VideoAt Ryder System Inc., human capital is precious. So when the $5 billion Miami-based logistics and transportation giant decided to overhaul its credit-approval process in 1999, it knew the solution could not entail a large boost in head count or add to the workload of current employees.
Fortunately, a new outsourcing option had just emerged. A fledgling firm in Dedham, Massachusetts, called eCredit.com, offered a service it dubbed the Global Financing Network.
For an initial fee and then a monthly charge, Ryder is able to rely on this application service provider (ASP) for a service that allows it to instantly assess a potential customer's credit history and respond with a price and interest rate finely tuned to the customer's creditworthiness. All transaction histories and other data are maintained by eCredit.com on its own systems, while software installed at Ryder allows the company to access the Global Financing Network to get real-time credit assessments on potential customers.
Driven by the capabilities of the Internet, much of what was once labeled outsourcing might be better dubbed "E-sourcing." With cycle times shorter than ever, capital scarce, and skilled workers hard to find and retain, companies are looking more closely at all forms of outsourcing. Vendors are responding with a host of new options.
The long-term, wholesale outsourcing of the IT function (called "dino-sourcing" by some) is now complemented by a wide range of other options, and customers are taking notice. The annual growth in the ASP market, which is the dominant form of E-sourcing (but not the only form; see below) is pegged at 54 percent, according to research firm Gartner, compared with approximately 15 percent for traditional outsourcing.
More important than the growth, perhaps, are the new types of services that E-sourcing makes possible. At Ryder, senior executive vice president and CFO Corliss "Corky" Nelson says the firm's new approach to credit approval provides maximum flexibility and a near-instant redeployment of internal resources. "eCredit gives us a way to use our thin human capital more wisely," he says.
Credit processors can now focus on higher-value activities, such as developing problem accounts. And Nelson expects the eCredit.com investment to pay for itself within three years. "That was another big selling point," he says.
In addition to the aforementioned ASP model, companies can acquire infrastructure or "managed" services through MSPs, security services through SSPs, commerce services through CSPs, and so forth, all of which have come to be lumped under the term "XSP." But E-sourcing goes further than that; established outsourcing giants such as Accenture (formerly Arthur Andersen's IT consulting arm) have teamed with such companies as Jamcracker Inc., which aggregate a range of E-source options and provide something like one-stop shopping for clients.
Early this year, IBM rolled out IBMPlaces, a Web-based service that rents applications tailored to the needs of automakers and their suppliers. The applications come from IBM and other vendors, and can be bundled and sold at a compelling price. The Digital Engineering Office option, for example, combines five applications and costs $90 per user per month.
Competition among these providers is fierce, and some have succumbed already, making potential customers nervous about the long-term viability of this model. But at the same time, current economic conditions make outsourcing of any kind more appealing. Internal technology projects that would have received a fast green light last year are hanging up on the shoals of close financial analysis.
"When money was a little looser, there was not as much pressure to do rigorous cost-benefit analyses — even from CFOs," says Chip Gliedman, a research fellow at Giga Information Group Inc., in Cambridge, Massachusetts. "Right now, every dollar spent is coming under increasing scrutiny." Gliedman says that E-sourcing deals often stand up to close inspection.
"No Comparison"
When employee benefits firm RewardsPlus Corp. decided to expand the scope of its offerings last year, the Baltimore-based company might have been expected to handle the task in-house. After all, it had been delivering insurance and other services via the Internet for five years.
But then RewardsPlus decided to offer shopping services so that employees at client companies could order flowers, buy gifts, and in general improve their work/life balance by tapping the power of the company Web site. The firm quickly realized that it could not aggregate retail shopping items as easily as it had tackled financial services products, such as insurance. Jamie Spriggs, the company's CIO, calculated that such a system, which would function essentially as an online mini-mall, would cost about $3 million to build and $1 million a year to maintain, far outstripping the company's infrastructure and resources.
Spriggs and his team evaluated a number of shopping content aggregators and eventually chose Scottsdale, Arizona-based Vcommerce Corp. The economics of the deal were compelling: Vcommerce's fee for building, hosting, and supporting the online store was less than 3 percent of what Spriggs had determined a homegrown system to be.
He might have spent even less: Many commerce providers offered free installation, with fees based on a percentage of transactions that took place on the site. Spriggs questioned the financial viability of this approach, and was proven right. Many of the companies making such offers have since gone out of business, and the survivors have readjusted their offers, focusing on profitability rather than acquiring customers at any cost.
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