The Outsourcing Continuum, Part V: Application Outsourcing

By Mike Scheuerman

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In addition to the infrastructure outsourcing we’ve been discussing in this series, there is now opportunity to outsource selected applications that are important to the company but not strategic. Let’s consider all the business functions that are common to many businesses, for example, your email server.

Modern business relies on email to do business every day, so it’s very important that you have an email connection. But do you really want to dedicate internal resources to managing and maintaining an email server? There are literally dozens of companies that will provide you with an email service that in many ways may be superior to what you have now.

What about your CRM function? It’s important for the sales force to be able to track their customers and sales pipeline, but building and maintaining a CRM server takes resources away from focusing on the really important applications that provide your business with a competitive advantage. Let’s take a look at an email example and see what the analysis looks like.

There are two types of email outsourcing available, Web-only and hosted server. Each of these has their strengths and weaknesses, but generally they will do the job pretty effectively for very little cost. As in all outsourcing, you’ll need to make sure that the service level agreement (SLA) meets the needs of your company. What you should get from both types of service providers are:

What you should get from hosted-server service providers are: Locally installed email client (e.g., Outlook, Eudora, Scribe, etc.) and Web access to email.

The mailbox and attachment size will determine how much data can be immediately accessible in the user mailbox. Many users of business email are used to having very large inboxes because they rarely clean them out. So, the larger the mailbox the more emails can be retained. Email attachments seem to be getting bigger and bigger, so make sure that you aren’t too limited when it comes to the size of the documents you attach to an email. This can be very frustrating for some users if they just want to quickly share a document with a colleague.


There are literally hundreds of thousands of malicious software types (viruses, Trojans, spybots, etc.) running around the Internet. Unfortunately many of them are transmitted via email, so you want to make sure that you have all the protection you can get to avoid compromising your internal networks. Unfortunately, the majority of email traffic today is junk mail from spammers, so you’ll want any service provider to stop that spam before it reaches your user’s inboxes.

Another great feature of email is the ability to encrypt sensitive information to ensure that it doesn’t get read by unauthorized people. You’ll also want secure encrypted access to your email, wherever it is stored.

Access Protocols

There are a couple of standard email protocols, POP3 (post office protocol 3) and IMAP (Internet message access protocol), that you will want a service provider to make available. This will allow your users can get their email delivered to the standard email client that you have installed on their systems. Typically, the service provider will give you a set of easy to follow instructions on how to set up an email client like Outlook or Eudora to access email stored on their servers.

What you won’t get are unlimited mailboxes. You will have to train your users on how to keep their mail organized and their email boxes down to a reasonable size. This is going to be tough for some folks (you know who they are) because they don’t ever clean out their inbox. With the basic email service you typically won’t get mobile email support for your smart phones and PDAs, either. That in most cases is an extra cost item.

The costs for email services have a fairly wide range, but on average you should be able to get basic email service for around $10 per user per month. There are lots of options available to customize the service to your needs. It’s a bit like a Chinese menu and each item adds a little more the total bill.

App Outsourcing in General

Today there a number of companies offering software subscriptions. Everything from CRM to ERP systems can be obtained from an outsourcing service provider. These subscription based services are sold under various labels (SaaS, software as a service, Cloud computing, etc).

In a software subscription environment the focus of your company stays on the core business and not on the technology that enables the business. When you have someone else worrying about the nuances of accounts receivable processing you can devote more resources to generating the business that creates the accounts receivable. Many companies already do this when they outsource their payroll processing. They don’t worry about whether the tax tables are up-to-date; they just worry about whether their employees are productive.

The time and effort involved in maintaining and updating generic business applications software goes away. Someone who is far more knowledgeable about the subtleties of a particular business application will update the software without your in-house staff doing all the research to determine whether this is a good update or not. You don’t have to worry about whether you need to spend money on a new server because the old one ran out of gas―the software subscription vendor takes care of that as a part of the subscription.

You also don’t have to worry about running the backup every day, because your provider will do that for you. From a business continuity perspective you’re in much better shape since you can run the subscription business process from just about any computer. So, if a disaster strikes, your normal business processes can be up and running again as fast as you can run down to the local Best Buy and get a new machine and get online.

You can count on what it will cost to run that part of your business. You know exactly how much it costs you to run your general ledger or accounts payable or CRM. Under a licensed model, there are a lot of hidden costs that you don’t know about or track so you don’t really know other than the cost of the software, what it costs you to run those systems.

The downside is these offerings are still in their infancy so they may not be as flexible as they will be in the future. They aren’t fully business hardened yet so there are going to be problems that crop up that you don’t see in a licensed software package. The upside is that the provider’s business is dependent on a stable service offering and they will throw every resource they have at resolving the problem quickly.

It will take a lot more due diligence to determine what vendor can provide you with the stable, secure, reliable business process functions. You won’t be able to walk into the local software store and pick up a software package and walk out. Of course, when you do that today you have to go back to your office and figure out how to install it and get trained on how to use it.

The range of outsourcing options is growing daily so you’ll want to keep your eyes open for opportunities within your company to consider outsourcing not only your infrastructure but also the basic business applications that are essential to business operation but are not critical to your business strategy.

In the next article, we’ll take a look at how to integrate outsourcing into your Business and IT strategy.

Mike Scheuerman is an independent consultant with more than 26 years experience in strategic business planning and implementation. His experience from the computer room to the boardroom provides a broad spectrum view of how technology can be integrated with and contributes significantly to business strategy. Mike can be reached at mike@scheuerman.org.