Outsourcing Systems Management

592 Papp

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Outsourcing Systems Management Raymond Papp University of Tampa, USA

EXECUTIVE SUMMARY Acclaris is a relatively young company focusing on business process outsourcing solutions. It has tried, from its inception, to follow its own credo and outsource non-core operations. Acclaris’ current strategy focuses on growth in its domestic sites in the United States as well as its overseas facilities in India. Due to recent growth, Acclaris is rethinking its strategy of outsourcing its intranet to Intranets.com. Acclaris’ ability to employ technology to gain a competitive advantage is the result of streamlining its processes, hiring employees in India, and developing Web-based applications and infrastructures. The growth of this intranet system is a major information systems concern for Acclaris. The company is currently investigating three options to ensure that its technology strategies will continue to be aligned with its organizational goals. These options include continuing to outsource with Intranets.com, purchasing/leasing its own server, or moving toward a portal solution.

ORGANIZATION BACKGROUND Acclaris was borne from the market reality that back-office processes need specific attention and the realization that it requires the right combination of solutions, skilled people, and technology to accomplish process efficiency. Acclaris’ top management team has decades of experience working for the nation’s industrial giants and leading the world’s most prominent consulting firms. The team members have shaped and engineered highly effective processes for literally hundreds of the Fortune 500 companies, utilizing the brightest minds and the most promising technologies. This chapter appearsIdea in the book, of Cases on Information 2004, Volume 6, written edited by Copyright © 2004, Group Inc.Annals Copying or distributing in printTechnology or electronic forms without Mehdi Khosrow-Pour. Copyright 2004, Idea Group Inc. Copying or distributing in print or electronic permission of Idea Group Inc. is © prohibited. forms without written permission of Idea Group Inc. is prohibited.

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Acclaris, headquartered in Tampa, Florida, was founded with the goal of providing consulting services to process-intensive companies while simultaneously helping these companies focus on their core competencies. Acclaris takes non-core, yet critical backoffice transactions and delivers a processing environment that is more efficient, less costly, and has greater reporting capabilities. Acclaris’ key strength is combining people, process enhancement, and technology to help its clients. With domestic facilities in Tampa, Florida, and Baltimore, Maryland, and international sites in India, Acclaris has grown both in scope and size. Its mission reflects this and Acclaris wants “to be the recognized market leader for providing integrated, automated back-office operations through process knowledge, proven technology, and amazingly talented people for solutions that rapidly deliver the greatest quality and the most value to our clients” (Mission/Vision/Values, 2003, p. 1). Acclaris was co-founded by two seasoned executives with significant professional experience between them. Liana O’Drobinak, formerly a partner with Arthur Andersen, oversees daily operations and strategic direction. Dipankar Mandal, formerly Chief Technology Officer at CBS, oversees international operations and technology innovations. Other members of the management team also bring substantial experience to Acclaris. John Rudder formerly served as the Executive Vice President of Sales for TMP Worldwide (parent company of Monster.com), and oversees sales strategy development at Acclaris. Sanjay Deo oversees Solutions and Consulting activities, bringing over 11 years of IT experience in the areas of solutions implementation, application software development, and information security to Acclaris. Christine Lundquist oversees Accounting Solutions at Acclaris and formerly served as Manager of Business Process Outsourcing for Arthur Andersen (Management Team, 2003). With the strong and diverse background of its management team, Acclaris has been successful from its inception. Only six months after its founding, the company already had a positive cash flow and currently has revenues of over $2 million. (As they are a privately held company, they will not disclose specific financial data). Acclaris currently employs 60 people between its Tampa, Baltimore, and India offices, and expects to grow significantly over the next few years. In order to provide low-cost services, Acclaris must, like many other firms, concentrate its growth in India. “For years Indian developers have had a reputation as the offshore programming outsourcers of choice for Western corporations because of their highquality, low-cost coding help. Now the continued availability of skilled manpower at costs far lower than in the West, cultural factors, economic conditions, and an improving telecommunications infrastructure in India and worldwide is leading U.S. and European companies to tap the skills of Indian outsourcers in other areas. Indian companies are providing sophisticated, ITenabled back-office services for customer interaction and data processing.” (Ribeiro, 2003, p. 1) As one might expect from a young company, Acclaris is still in the process of defining its strategy. All of Acclaris’ current services center on its credo to allow clients the “Freedom to Focus.” Acclaris’ clients often purchase/contract small consulting services and then, as they are pleased with the results, move toward using the company’s

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technology as well as its workforce solutions. The company’s product offerings are defined as follows: • Transaction Processing • Claims Processing: FSA Administration • Claims Processing: Bankruptcy • Accounting Solutions • Consulting Services • Industry Solutions These services enable Acclaris to offer-back office solutions to clients and reduce costs by integrating processes, people, and technology. By outsourcing these non-core areas to Acclaris, companies can focus on their own mission-critical areas (Our Services, 2003). Furthermore its “Voice of the Customer Program” enables Acclaris to gauge its success in helping customers with outsourcing problems (Voice of the Customer, 2003).

SETTING THE STAGE Acclaris’ ability to deliver back-office solutions to its clients stems from its ability to provide outsourcing. This entails being able to provide a high level of support that firms cannot, and using and leveraging this expertise to help them become more competitive. The concept of outsourcing is not new. In fact, outsourcing has been an accepted business practice in that some companies have particular areas of strength; however, they lack knowledge in other areas, and look to outsourcing to address these problems. Technology, for example, is often a necessary component to a business’ success, yet may not be a core competency for the firm. Technology is one of the areas that is frequently outsourced to another company that can better provide and manage it. “In some cases, outsourcing means essentially selling the existing assets of a company to an outside service provider and then working with that provider’s experts to improve those assets. The result: better use of capital and potential gains in quality, productivity, and throughput. In other cases, outsourcing is a way to take an existing fixed cost structure and turn it into a variable one in which expenses can move up or down as the business climate dictates.” (Corbett, 2002, p. 1) The challenge to outsourcing is determining when to outsource a particular business function. While it is not a good idea to outsource mission-critical areas, administrative and support tasks that are not part of the business’ core competencies would be acceptable for outsourcing. In general, if the activities are those that do not add direct value to the firm’s customers, they can be considered (Papp, 2001). Areas where the need for change is great are also good places to consider outsourcing. In particular, areas where there is a high rate of growth, insufficient staff, or a lack of technical knowledge are ones where a partnership with a firm that specializes

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Source: Corbett (2001) in that area may be beneficial. Business activities and processes that are undergoing dramatic change may also be good candidates for outsourcing. Another consideration is to focus on areas or processes that are well defined. Certain applications like Payroll or Information Systems lend themselves well to outsourcing, in that many firms have successfully outsourced them and their chance of success is high. Areas where change is expected or already underway are ripe for outsourcing. Since the initial resistance to change has been overcome, the company can focus on farming out the processes or areas to those who can better administer it. For example, certain firms are regarded as “best of breed” in their particular industry or area, and outsourcing processes to them can save money and development time. Outsourcing can overcome a firm’s internal limitations and constraints. Discrete processes are also good areas to consider for outsourcing. While they may be very important to the business, they can be handled externally by a partner more efficiently and economically. With respect to technology, one of the leading areas of outsourcing, certain caveats exist. First, just because technology is not one of a firm’s core competencies, does not immediately make it a good candidate for outsourcing. Outsourcing should be a business decision made in the best interests of the firm. What seems like a good decision at the moment may not be as beneficial in the future. The decision is often critical to the future of the company. Therefore, only trusted and valued employees must make the decision. While consultants can guide the firm through the process, they should never be the solely responsible decision maker. Outsourcing is a long-term multi-million- or billiondollar decision and should be made only after thorough consideration of all options. An evaluation team should perform a detailed analysis and make the final outsourcing recommendation. A separate steering committee ensures sound business judgments are Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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reflected in the outsourcing process, provides advice to the evaluation team, and makes a final decision on outsourcing and vendor selection. Cost reduction is also a key factor in the decision to outsource. While it should not be the overriding factor, it is often a key area of consideration. It is important to consider costs related to the area to be outsourced as well as retained cost items such as IT management, strategy development, and other IT business and technology functions the firm does not wish to pass to the vendor. Service level should also be considered as the vendor, due to operational and/or cost constraints, many not be able to provide the same level of service the firm expects. Benchmarking is critical. If the firm does not know its own position, it cannot evaluate the vendor on its performance (Krahl, 2002). Finally, the fit between the outsourcing vendor and the firm must be evaluated. If the two firms have a different culture, then a partnership is not likely to work well. It is often useful to consider if the vendor’s employees and management would fit well in the firm’s own company. If the answer is no, there is a strong possibility that a mismatch of culture exists. The firm must, however, support the vendor and provide them with the information they need to carry out their tasks. These last two points are illustrated by the partnership between Acclaris and the State of Florida in the creation of its “People First Initiative.” A $280 million outsourcing contract will provide the state with several key services such as staffing, payroll, benefits, and human resources administration:

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“We are extremely pleased to have been selected to work with the state to realize the benefits of this initiative. We believe our selection reflects not only the State of Florida’s confidence in our ability to perform, but also the value we will bring to the implementation of Governor Bush’s initiative to create smaller, more effective, and efficient government through technology,” commented Acclaris President Liana R. O’Drobinak. “This contract affects the State’s 189,000 employees and every taxpayer in Florida. We have the expertise, the capabilities, and record of accomplishment to monitor this contract in the best interests of those involved” (People First, 2003, p. 1).

CASE DESCRIPTION Dipankar Mandal, chief operations officer and chief technology officer of Acclaris, believes that in order to stay lean, companies must outsource any activity that is not absolutely core to the business model. This belief can be found in Acclaris’ slogan, which reflects the company’s value proposition for their clients: “Freedom to focus.” Currently, Acclaris follows this strategy for its own business activities and outsources many of its IT needs. Acclaris initially chose this path because at inception it needed a secure and efficient Web-based system that was economically feasible. Acclaris retained the design function, which was (and still is) critical to its success, but outsourced the management and hosting of its technology. That strategy was critical to achieve necessary scale while avoiding large investments. As a result, Acclaris outsourced its corporate website and e-mail to Yahoo!, its intranet to Intranets.com, and the hosting and management of its servers to DataTech Hosting. Management is convinced that this strategy contributed to Acclaris’ early success. However, due to rapid growth, Acclaris now needs to consider other alternatives; the company is contemplating whether or not it should invest in a Microsoft Exchange server to take control of its e-mail and calendaring functions. Because of the increased need for data storage, the most pressing question is whether it would be sensible to move the intranet away from Intranets.com and develop it in-house, or to outsource it to a hosting company. Acclaris’ subsidiary in India is the key to lowering the costs of providing otherwise expensive services such as financial accounting, sales reporting, sales tax reporting, and other rules-based processing activities. The only way Acclaris can reduce costs to its customers by 20-50% is by lowering its own costs, which the company accomplishes through improved processes, the use of technology, and the off-shore labor pool in India. This is not a novel idea; many companies—such as Citigroup, Chase, and American Express—are already sourcing their technology needs outside the U.S. With the invention of the Internet and its efficiencies, the physical movement of employees and factories is often no longer necessary (Ribeiro, 2001). By using Web-based applications, Acclaris is able to gain a competitive advantage over existing processes by hiring employees in India to do the bulk of the work. Because of the low cost that Acclaris is able to offer its customers, its business has grown dramatically. Therefore, the company must hire more employees and has a greater need for information systems. This includes expansion of its intranet system, which is a series of Web-based applications used to Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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process customers’ requests. The growth of this intranet system is the major concern of IS growth for Acclaris. In order to complete all the outsourced work seamlessly between India and the United States, Acclaris relies heavily on Web-based workflow tools. The company has proprietary tools that are entirely based on Oracle technology. At the heart of this suite of tools lies what is called the Accelerator. The Accelerator takes documents that were scanned or faxed into the system and routes them to the appropriate employee based on sophisticated work cues. According to management, the software is completely browser based and does not require any installation of a client. Part of the screen displays a particular document, while the other frame is used for data entry as well as processing, such as approval and adjudication. As a result, Acclaris has a strong need for storage capacity as well as fast connectivity. To achieve this, Acclaris relies on employees from various locations accessing information located on a centralized storage device. Organizational growth is generally a positive development, but many times a company experiences “growing pains” that come along as a side effect. For example, factors such as lack of sufficient technology resources, an infrastructure not aligned with the business strategy, or poor organizational planning are areas that companies face with respect to their information systems. For a company like Acclaris, information systems are the key to success, therefore its information systems need to keep pace with the company’s organizational growth. It is important that the IS strategies and infrastructure are aligned with the business strategies and infrastructures (Papp, 2001). Acclaris’ business plan calls for strong expansion and fast growth in the next two to five years. Because of this, the company’s information systems, including Web-based intranet applications, must grow as well. The organization’s dependence on Internet infrastructure is high since its employees all over the world must be able to access files, share internal documents, complete expense reports, and input timesheets. The technological components that must be expanded to accommodate the necessary IS growth include hardware and software. The cost of disk space and the limited number of applications has Acclaris rethinking its strategy of outsourcing its corporate intranet and file servers to Intranets.com. The company’s strategic decision not to invest in its own servers early on is what led the company to use Intranets.com. Outsourcing is not a guarantee that an organization will be able to lower costs and improve technology. “Outsourcing’s reported advantages of cost cutting and higher system quality have been questioned by researchers and practitioners as more data becomes available to study the long-term effects of IS outsourcing” (Powell, 2001, p. 136). By utilizing their buying power, vendors are able to bring higher technology at lower costs to their customers. But, by using a vendor to lower these costs, the company sacrifices some level of control. “Many disadvantages and failures in outsourcing occur because of insufficient and/or poorly chosen vendors and written contracts” (Powell, 2001, p. 139). Some of these disadvantages include the availability of information about other technologies already on the market, new technologies that become available, and reduced IS customer service. After all, the vendors have many companies to service and their priorities may not match that of the organization. Recall from the previous section, the corporate culture and fit between the firm and its outsourcing provider is a highly important relationship that requires careful consideration.

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With imminent growth, the notion of purchasing the myriad of technological components necessary to serve as platforms for Acclaris to share documents and run backups in lieu of using Intranets.com has once again become the topic of discussions. Acclaris could invest in dedicated servers set up at their offices (or hosted at a secure data center). At first glance, it would seem advantageous for a decentralized company to have its own system rather than outsourcing. Although this makes sense because there is less control in the IS department and less restrictions on hardware and software policies and standards, there are many drawbacks for Acclaris to having its own IS system. These drawbacks are technological constraints created by difficulties of buying, storing, and maintaining a server and its software applications (Powell 2001). Acclaris also identified the following issues as problems to owning its own server: the server would only be a file server, which is neither Web based, nor a robust solution. Additionally, this server could not integrate with other applications the company uses. The file server would also not offer the calendar/scheduling functionality that Intranets.com provides. On the other hand, Acclaris also identified some advantages to owning its own server. According to the organization’s assessment, this solution would be cheaper, offer plenty of storage space, and allow for control of back-ups. For a pure file server, there is no need for cutting-edge technology, and with the exception of maintenance, there are no real recurring costs. Acclaris identified a third option in addition to doing nothing or investing in a data server. Acclaris could use a sophisticated portal to serve as its intranet in terms of file access and for publishing of information to its employees. Acclaris currently has the option to use a robust server purchased by a client using a licensed version of the Oracle 9iAS portal. All the company would need to do is customize that portal to suit its specific intranet needs. This could be done quite easily since Acclaris employs five Oraclecertified programmers, and the portal software provides “built-in intelligence, wizarddriven page design, and pre-built functionality” (Oracle 9iAS Portal Overview, 2003). Acclaris likes the idea of a portal solution because it will allow integration with other applications, and create custom applications while being Web based. The key benefit for Acclaris is that all its proprietary applications run on Oracle databases, and therefore can be easily integrated. The primary disadvantage is that the development is more expensive and takes much longer than any of the other solutions.

CURRENT CHALLENGES FACING THE ORGANIZATION Regardless of the solution Acclaris might select to improve its corporate intranet, there are a few challenges the company is facing. Because of the growth Acclaris has experienced, the connectivity, disaster recovery, and technical support levels offered by its current data center hosting company are no longer adequate. Acclaris has selected a new provider for those services and is in the process of moving all of its current business-related servers. This move requires senior management attention, as well as programming support from in-house programmers. Changing the intranet platform to anything but the current Intranets.com solution will put additional strain on Acclaris’ resources. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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If Acclaris decides to move to an Oracle Portal solution, the company will face other challenges as well. Despite the fact that the portal itself will be hosted at the aforementioned data center, the transfer and the implementation of the portal will be done by Acclaris’ in-house Oracle programmers in India. However, these programmers are fully booked doing programming work for Acclaris’ business solution (proprietary workflow and imaging solutions). If these programmers are instead used to implement a portal for corporate intranet use, other projects would have to be postponed or canceled. Implementing an Oracle portal can have significant opportunity costs for Acclaris (JDalal, 2003). The final challenge Acclaris is facing is that of its own strategy and credibility in the market. Ironically, as a business process outsourcer, the company preaches to its clients and prospects to source out every activity that is not absolutely core to the company’s business model; Acclaris needs to follow this credo to stay credible and to use as a selling point. So far the company has done that successfully by outsourcing much of the data hosting to Intranets.com, along with use of a professional organization to administer the human resources function. The administration of an intranet is clearly not Acclaris’ core competence, and the organization’s decision should reflect that fact. Does building a customized Oracle portal really reflect these beliefs? Is Intranets.com scalable enough to support future growth? Acclaris will have to answer these questions as the company plans its corporate strategy.

ACKNOWLEDGMENTS The author would like to thank graduate students Amanda Baldemor, Ali Beik, and Jamie Pino for their assistance in assembling information for this case, and three anonymous reviewers for their insightful and valuable comments on the drafts of this case.

REFERENCES Corbett & Associates, Ltd. (2001, June 1). Best practices for deciding what should be outsourced. Available online at: http://www.firmbuilder.com/articles/5/27/. Corbett & Associates, Ltd. (2002, July 15). Outsourcing’s next wave. Available online at: http://www.firmbuilder.com/articles/19/48/. JDalal Associates, LLC. (2003, August 22). In my opinion: The India advantage. Available online at: http://www.firmbuilder.com/articles/19/48/. Krahl, R. (2002, October 21). Outsourcing…the decision process, transition partners white paper. Available online at: http://TransitionPartnersCo.com. Management Team. (2003, May 21). Available online at: http://acclaris.com/aboutus/ management.team.htm. Mission/Vision/Values. (2003, May 21). Available online at: http://acclaris.com/aboutus/ company.background.mission.htm. Oracle Corporation. (2002, May 31). Oracle9i/AS portal. Available online at: http:// www.oracle.com/ip/deploy/ias/portal/index.html?content.html.

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Our Services. (2003, May 15). Available online at: http://acclaris.com/services/. Papp, R. (2001). Introduction to strategic alignment. In Papp, R. (Ed.), Strategic information technology: Opportunities for competitive advantage. Hershey, PA: Idea Group Publishing. Powell, A. (2001). Outsourcing decisions: Using Porter’s model. In Papp, R. (Ed.), Strategic information technology: Opportunities for competitive advantage. Hershey, PA: Idea Group Publishing. People First: Acclaris selected to support $280 million State of Florida human resources outsourcing initiative. (2003, May 21). Press Release. Available online at: http:// acclaris.com/news/acclaris.news.press.releases.peoplefirst.htm. Ribeiro, J. (2001). The back office moves to India. InfoWorld, (August 17). Available online at: http://archive.infoworld.com/articles/fe/xml/01/08/20/010820feindia.xml. Voice of the Customer. (2003, May 21). Available online at: http://acclaris.com/aboutus/ customers.voice.htm.

ADDITIONAL READING Chapman, R., Andrade, K., & Anadle K. (1997). Insourcing after the outsourcing: MIS survival guide. New York: AMACOM. Dugan, S. (1999). The myth of saving money by outsourcing. InforWorld, 21. Firmbuilder.com. (2003, May 21). Available online at: http://www.firmbuilder.com/ home.asp. Freeman, R. (2002). Oracle 9i new features. Berkeley, CA: McGraw-Hill/Osborne. Hammer, M., & Champy, J. (1993). Reengineering the corporation: A manifesto for business revolution. New York: Harper Business. Hammer, M., & Stanton, S. (1995). The reengineering revolution. New York: Harper Business. Klepper R., & Wendell J. (1997). Outsourcing information technology systems and services. Princeton, NJ: Prentice-Hall. Lacity, M., Wilcoks, L., & Feeny, D. (1995). IT outsourcing: Maximize flexibility and control. Harvard Business Review, 73, 84-93. Outsourcing Institute. (2003, May 21). Available online at: http://www.outsourcing.com/ . Papp, R. (2001). Strategic information technology: Opportunities for competitive advantage. Hershey, PA: Idea Group Publishing. Williams, O. (1998). Outsourcing: A CIO’s perspective. New York: CRC Press-St. Lucie Press. Yankelovich Partners, Goldstein Consulting Group. (1998, August). Business process outsourcing. Global Top Decision Makers Study TM by PricewaterhouseCoopers.

BIOGRAPHICAL SKETCH Raymond Papp is Associate Professor of Information Technology Management in the Sykes College of Business at the University of Tampa. Dr. Papp earned his PhD in Information Management at Stevens Institute of Technology (1995), and his MS in Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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Business (1990) and BS in Computer Science (1988) from Connecticut State University. His research interests include strategic alignment, IT for competitive advantage, distance learning, and pedagogical issues in IT. His recent book, Strategic Information Technology: Opportunities for Competitive Advantage (Idea Group Publishing), highlights the use of information systems to achieve competitive advantage, and contains numerous cases and research on strategic information systems. Dr. Papp teaches courses in Information Technology and Managing Value of Information Systems for the MBA program. He also maintains a consulting practice in Tampa Bay through Tampa Technologies, Inc. where he specializes in management consulting, ecommerce design, and personalized computer training.

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