business executives want proof that their companies' investments in systems and software are paying off. More companies are using metrics to benchmark the performance of their outsourcers and system integrators against the levels of service they were getting before entering into the service agreements.
"IT managers are getting smarter and more demanding," says Howard Rubin, chairman of the computer science program at Hunter College in New York and a Meta Group research fellow. "The stakes are high because technology is more critical than ever to business."
Alan Gonchar, former president of Compass America Inc., a Reston, Va., consulting firm, says more contracts include provisions for measuring performance, and that more companies are putting metrics in place to evaluate performance levels. Compass America helps companies negotiate service agreements and measures performance levels and the cost-effectiveness of outsourcers.
Measuring service levels has become an accepted practice, and some of the most prominent law firms involved in outsourcing deals are pushing this as a requirement of a good deal, says Gonchar. Compass America assists companies in measuring service levels in a variety of areas, including availability, service quality, and cost per minute for networks. It also offers services to measure cost of ownership for PCs and other hardware, problem resolution times for help desks, function points per developer for application development, CPU costs and processing capacity for data centers, and equipment costs and outages per month for IT infrastructures. These performance levels are compared with those that Compass America considers best of breed, based on a database of information from its clients around the world.
J.P. Morgan & Co. in New York benefits from measuring the performance of Computer Sciences Corp., which has provided services to the bank in an alliance with Andersen Consulting, AT&T Solutions, and Bell Atlantic for two years. "The outsourcing arrangement is working well, and the measurement process we have in place has helped significantly, both in setting up the pieces of the contract and in tracking how well our partners are performing," says VP Randy Numbers.
J.P. Morgan, with the help of Compass America, tracks hundreds of variables, including costs, quality of service, acquisition of hardware and software, desktop support, and application development. Comparisons are made with similar companies in its industry based on information gathered by Compass America. "These measurements help us gauge whether the prices we're paying for services are significantly out of line with what the rest of the industry is paying," says Numbers.
The growing demand for performance-measurement services is attracting new players. IT Analytics, a Scarsdale, N.Y., firm that performs analyses of business computing systems, this year expects to begin offering a service to help companies track the levels of performance of outsourcing and systems integration companies. "People are spending a huge amount of money on these services," says Edward Zecchini, president of IT Analytics. "They want justification. Are they really saving money? Are things being done efficiently? What's the return on investment?"
IT Utilities
This could be the year that IT utilities--third-party service providers that make computer processing as widely available and easily accessible as electric power--emerge as an important element in IT organizations' outsourcing strategies. Such utilities would provide network-based operations management, maintenance, design, applications development, and implementation work now usually handled by IS departments.
One of the first such utilities is ServiceNet, a joint venture of Andersen Consulting and GTE's BBN. ServiceNet began offering its initial commercial "netsourcing" service for Lotus Notes applications in December and will roll out additional services, including financial, human resources, sales-force automation, and E-commerce systems, over the next few months. ServiceNet is seeking partners to help deliver global desktop services and support but will manage its own data centers around the world. The business plan projects annual revenue of $500 million within five years, says John Whiteside, CEO of ServiceNet and former general manager of the IBM Global Network. But first, ServiceNet needs to put in place components of the utility infrastructure. One such component was completed in October when, to avoid the expense of developing, managing, and maintaining a global IP network and voice telecommunications infrastructure, ServiceNet awarded a four-year, $300 million contract to Cable & Wireless plc.
With utility services, "the CEO can get the functionality needed without investing in infrastructure and people, and with no legacy to maintain and manage, says Whiteside. "In exchange, they get the flexibility needed to keep up with the zigs and zags of markets and industries."
An early user of ServiceNet is Andersen subsidiary Via World Network, a Minneapolis company that provides online travel services. ServiceNet is running all of Via World's IT operations except customer support and application development, says Patrick McHale, VP of technology and operations. McHale says the arrangement is still in the early stages but so far is working well.
Whiteside predicts the market for IT utilities will grow dramatically in the next few years as companies such as AT&T Solutions, Computer Sciences, EDS, Hewlett-Packard, IBM Global Services, MCI Systemhouse and others develop similar offerings. All in all, it should be a hectic year in IT services.
--with additional reporting by Bruce Caldwell
next story: 
Enterprise Apps: Big Strides For ERP
| Outlook '99 | |||
| Introduction | Y2K | Web Commerce | Services |
| Enterprise Apps | Infrastructure | Staffing | Predictions |
Back to This Week's Issue
Send Us Your Feedback
Top of the Page
