What’s fact, what’s fiction when it comes to doing business with an ASP.

By Sandra Gittlen
Network World, 09/11/00

A common misconception in the IT community is that outsourcers, including application service providers and Web hosting firms, take on network projects without much effort.

If you think this is true, then you should talk to Mitch Tanenbaum, chief information officer at Guardian Mortgage Documents in Lakewood, Colo. He learned the hard way that breezing over plans with an outsourcer and not paying close attention during implementation could cause big problems. A botched Web implementation cost his company $80,000. The outsourcer didn't understand the business process, he says. "You can't leave an outsourcer to its own devices."

Believing that ASPs don't need hand-holding is just one of many mistakes IT managers make when they send projects out of house. The following are five other hyped-up myths about outsourcing applications that, left unquestioned, could drown IT managers venturing into the ASP waters.

1: ASPs always assign the best people to a project.

"Wrong!" says Robert O'Connor, a network supervisor at Penn State University, speaking from his experience overseeing many outsourcing projects at the State College, Pa., school. "We've had some of the very best and we've had some that didn't even have a clue as to the things they were working with," he says. Some outsourcers don't even know their own products, O'Connor says. "[On one project], we ended up training the people, wasting a tremendous amount of time and money," he says.

It's not uncommon for an ASP to send its top talent for the consultation, then substitute less-skilled workers for the actual project, warns Alan Fontes, director at U.S. Interactive, a New York firm that helps companies develop outsourcing strategies. "We've had to go back more than 50% of the time and ask the vendor to replace people who are on the team," he says.

You should mandate that ASPs identify the exact team members who will be working on your projects, then request resumes and check references, Fontes says. And include a contractual clause that lets you refuse a team member or break the agreement if an ASP substitutes an unsuitable team member.

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2: ASPs have as much at stake as you do.

"Absolutely not," says Guardian Mortgage's Tanenbaum. "They have no investment in my business growing: They have a stake in their business growing." The more successful an outsourcer gets, he adds, the more stretched its resources are and the greater the chance that your project will be moved to the back burner.

IT managers must make sure their ASPs prioritize their projects, says Mike Lane, network engineer at Western Bank in Beaverton, Ore. "Determine a set of benchmarks for a well-run network, and how those benchmarks will be measured and tracked," Lane says. "Find a fair percent of uptime. For every point below that percentage, reduce your payment to the outsourcer."

Also, contract for response time to emergency and routine calls, maintenance requests and other service needs, Lane says. And, build in advanced goals that, if met, result in bonus payments for the ASP.

"The better you can define a project, the better you can control it," notes Penn State's O'Connor. "You learn along the way, but by the time you learn, you've already been burned."

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3: Outsourcing an application is less expensive than building the infrastructure to support one.

Tanenbaum says outsourcing an application can be cheaper than supporting it in-house, but not always. He finds outsourcing the company's Web site is cheaper than supporting it in-house, and using outsourcers for short-term application development makes sense. But he draws the line at core business. "A 5-minute outage is critical to us, so would I trust an ASP [with document management]? No way."

U.S. Interactive's Fontes agrees that outsourcing an application could go either way as far as cost. "We have to look at traffic that needs to access the server," he says. "Now our client is paying a lot of money for dedicated bandwidth. However, if the client pushes that application out to a co-location facility, then it doesn't have to worry about building the infrastructure to support it." He says this results in less hassle and lower costs. But he adds the price could jump back up if the client requires 24-7 monitoring and other mission-critical services.

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4: ASPs have a greater variety of skills at their disposal than a typical user operation. They also have access to the best technical minds.

IT managers agree this might be true of the larger, established ASPs because they can usually pay more and offer better benefits than a traditional company. Also, the variety of projects available to work on at an ASP is often attractive to job seekers.

But companies that are hiring ASPs have needs for short-term, technology-specific help, not long-term hires, notes Fontes, of U.S. Interactive. He says it's important to look at an ASP's recruitment and management techniques. "Make sure turnover is low and that it's big on training its people for the latest technologies," he says.

Penn State's O'Connor warns that using an ASP for "bright minds" makes sense only in the short-term. "We prefer to have the experience hanging around so that we're not dependent on outside people," he says. "Support just isn't that good these days. It's generally worth it for us to grow our own. And it's worth it to send someone to training."

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5: ASPs build in security as part of their offerings.

Nope. Before you ever sign a contract, Penn State's O'Connor warns: "You better trust your outsourcer." He recommends checking the references and reputation of the ASP. "Ask clients about the security aspects of working with that outsourcer," he says.

U.S. Interactive's Fontes recommends looking at your network's security design before bringing in the ASP. Determine how to let the ASP access the network before you load the application, and establish security precautions before the ASP is allowed use of a hosted application from your network, he says.

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