Ebook: Is Outsourcing And Application Service Provision

IS outsourcing has been a popular topicwithin the IS community over severaldecades. During the 1970s, the term‘‘facilities management’’ was used and theemphasis was on service bureau contracts,where companies would rent space on amainframe owned by the vendor. This simpleform of outsourcing expanded during the1980s and 1990s to encapsulate businesssystems, such as enterprise resource planning(ERP), supply chain management, financialand accounting and human resource systems.Large outsourcing vendors such as EDS andIBM Global Services significantly increasedtheir revenues from outsourcing, with manylarge single customer contracts being signed.Throughout the 1990s, IS sourcing evolvedinto four distinct types: total outsourcing(where a company would outsource morethan 70 per cent of its IS facility); selectivesourcing (often using multiple suppliers);joint venture sourcing (where a companywould set up or partner with anothercompany to provide systems andapplications); and insourcing (where acompany procures, manages and develops itsown IS function) (Currie and Willcocks,1998). During this period, much of theresearch work on IS outsourcing concentratedon the client-side in terms of contractsmanagement (Fitzgerald and Willcocks,1994); achieving success in outsourcingdecisions (Saunders et al., 1997); andmanaging the IT resources as a value center(Venkatraman, 1997). The IT infrastructure emerged from aclosed mainframe environment to adistributed computing environment, andmore recently towards a net-centricinfrastructure, with the potential to linkcustomers and suppliers. The convergence ofsoftware and IT infrastructure towards anInternet/net-centric environment hastherefore enabled the application serviceprovider (ASP) concept to emerge. Softwarehas evolved from custom-coded, proprietaryapplications to pre-packaged, off-the-shelfofferings and now to the development ofnet-centric applications. ASPs are third-partyservice firms which deploy, manage andremotely host software applications throughcentrally-located services in a rental or leaseagreement. During the last two years, the ASPphenomenon has grown considerably, withmany established and start-up firmsdeveloping their ASP strategies. Forecasts for the growth of the ASP industry vary, withOvum predicting that it will be $25 billionand Dataquest, $22.7 billion, by 2003 (Currieand Seltsikas, 2001). ASPs will have asignificant impact on outsourcing policies andpractices, if the business model successfullypenetrates the under-exploited small andmedium enterprise (SME) sector. In this special issue on ‘‘IS outsourcing andapplication service provision’’ for the LogisticsInformation Management, six theoretical andresearch papers are presented on a range oftopics from identifying ASP business modelsto cross-national perspectives on outsourcingpractice. The paper by Sharma and Gupta on‘‘Application service providers: issues andchallenges’’, provides an overview of the ASPbusiness model, discussing its potentialadvantages and disadvantages. The authorsdiscuss a taxonomy of ASPs, in the context oftheir viability to offer the customer costeffectiveand useful solutions. The authorsfurther introduce the concept of the wirelessASP (WASP). The authors conclude byarguing that important issues and challengeswill need to be overcome, if the ASP model isto succeed. The paper by Kavan et al. on ‘‘Managingthe ASP process: a resource-orientedtaxonomy’’ discusses the ASP concept as anew wave of business IT delivery. They adopta socio-technical perspective and develop amodel of three levels of organizationaldisplacement following a technologicalimplementation: Alpha change; Beta change;and Gamma change. The authors discussdifferent types of ASP offerings in the contextof this model. Chen and Soliman continue the ASP themein their paper, ‘‘Managing IT outsourcing: avalue-driven approach to outsourcing usingapplication service providers’’. These authorsdiscuss some of the adoption problems facingthe ASP model. By developing a value-drivenapproach to outsourcing using ASP from theliterature and best-practice industrialscenarios, the authors link this to Simon’sseminal decision-making work. The approachadopted by the authors is to help IS managersthrough the complex process of decisionmaking regarding outsourcing and ASPs.The paper by Ekanayaka et al. on‘‘Delivering enterprise resource planningsystems through application serviceproviders’’ discusses the issue of how ERPvendors can provide Web-enabled softwareapplications to SMEs. The paper tracks thedevelopment of the ERP industry in the1990s and the more recent attempts to offervanilla ERP to companies. Through empiricalresearch into the ASP industry, the authorsconclude that ERP vendors will need todevelop effective ways to educate thecustomer market, if they are to succeed increating this market. Preston and Brohman, in their paper,‘‘Outsourcing opportunities for datawarehouse business usage’’, introduce aconceptual model to explore outsourcing ofdata warehouse usage by organizations. Theauthors argue that organizations have a vestedinterest in data warehousing, but areconstrained by the high costs of datawarehouse development and skill shortages.The authors contend that outsourcing is oneway to alleviate these problems. The paperdiscusses the results from a theoreticalevaluation of data warehouse outsourcing ofbusiness usage with the results presented in aconceptual model. The final paper by Khalfan and Gough,‘‘Comparative analysis between the publicand private sectors on the IS/IT outsourcingpractices in a developing country: a fieldstudy’’, considers outsourcing in Kuwait. Theauthors argue that differences can beidentified between the two sectors in theirmotivation and risk relating to the adoption ofIS/IT outsourcing. This paper provides someinteresting insights into outsourcing practicein a developing country; which can becontrasted with existing research studies onNorth America, Europe and Asia. While the concept of ASP is likely to evolveinto something broader like ‘‘software-as-aservice’’,these papers offer some preliminaryinsights into application outsourcing. Theinitial hype surrounding the ASP industry willbe replaced by a more measured approachwhere companies will need to offer potentialcustomers clearly thought-through serviceofferings with identifiable benefits relating tocost, quality and functionality. While nonmissioncritical software applications will beeasy to implement, the more complex ERPsystems will take some time. As the selection ofpapers demonstrates, IS outsourcing continuesto be a popular strategy for companies,although the ASP business model remainsimmature and unpredictable. It is, therefore,hoped that the papers in this issue of LIM canbe used as some of the first to be published Logistics Information ManagementVolume 15 . Number 3 . 2002 . 157–159within the applications outsourcing arena, andmay be compared with research findingswithin this domain over the next few years. Wendy Currie and Phil Seltsikas Previously published in: Logistics Information Management, Volume 15, Number 3, 2002