Management consultancies have grown accustomed to an accelerating pace of change over the last few years. Helping their clients to foresee, adapt to and manage change is now a key part of what they do, so a transformation-or at least a serious perturbation-of their own market shouldn’t find them totally flat footed.
More than a few voices in the industry are predicting fundamental changes for the consultancy profession as the Application Service Provider (ASP) model gathers speed. While the definition of an ASP is currently pretty woolly, a good working attempt is a third party company offering to rent businesses IT applications that those businesses would normally have run themselves.
Often scoffed at as a reinvention of the old time share bureau service, the ASP model benefits from a host of new technologies, including the Internet and thin client, and some deeply engrained problems in IT, not least of which is the cost of skilled staff. As a market it is in the emergent, or early adopter phase, but the momentum is building rapidly.
Nick Nicholsen, business development director for IBM Global Services, is one among many in the industry who are convinced that the take-up of ASP services is going to be rapid and sustained. “My view is that the figures for new ASP deals will be incredible by the time we get to the third and fourth quarters of this year,” he says. The analysts, he points out, are virtually unanimous in predicting massive growth in ASP related revenues.
Eric Paulak, senior consultant with the Gartner Group, for example, predicts that the global ASP market will be worth almost $10bn by 2003. The US has seen a mushrooming of ASP start ups, with the numbers of players now approaching the 6,000 mark and rising. This, Paulak says, is only to be expected in such an active market and the current explosion in numbers will be followed by a period of dramatic consolidation over the next two years.
Peter Bell, Microsoft business development manager for the Internet, emphasises the way in which the ASP business model is likely to transform companies’ attitudes to bespoke work. The ASP model, he admits, can be stretched to accommodate bespoke tailoring, but he argues that a full service, systems integration approach is not the most natural route. Instead most ASPs will be looking to roll out template-based “take it or leave it” services, he suggests.
The argument is that in the fast paced Internet economy, businesses cannot afford a 20 month implementation cycle anymore, even if it does end up giving them the best possible fit between their IT infrastructure and their re-engineered business processes. In the Internet space, “good enough” is what people are after. In this environment a working system now is infinitely preferable to a supposedly perfect system scheduled for delivery two years down the track.
“If you roll the clock back 20 years, 80 percent of the cost of an application would have been the software and hardware, and 20 percent would have been implementation. Today, with the big ERP implementations of recent years, the figures have reversed and around 80 percent of a systems solution is customisation,” he says.
Consultants have benefited greatly from the increased bespoke work. Indeed implementing SAP, JD Edwards, Oracle Financials, Baan and PeopleSoft could be said to have been the engine that provided most of the growth for consultancies such as PricewaterhouseCoopers, Andersen Consulting and KPMG. In Bell’s view, those days are gone and we are now moving back to an almost wholly package driven approach.
“Today companies can’t wait to gain competitive advantage from bespoke systems. Their ability to execute now, immediately, is what gives them their edge and time to market has become the highest value. The biggest threat to the traditional consultancies today comes from new types of companies, the USWebs of this world and from the new breed of ASPs who can deliver fast, usable systems,” he says.
A middle ranking company going to an ASP on a Thursday can have an agreed number of ERP seats and a complete desktop productivity suite on stream by Monday. This is a powerful concept, he emphasises, and it has the ability to transform a large part of the IT landscape as we know it.
IBM’s Nicholsen emphasises that real business pressures are driving this growth, which means this is something that everyone in the industry has to take seriously. “Client companies of all sizes in the retail and distribution sectors are telling us that time to market is the whole story as far as competitive edge is concerned. At IBM we have refined our entire services organisation to deal with this,” he says. Consultancy and services deals now are all about bringing in a small team of highly skilled, focused people, with deep industry knowledge and business process skills, who can generate fast-to-implement solutions.
Critical to success
In Nicholsen’s view, however, this should not be taken as bad news for management consultants. It just means they have to work smarter and faster. “Management consultants are more critical to success now than ever. They still have to articulate the client company’s business needs-they just have to move a lot quicker than before,” he observes.
Andrew Parker, senior analyst in the European Corporate Technologies division at Forrester European Research Centre, says ASPs are part of a trend in which IT will become more involved in supporting the processes between companies rather than within them.
“We expect a whole new set of online intermediaries to emerge, developing e-business networks and markets. ASPs are one form of this, though in their present incarnation they may not have quite the right model for this. Even the term ASP may not be quite right,” he suggests.
Parker makes the point that many organisations currently setting up shop as ASPs have few obvious credentials to be offering such services, which suggests that the road ahead may contain more than a few jolts, casualties and consolidations. “We are particularly concerned about full service ASP models being offered by some telecoms companies, apparently on the basis of their communications infrastructure expertise. We’d want to ask them when last they carried out an SAP implementation for a client, for example,” he says.
Where this kind of model would work, he suggests, is where the infrastructure provider-say the telco in his example-works with a range of different partners to build and customise solutions which are then delivered to the client organisation on some kind of transaction costing basis. Forrester Research calls this approach “solutions assembly”.
However, Parker does not see this as a particularly rich source of revenues for the consultancies. “People are moving towards component assemblies for this. A layer of communications and transaction support will be built around technologies like XML and HTTP, rather than around expensive implementations like Corba,” he predicts.
Consultancies are going to have to adapt so that they can deal with a many-to-one or many-to-many style of engagement, joining with a range of technology partners to build solutions for multiple client companies. This, he points out, is a large departure from the one-to-one ERP implementation engagement that has made a lot of the consultancies money over the last few years.
Venetia Rowland, business development manager, small to medium businesses at Cisco, argues that the ASP model is going to achieve much of its success at the SME level. “It gives SMEs the opportunity to buy in to big business applications which they could never have afforded on a traditional, in-house basis,” she says. The implication here is that things may well continue more or less undisturbed at the higher end of the scale, where organisations have already made a substantial investment in IT infrastructure. Here traditional outsourcing may well continue to be the dominant model, though even large organisations may want to explore the ASP route for niche or discrete applications.
From Cisco’s perspective the ASP model is win win from every angle. It will boost the importance of infrastructure both within and between enterprises and it creates a whole new market of ASP customers. “We are working closely with Microsoft in the US and here. We’re working with ISVs to help them prepare their applications and to test the suitability of their applications for the ASP model. They can use our Post Application Laboratories at Stockley Park to stress test a thin client/fat server application to see if it will perform to the required specifications over the Internet. We’ll be doing everything we can to help this new model work,” she says.
Andy Sims, director of ASP channels at ERP vendor, PeopleSoft, points out that his company has already launched its own ASP service in the US. In addition, it has some 70 US companies contracting for its software through independent ASPs like Corio. Sims reckons that there is still considerable confusion over the ASP model. “Right now it is hard to constrain the term ASP to mean anything specific, other than the third party delivery of services.”
ASP services cover everything from full business process outsourcing to what-you-see-is-what-you-get type services. He points out that the US ASP Corio, for example, offers precisely this kind of service with Corio Express Financials, which it implements for clients in under two weeks.
“Whatever your definition of an ASP, the consultancy model changes to commercially relevant, fast implementations. To get the benefits of scale and support ASPs need to present a standardised offering. However, this need not be a bad thing for user organisations, since the ERP industry has now matured to the point where vendors can offer “best practice” templates that give a great deal of added value anyway,” he says.
Sims notes that there is a real constraint on ASPs allowing bespoke code to be uploaded onto their systems. All such code would have to be stringently quality assured to remove any possibility of a perceived threat to client data. Security, he notes, is the lifeblood of every ASP. If that gets compromised in the eyes of their users, then no organisation will be prepared to trust them with their data.
Another ISV, the help desk specialist Remedy, confirms Forrester’s point about ASPs having a role to play in supporting inter-company processes. Its software is now offered by ASPs to assist in problem resolution in exactly this kind of inter-company IT services infrastructure.
Harold Goldberg, director of corporate business development at Remedy says that it is now actively recruiting partners in the UK and Europe to offer its services on an ASP basis. He says that the response even at this early stage has been overwhelming.
Companies moving into the ASP arena as service providers come from all sectors. Among the earliest into the game are IT companies with a history of providing thin client/Citrix or Microsoft Terminal Server solutions.
Tim Pickard, communications director at the UK ASP, E-Soft Global, points out that his company first set up shop as a Citrix solution provider long before anyone dreamed up the term ASP. “About a year ago it was clear to us that the ASP market was going to roll. We have been working very hard, together with Compaq and Microsoft, to help ISVs move their applications into a thin client model,” he says. E-Soft now has some 20 applications from vendors that have gone through its “proof of concept”.
Pickard is not at all certain that the ASP phenomenon will reach very deeply into mainstream business applications for the top blue chip corporations. The desktop, he suggests, is a much more likely target.
Amis Halpin, the managing director of ASP the Integration Group, agrees. “Big global companies will continue to outsource in the traditional way, or to deploy bespoke applications. However, what we will see is the cost of outsourcing coming right down since we will be providing a level of competition and a different pricing model,” he says.
Gary Smith, chief executive officer at another UK ASP, NetStore, sees the ASP model reaching right to the top blue chip clients. However, like PeopleSoft’s Sims, he emphasises that ASPs providing this level of service will be rather different from his SME focused company. They will be systems integrator specialists or will be partnering with such. “Our target is different. We are firmly focused on the SME market, where the user numbers are somewhere between 50 and 1,000. We are going to reach this market, with its broad geographic spread, through partnering with traditional resellers, and by offering standardised applications,” he comments.
As our case studies show, ASP users as yet do not seem to have many of the old time share horror stories to tell. Moreover, it is still far too early in the day for stories about companies suffering from having bought ASP services with no, or poorly defined, exit strategies. However, the evidence, such as it is right now, seems to point towards the long term viability of the ASP model. We are all going to have to wait for a lot of dust to settle before it will become clear quite what else in the IT landscape has changed as a result of this new trend. Consultants, however, will need to have sorted out their strategy long before then.
See Management Consultancy website for The Consultants’ View and Case Studies
Anthony Harrington is a freelance journalist
Return to the Management Consultancy websiteCase study:
Opus Group finds ASP a fair Exchange
A dodgy Exchange server that failed at inconvenient times and took inordinate amounts of internal IT resource to resolve was one of the primary reasons why the advertising and direct mail company, Opus Group, began considering the ASP route.
As the Group’s managing director, Tim Beadle explains, the business has had a four-strong IT department for the last 10 years and was well accustomed to running its own applications in-house. Then he and his team came across the ASP concept.
“I had been using laptop, Internet-based file backup services provided by NetStore for some time. They contacted me in September 1999 and told me that they were launching an ASP service and floated the idea of us outsourcing our e-mail, as a start. We were so fed up with our e-mail server, the idea of a managed service, priced on a monthly per seat charge with guaranteed performance levels, was very appealing,” he says.
Beadle points out that e-mail is absolutely mission critical to his company. “Nearly all our clients prefer contacting us by e-mail. When that system goes down it not only costs us money, it puts the client relationship under strain,” he says. The system was failing for an average of a day and a half a month, which Beadle costs out at around £15,000 in lost revenues, with the client downside adding a huge additional factor.
At the time the Opus Group had five servers and a Fast Ethernet 100Mbps to the desktop LAN supporting 75 staff. However, having begun with the e-mail server, Beadle is coming round to the view that it may well be worth having NetStore ASP all his generic applications. “Maintaining servers and running our own generic applications like word processing is about as daft as running our own generators for electricity. So far, we have had nothing but good news from the ASP approach so we will certainly be exploring this model further,” he concludes.
Return to the Management Consultancy websiteCase study:
Si3 goes ASP to practice what it preaches
The integrated supply chain specialist Si3, a division of the Monks and Crane Industrial Group, took the decision to meet all its IT needs through an ASP before the term was invented. As the company’s managing director Sean Fennon explains, when Si3 was launched in June 1998 its board set very ambitious growth targets.
“Given the rate of growth we were trying to achieve, it would have been very expensive to try to equip ourselves, from the outset, with an in-house IT infrastructure. It would also have been very difficult to plan precisely for numbers of users, processor capacity and the like,” he observes. Instead Fennon identified a software vendor and reseller, SystemCare, with a distribution application that met Si3’s requirements. He suggested to SystemCare that the company rent its application on a per seat basis. He also suggested that SystemCare might like to consider meeting all Si3’s IT requirements in the same manner.
“I spoke to Mike Dixon, SystemCare’s chairman and asked him if it was feasible for us to go this route. SystemCare decided to set up a new division, called SOS, to provide what was, in effect, ASP services and we became its first customer,” he says.
Fennon explains that Si3’s own business, which involves bringing activity based costing initiatives to bear in analysing client’s supply chain models, made the management team more aware than most of the disadvantages of dissipating management time on non-core activities. “We were telling our customers that they needed to focus on core competencies that added value to their business. Since IT was not our core competency, it would hardly have been right for us to waste our time setting up an in-house IT department.” Si3 now has 30 staff and all its IT requirements are met by SystemCare.
Return to the Management Consultancy websiteCase study:
Recruitment group goes ASP
Tony Larcombe, IT director of the search and recruitment house, HW Group (recently acquired by Internet recruitment specialist, The Monster Board), runs an 11-strong IT team supporting a population of 350 users. He chose to get rid of all the company’s servers and contract with an ASP for the delivery of all internal applications and desktop software.
“We had a core recruitment database system called Merit, which we ran in all 18 offices. The problem was that each office ran its own image of the system, with its own files, and there was no central image. Synchronising the databases was impossible. We needed to move to a central database,” he explains.
Larcombe saw three alternatives. The company could put some heavyweight WAN connections between the offices with a large database in the central office. It could go for an n-tier architecture with a database server in each office, or it could go thin client and either run its own central database or outsource it.
“When we started this project three years ago there was no such thing as an ASP. We went out to tender to five companies. Integration Group, which launched itself as an ASP in September, put in a proposal for a thin client model into a central server farm. Moreover it would provide the whole deal as a service off its own servers,” Larcombe recalls. Integration Group committed to an up time Service Level Agreement of 99.998 percent, or four hours downtime on a rolling 12 month basis. The deal that Larcombe signed ended up including all the company’s desktop applications and full e-mail services as well.
“Handing all this over to the ASP has left the IT department free to focus on real added value developments for the company. Moreover the users are happy. Performance is great. We monitor the SLA very closely and the WAN links are not expensive. We can fit five users into a 64Kbps ISDN channel, and three users into a 56.6Kbps dial up line. As far as I can see there is no down side to the ASP model, if you get the right supplier,” he says. Return to the Management Consultancy website
The consultants’ view
Robert Brant, lead partner responsible for the KPMG’s outsourcing and ASP services, says the ASP arena is already a major source of work for the firm. Brant points out that the line between traditional outsourcing and ASP work can get very blurred, but KPMG both offers its own services and is helping a number of independent ASP providers to build their own ASP offerings.
“Building services for ASPs, using our relationships with Microsoft and Cisco, is becoming a significant business for us. Sometimes it leads to us and the ASP offering the service as a joint venture, sometimes the ASP simply wants us to build the service for a fee. We also have a growing number of clients coming to us with applications they have developed or had developed for them, which they want to offer on an ASP basis to other companies in their sector. This is becoming a very exciting new route to market,” he adds.
Another key growth area for KPMG, says Brant, is brokering ASP services for clients. “Companies come to us with a wish list of services they want to contract for from a range of ASPs. What they want though, is a single managing partner to control the whole arrangement and with whom they can have a one-to-one relationship. We are, of course, very happy to oblige,” he says.
Other work includes contracting with ASPs to provide technical and functional support to the ASP’s clients. Given all of this, Brant calls the ASP phenomenon “a huge challenge” but says that the firm is looking forward to leveraging ASP work and joint venture work as a major new revenue stream.
Return to the Management Consultancy websiteCMG
Mark Waight, divisional director at CMG with responsibilities for ERP in the UK, says that the ASP phenomenon is only one element in the question of how best to grow a management consultancy business in today’s market. “We have been seeing a falling off in the man-time and consultancy services associated with initial ERP implementations for some time. The future clearly lies in providing services which help client companies to become ever more competitive in their market. This means looking for added value from CRM, business intelligence and other added value packages,” he suggests.
In his view, the very meaning of integration inside companies has now changed as people seek to mesh these new packages with their existing ERP backbone systems. Work now is all about implementing intelligent invisible switching software which allows the company to simulate much the same degree of integration that the ERP vendor would have sought to introduce. This is classic IT consultancy work which has nothing to do with ASP related services.
At the middle tier though, Waight sees a number of companies, including CMG, bringing pre-configured, template-based solutions to market, possibly using an ASP delivery mechanism. “The ASP model has not yet demonstrated that it is going to be a significant force outside the SME sector, but consultancies are going to have to concentrate on adding value if they want to keep growing,” he concludes. Return to the Management Consultancy websiteCompuware
Tukan Chatterjee, manager of applied technology, at products and services company Compuware, foresees two major obstacles blocking the progression of ASPs into the global 2000 space. The first is that big companies will always be reluctant to relinquish control of their data to a third party. The second is that vanilla services with little or no bespoke element remove the possibility of organisations gaining a real competitive edge from their IT systems.
If everyone uses the same customer facing systems, everyone ends up providing the same services, he says. In that kind of environment a competitor who leverages their IT infrastructure to introduce new, additional and non-standard services gains an immediate advantage in the market.
Therefore, it follows that consultancy services will always have a strong case to put to their customers, provided they can devise ways of speeding up the implementation cycle, he says.
In Chatterjee’s view, claims that ERP has now matured to the point where the standard package fully incorporates best practice in a sector are over-optimistic. Best practice, he points out, is constantly developing as companies continue to compete.
He notes that many of the large scale implementations going on today are in the global e-procurement space, and these deals are being put together by traditional systems integrators and consultants, not by ASPs.
“We have some 11,000 people globally in our professional services and systems integration arms. What we are dealing with today has to do with the need for enterprise integration in the face of e-commerce and e-business. This area will need sustained consultancy input for the foreseeable future,” he says.
Return to the Management Consultancy website
Andy Thomson, director at PwC’s consultancy arm, argues that people who foresee problems ahead for the consultancies from the ASP model, and the related shift away from bespoke work, have not taken sufficient account of client side consultancy.
“It is important to realise that consultancy is about two different approaches, a client side, and a supply side. The supply side is involved in things like classic ERP implementations, and ASP may have an impact here. However, client side demand will increase sharply,” he says. Client side consultancy is the traditional, strategic consultancy, where the firm looks to assist the client with business process design, strategic planning and the like. It has always been difficult for consultants to work on both sides of the fence simultaneously so any slackening in supply side demand would free resources to compete strongly for client side work, he says.
Clients will still need substantial supply side assistance to ensure that they make the best use of their chosen ASP’s software solution. Aligning the company’s capabilities with the ASP’s offering, to eliminate the need for bespoke work, will itself take consultancy skills, he says.
Moreover, Thomson points out that if anyone knows how to adapt to change it is the consultancy profession.
“The consultancies got up to speed very quickly on e-business services. We have the size, the technological infrastructure and the people culture to respond to changes in the market very rapidly. The ASP phenomenon simply accelerates the trend away from bespoke work towards package alignment that we are seeing anyway. We believe there is a massive opportunity ahead to help companies leverage added value from their existing ERP implementations, through next generation implementations such as e-procurement, customer relationship management and other best of breed solutions. Just how well the ASPs will play in this space remains to be seen,” he concludes.
Return to the Management Consultancy website