ASP Panel: Rushing to Outsource Isn't Always Wise

PALM DESERT, CALIF. (06/21/2000) - While renting business applications from an application service provider (ASP) instead of installing the software internally may make sense for users in the short term, a panel of four experts at the Computerworld Premier 100 IT Leaders Conference Tuesday generally agreed that large companies should watch their backs when they turn things over to an ASP.

Before you sign an application-hosting agreement with an ASP, "check it out like a company you're going to buy," said panelist John Voeller, senior vice president and chief technology officer at Black & Veatch in Kansas City, Missouri. One company Voeller knows stored 200,000 drawings worth US$10 million on systems hosted by an ASP. But the hosting firm lost the data, and it took months to recover the information, he said.

Besides looking at the financial stability of an ASP, Voeller recommended talking to the system and network administrators who will be responsible for day-to-day operations of the rented technology infrastructure. They really have to know what they're doing, Voeller said, adding that he "can count the number of ASPs on one hand that have top network people on staff."

Another panelist, Sateesh Lele, president of the Lele Consulting Group in New York and former CIO at Avon Products Inc. and General Motors Corp.'s European operations, agreed with Voeller. "You should do some due diligence," Lele said.

"You have to wonder about ASPs that say, 'We'll probably make money in 2002.' " Mark Mathias, president of EurekaDigital Inc. in Burbank, California, and another panel member, said ASPs may be fine for handling routine functions such as 401K retirement programs. But he added that he's skeptical about the idea of turning over custom-built applications that are specific to a company's business processes. That, Mathias said, could make it harder to maintain "a sustainable playing advantage" over rival companies.

Nonetheless, panelist James Lubinski, executive vice president at Galileo International Inc. in Denver, said there's definitely a place for ASPs. Relying on a hosting firm can help companies speed the process of migrating from legacy systems to new applications, according to Lubinski.

The ASP approach circumvents a lot of company politics while providing instant access to more IT resources. The lack of quality IT workers that corporate users face is what's really driving the ASP marketplace, Lubinski said.

The panelists concurred that, although ASPs may be an appropriate option for quickly implementing routine applications, they're generally not a good choice for mission-critical applications. The risks are too high, and outsourcing custom-developed applications can be more expensive than running them in-house is, panelists said.

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