Financial System Outsourcing: The ERP Application Hosting Option.

• Author: Joplin, Bruce
• Position: Enterprise resource planning

Many public agencies looking to acquire ERP functionality may find that renting software takes less time and expense than buying it. This article describes the concept of application hosting.

In his 1995 book Being Digital, Massachusetts Institute of Technology professor Nicholas Negropante observes that one way to tell if an economy is going digitalis the extent to which product content has transitioned from "atoms" to "ones and zeros." One sure sign that the future already is here, he writes, is that consumers can order anything they want on the Web and have it delivered immediately. It follows, then, that an even better sign would be if the applications creating those ones and zeros also were available immediately. Unfortunately, even in the Internet economy, that is often far from the case.

Take the ERP (enterprise resource planning) example. ERP is a prepackaged version of the "bread-and-butter" applications like financials, logistics, and human resources. Rather than write their own software, many organizations thought they could save time and money using these off-the-shelf solutions instead. Yet, even ERP applications (which spread their development costs over thousands of customers) are a very large investment for many mid-sized and smaller organizations.

Making matters worse is a predicted shortage of more than 350,000 information technology (IT) professionals in the year 2000. The public sector is particularly hard hit by this shortfall because civil service salaries and benefits typically lag behind private industry.

For many organizations, the key question now is: do they have to wait any longer for their own digital futures to start? Increasingly, the answer to that question is a resounding "no!"--thanks in part to a new trend called application hosting.

Outsourcing Options

Application hosting is a recent variation on an old business practice--computer services outsourcing. Outsourcing can be defined as contracting with an outside company to maintain an organization's software, hardware, IT facility, or any combination of the three. There are four primary outsourcing options for computer services.

1) In traditional outsourcing, a private company purchases an agency's hardware, hires its IT people, and runs its applications remotely offsite. San Diego County, California, is one of the latest public agencies moving in this direction. Other public organizations that have outsourced include the City of Indianapolis, Indiana, and the Commonwealth of Pennsylvania.

2) A variation on this theme is the establishment of a not-for-profit hosting company. The City of San Diego, California, did this four years ago when it established the San Diego Data Processing Authority, a self-funded organization that provides services to other governmental organizations.

3) On the other end of the spectrum is contracting with an organization that will provide skilled staff on-site to maintain specific software whether it is applications or databases.

4) A middle ground is application hosting. Application hosting lets organizations keep their basic data processing facility in place, but provides...