Analysing the article 'ASPS: Do they work?'

University Degree Business and Administrative studies

Introduction

The article ‘ASPS: Do they work?’ is the result of further collaboration between Soliman, Chen and Frolick (2002) and adds to their extensive collection of published literary on the subject of ASPs and outsourcing (Association for Information Systems, 2004; Dr. Khalid S. Soliman, 2004).

The article endeavors to cover the reasons for using ASPs, the critical factors relating to the success of ASPs, the industries in which the ASP model can deliver value, and the issues that should be considered when selecting an ASP. This brief will analyse these themes, validate the presented findings and critique the article as a whole. The structure of this brief will follow the order in which the article introduces the themes.

Reasons for ASPs

The writers quote research from 2000 into the reasons companies are outsourcing to ASPs. While more recent research generally supports the article’s stance, other authors, such as Lavery, contest that the emphasis on the stated motives has changed, and new ones have surfaced. He reports that one of the most important benefits of the ASP model is the higher level of accountability that software vendors must provide customers (Lavery, 2001).

There has also been a shift from cost saving, tactical contracts to strategic outsourcing deals. CIOs and senior managers are seeking outsourcing vendors that offer cost predictability, and can help them innovate and drive strategic change throughout their companies (Information Week 2001; McDougall 2004). In Information Week’s survey of 75 business technology managers on ASPs, less than half the respondents considered cost to be a significant factor in selecting an ASP. According to the survey, customers labeled whether an ASP can become a true partner in the user’s business as the most significant issue to consider when selecting an ASP (Information Week 2001, p. 1). Blue Cross Shield’s CIO, Carl Ascenzo, highlighted this trend when commenting on the recent outsourcing contract his company struck with EDS. He stated that, “Outsourcing relationship are becoming more about strategic partnering, and as we go forward, we need to align with someone who brings not just computing scale but who understands our business” (McDougall 2004, p. 2).

DEMAND Model

Soliman, Chen and Frolick (2002) identify six critical success factors for ASPs. This research provides the foundation for the DEMAND framework which the authors recommend ASPs base their business models on. Hope and Khair (2001) of Ovum, offer a model that, despite showing some synergy, is generally contradictory to the DEMAND paradigm. They suggest the key parameters that need to be considered when defining winning ASP business models are: the use of outsourcing and partnering, the nature of the application, the vertical or horizontal nature of the service, the structure of the support offered, and the size of the organisation being targeted (Hope & Khair 2001). From these defining characteristics seven dominant models are identified. They are: wave two ASP, ASP with channel to SMEs, vertical/specialist ASP, wave one business application ASP, aggregator ASP, integrated solution ASP, and server-based computing specialist ASP (Hope & Khair 2001, p 79). There is a strong theme throughout the report that choosing the best partnering or ownership options is vital to the success of an ASP. Fontana (2001, p50) concurs with this idea that ASPs don’t have to directly own all of the components identified in the supply chain by stating that, ‘increasingly, providers [ASPs] are partnering to exploit each other's expertise and enhance their own business’.

In agreement with Hope and Khair (2001), Seltsikas and Currie (2002) found that there was no one-size-fits-all ASP business model. Their extensive research suggests that the ASP business model is evolving with time, but that currently the survival of an ASP is based on their ability to change their practice for each customer to provide them with strategic benefits (Seltsikas & Currie 2002).

One industry expert believes that a successful ASP business can be simply modeled around the following four factors: unique/cost reducing service, constant service enhancements, sound financial models, and a clear migration path (Bolding 2001).

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Industries for ASPs

In addition to the listed industries that ASPs can add value to, there is evidence that ASPs can cater to the technology needs of nonprofit organizations, particularly in regards to CRM systems (Nonprofit Business Advisor 2002; Bhagat 2003). However, contradicting the relationship between industry and ASPs adding value, it has been surmised that the benefits that ASPs offer are instead associated to the types of applications they can be employed to handle (Hope & Khair 2001). In contrast to this research and the article, an IDC study revealed no link between the return on investment (ROI) realised by companies utilising ASPs and their industry type (IDC Asia Pacific Press Releases 2002). The investigation spanned 54 organizations across a range of industries that had outsourced to ASPs, and showed that, on average, those organizations posted a 400% ROI during a five-year period (IDC Asia Pacific Press Releases 2002). Interestingly, the measure of the added value was shown to be dependant on the size of the company (Mears 2002).

Issues to Consider

The article states that the factors to consider when selecting an ASP are: security, reliability, quality of services, employee concerns, and existing infrastructure (Soliman, Chen & Frolick 2003). Research exists that supports the article, but further studies suggest that there are other major considerations that CIOs and executives should be aware of (Davis 2002; Kelly 2002).

Assessment of the ASP’s ability to be a strategic business partnership should be contemplated. ‘Unlike a traditional software purchase, which can be as straightforward as acquiring a product, using an ASP involves a long-term association’ (Bhagat 2003, p. 1). Decision makers should ensure that vendor stability is measured, and that the ASP fits into the company’s long-term plans in order to minimise operational risk (Haber 2004; Funk, Sloan & Zaret 2003).

‘A relationship perspective is particularly critical in examining ASPs, since this arrangement represents a higher level of inter-organizational coupling than traditional outsourcing relationships’ (Kavan, Miranda & O’Hara 2002, p. 171). Soliman, Chen & Frolick (2002) only reflect upon organizational change as an issue in relation to employee concerns. Kavan, Miranda & O’Hara (2002) make a direct connection between understanding the dynamics of the interorganizational relationships and the success of an ASP implementation.

Other studies suggest that the physical location of the ASP can also be an issue. The ASP location can cause tax implications for companies depending on how the contract is composed (Duncan 2003). The current global trend of companies cost cutting by outsource to countries with lower wages could have implications for ASP customers (Business Communications Review Jan2004; Preston 2004). The major issues sighted with offshore outsourcing relate to cultural assimilation, and increased exposure to geopolitical, infrastructure, logistical, and protection of intellectual property risks (Johnson 2003; Nancarrow 2004; Funk, Sloan & Zaret 2003).

Finally, it has been touted that lack of application customization, loss of control, application integration and service level agreement contract clauses, in particular exit and entry clauses, should be assessed by ASP customers (Mears 2002; Halder 2003).

The Recommendations

In concluding, the article calls for research into ‘a systematic approach to outsourcing decisions to ASPs’ (Soliman, Chen & Frolick 2003, p. 56). However, in the same section Chen and Soliman make reference to a model developed by them for assisting in this process. Their previous article states that their approach ‘is designed to guide IS managers systematically through the complex process of identifying outsourcing opportunities, evaluating the viability of using the ASP model, making outsourcing decisions, managing contractual and implementation issues, and assessing the service quality of ASP vendors’ (Soliman & Chen 2003, p. 180). Are the authors suggesting that this model isn’t good enough, or are they identifying the need for a more holistic methodology? It would appear that through their resent research, the authors have realised that the ASP landscape has changed and a revised model needs to be developed. Hope & Khair (2001) disseminated the ASP evolution into three distinct waves. Each wave model is defined with differing characteristics. It could be concluded that each one of these waves need a different approach to the decision making process.

Conclusion

With the proliferation of the ASP market and the total worldwide ASP revenue predicted to double from 2004 to 108.41 billon by 2006, research is definitely warranted into whether they really do work, are a cyclic phase like the time sharing companies of the 70s, or are just hype (Hope & Khair 2001). ‘The ASP model has proven a promising solution to IT outsourcing’ proclaim Soliman, Chen and Frolick (2002, p. 56). Sun Microsystems’ CEO, Scott McNealy, agrees with this finding. In 1999 he said, “five years from now, if you are a CIO with a head for business, you won’t be buying computers any more. You won’t be buying software either. You’ll rent all your resources from an application service provider” (Ring, Hope & Leston 2000, p. 20). References sighted in this analysis also support this view provided all the relevant issues are considered.

This brief shows the research into ASPs is diverse, and in some cases, conflicting. Given the relative immaturity of the ASP concept as an IT systems solution this is understandable. However, it is interesting that very little research exists into identifying the opportunity for companies to cross-pollinate non-sensitive data along the whole supply chain through the services of ASPs. Collaboration amongst organisations and partners is alluded to in the article, but more research should put ASPs in the context of supply chain management.

The article essentially builds on Chen and Soliman’s (2002) ‘Managing IT Outsourcing’ paper. It re-enforces the authors’ expertise in ASPs by encompasses many of the same themes and provides value in presenting the DEMAND model. It is a balanced, unbiased article that offers decision makers a great starting point for their investigation of ASPs.

References

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