Tuesday, March 29, 2005

On-Demand Services: Is it hype or do they really work? (Part 1)

In the arena of the global economy there is a lot of talk about outsourcing mission critical business activities to 3rd party providers in the name of better effectiveness and efficiency. The argument that an activity that is mission critical but not a “core competency” should be outsourced to companies that specialize in that specific area is compelling particularly if the internal capabilities don’t exist to manage it.. This is even more attractive if the service providers can provide visibility through on-demand information in support of the activities. From manufacturing to sourcing to logistics to distribution the new hype is about the benefits of outsourcing non-core activities and receiving on-demand information.

Clearly, the internet coupled with new technology makes the outsourcing model more practical than in the past. Service providers are able to provide information resulting from physical world activity, on-demand, 24 x7. The internet has created access and visibility to information that was impossible before the technology became ubiquitous in the late 90s.

In the 70’s we had time-sharing of financial information. In the late 90’s we had the ASP model. Now we have on-demand service providers.

In the prior instances the solutions were touted to be a panacea. For companies that couldn’t afford individual systems, didn’t have the internal capabilities to run their own programs, or saw the economies of outsourcing rather than insourcing the activities, these solutions were seen as a cure for all their woes.

As history relates, these models didn’t survive for a variety of reasons. Technology costs fell for supporting hardware and software and organizations could economically take the process in house. Companies found that by outsourcing critical activities they generally did not get the information or service levels that their internal IT group provided. The business model for the service-provider eventually proved uneconomical and they went our of business.

Certainly, the technology has improved to support the outsourcing model. The internet supports collaboration of ideas and the exchange of technical information in near real time. It allows for information to be accessed on-line on-demand, and in many cases the information can be integrated with full workflow that supports exception-based alerting.

However, do the on-demand suppliers really provide the value being touted or hyped? Is on-demand the next in the cycle of these outsourcing models that seem to have significant value and then deliver less than the promise? Is the on-demand model just another transient phase in the pursuit of that fully integrated enterprise world? If companies can economically insource these activities will the on-demand service provider prove economically sustainable?

The answer is not simple. There is little doubt that on-demand delivers value. However, on-demand will not deliver the exceptional value that is being hyped by those who are in the business of hyping new ideas or providing the hardware and services around those ideas. If on-demand information can’t be integrated into a synchronized data environment companies will receive tangible but marginal competitive benefit. It is this ability to integrate information into a useable and manageable environment that is often over-looked by the analysts, consultants and service providers that are providing on-demand services. However, without the integrated and synchronized global data repository companies will not be able to “slice and dice” and present information the way they need to make the proactive tactical and strategic decisions that drive real competitive advantage.

I believe that outsourcing non-core functionality is very different from outsourcing core information. Being able to access (actively or passively) information on-demand is not the same as having ownership of the information to do with it as you please, when you please. True control comes from the ability to manage your environment. The way companies see their world is through information. The ability to control their business requires managers and owners to have total visibility of mission critical information that presents a fully integrated and synchronized view of their world.

On-demand solutions more often than not do not provide this integrated, synchronized view of the world. In order to get this view organization’s need information that can accept, integrate and synchronize the information from internal systems and on-demand service providers. Then, and only then, will companies truly have an on-demand capability.

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