HR Software for Rent

February 1, 2000
When Sunburst Hospitality Corp. spun off from its parent company in 1997, itwas left to navigate the Brave New World of information technology (IT) on itsown.

The Silver Spring, Maryland-based firm, which operates Clarion, MainStay andComfort Inns, knew it needed enterprise software, but couldn’t wait months forconsultants and internal staff to put the pieces together. It also couldn’twatch money and manpower disappear into a black hole, says Chuck Warczak, vicepresident of financial systems

The solution? Rent enterprise software rather than buy.

Using an Application Service Provider (ASP), Sunburst put PeopleSoft accountspayable, general ledger and fixed asset modules on line within weeks withouthiring new IT staff, investing in systems and adding to its corporate overhead.When its parent firm, Choice Hotels, installed the same software a few yearsbefore, the project had taken two years -- draining millions of dollars from thecorporate coffers.

Sunburst isn’t the only company taking a hard look at software beforechoosing an ASP. In this case, it partnered with USInternetworking Inc., anAnnapolis, Maryland-based firm that specializes in hosting PeopleSoft HR andfinancials.

"We’re in a very dynamic industry and subject to a lot of cyclicalphases," explains Warczak. And, so far, he hasn’t been disappointed. Thesystem, which went live in early 1999, has slashed expenses and ratcheted upproductivity. Sitting at a PC, employees see the same software they’reaccustomed to, though it doesn’t reside anywhere within the walls of Sunburst.

Amid all the hoopla about the Internet, one basic fact is often overlooked:The network of networks isn’t just a way to conduct business faster, it’s anincubator for entirely new business models. By renting the software that’sneeded to run a department or entire organization -- whether it’s anenterprise resource planning package (ERP), e-mail application or payroll system-- it’s possible to provide workers with the tools they need without the mussand fuss of managing an IT infrastructure.

That’s an attractive model for a growing number of companies --particularly small- to medium-size firms that have their hands full managing ITor cannot afford the cost of a top-tier system.

"Many decisions are being driven by the fact that 24-7 functionality isn’ta competitive advantage, but the lack of it represents a huge downside. Thecomplexities and costs associated with building a technology platform areleading many organizations to take a close look at the ASP model," saysAndy Bartels, a senior research analyst at Giga Information Group.

The ASP model can cost less in the long run.

Not surprisingly, a slew of ASP providers have popped up over the last year.Among the best known: USInternetworking, Corio, Qwest Cyber.Solutions,AristaSoft, Applicast, Oracle, eOnline and EDS. Each offers a differentapplication or set of applications available through a browser, includingpopular programs such as PeopleSoft HR and financials, SAP R/3, MicrosoftExchange and Siebel customer relationship management. No downloadingapplications or upgrades. No maintenance on back-end systems or PCs. No tyingtogether disparate platforms and operating environments. Suddenly, it’s aclick and use proposition.

Does that mean your HR department should migrate to the ASP model?Unfortunately, there’s no easy answer. "It’s more than about cash flowand cost. It’s about developing an effective business model that allows you tomaximize your technology resources," explains Meredith Whalen, programmanager for Internet services and ASP research at International Data Corp. inFramingham, Massachusetts. She points out that a cost benefit analysis doesn’ttell the entire story for ASPs. "It’s a more complex calculation thatrequires an organization to understand that, as it adds users, what theresulting cost is over the lifecycle."

In almost every instance, application service providers adopt a one-to-manydistribution model. Applications are hosted at the ASP or a partner site anddelivered to numerous customers. The ASP is responsible for managing allinformation technology, including hardware, software and personnel issues.

As a general rule, ASPs charge a monthly fee based on a contract. For majorERP packages, that can translate into monthly per-user fees of anywhere from$400 to $1,000 per month, after setup. Smaller programs range anywhere from $10to $100 per month per user. This subscription method offers predictable costsfor an HR department or any other corporate entity relying on the ASP model.

According to a September 1999 report, "Application Service Providers andthe Evolution of the Internet Integrated Enterprise," from market researchfirm Zona Research, the long-term cost savings from an ASP versus a traditionalclient/server approach can hit 50 percent at some firms. It estimates thatbasic infrastructure costs account for only 20 percent of the total expense of asystem over a five-year period. The remaining 80 percent lies in softwaremanagement and human capital overhead associated with the application.

Yet, like any emerging model, the decision whether to embrace or steer clearof ASPs isn’t clear-cut. One company’s triumph with outsourced software caneasily turn into another organization’s nightmare. For one thing,customization isn’t much of an option when using an ASP. All subscribers arepretty much stuck with the same standard installation. And not all applications-- particularly those designed for a client/server environment -- run well onthe Web. Some are slow, clumsy and lack obvious features.

Then, too, you could find your firm dealing with several different ASPs andcoping with integration issues. At present, no single application serviceprovider offers a full suite of programs. Finally, ASPs work best on consistenthigh-speed connections. That can present challenges for those trying to connectin hotel rooms or at home -- and make it impossible to use the software in anairplane.

Even a high-speed connection doesn’t guarantee success. According toNortheast Consulting Resources Inc. of Boston, the growing complexity of Webpages and increased network delays will slow Internet performance over then nextfew years -- a trend that doesn’t bode well for ASPs.

ASPs don’t guarantee success.

Large organizations that already have a significant investment in technologyand a large IT staff probably won’t benefit. In fact, it could wind upbecoming more expensive, says IDC’s Whalen. That’s because a traditionalimplementation represents largely fixed costs and a large number of transactionsreduce the unit cost of the software over time.

However, firms building an IT infrastructure from ground zero -- particularlydot-com startups and those revamping systems -- may find the ASP model offersadvantages. It might allow an organization to use software it otherwise couldn’tafford for relatively few users.

Another selling point for the ASP model is fast implementation. According toIT market research and consulting firm Meta Group in Stamford, Connecticut, atypical ERP implementation can require 24 to 36 months. Getting the sameapplication up and running through an ASP typically requires 60 to 120 days. Inmost cases, planning sessions with the ASP or a consulting firm are required toget systems up and running. Sunburst, for example, worked directly withUSInternetworking.

Whalen also stresses the importance of understanding what a particular ASPoffers as well as its overall strategy. Not surprisingly, software vendors haveformed partnerships with different ASPs. PeopleSoft, for example, has inkeddeals with Corio and USInternetworking. Both offer financials, manufacturing,purchasing and HR modules. SAP has aligned itself with EDS, eOnline, InterpathCommunications and Qwest Cyber.Solutions. J.D. Edwards has hooked up withAristaSoft. Meanwhile, Oracle operates as its own ASP.

Location matters less.

The ASP movement is gaining momentum. Microsoft now offers its Office 2000suite through the Internet, along with an array of other programs. Othervendors, including Infinium, ADP, Genesys Software Systems, and UltimateSoftware Group Inc. now offer HR, benefits administration and payrollapplications through an ASP model. According to IDC, the market for ASPenterprise applications will hit $2 billion by 2003, and the entire ASP servicesmarket will reach $4.5 billion.

Concerns about security, safety of data and quality of service are fading.Most ASPs have built data centers that can ensure almost 100 percentreliability, a highly skilled team of professional IT staff and a better economyof scale than the typical Fortune 1000 company can muster.

Whether or not you migrate to the ASP model anytime soon, it’s important topay attention to the trend. "As networks become more sophisticated anddependable, the distinction of where the software resides is becoming lessimportant," says Bartels. "Right now, the hype is running ahead ofreality for application service providers. But it’s clear that they fit intoan overall trend toward outsourcing."

Workforce, February2000, Vol. 79, No. 2, pp. 88-89 -- Subscribenow!