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The Dos and Don'ts of Application Outsourcing: Best Practices from SAP Managed Services

by Gary Fromer | SAPinsider

April 1, 2007

The SAP Managed Services organization delivers application-outsourcing services to over 400 SAP customers worldwide. Companies just beginning their outsourcing projects and those that are already executing their plans can delve into the lessons learned from such experiences. Discover the best practices your company should embrace to outsource with success, as well as those practices that might jeopardize your outsourcing plans.

Gary Fromer
Senior Vice President,
SAP Managed Services
SAP Americas

Outsourcing can be friend or foe; it can be a beneficial, cost-effective experience that leads to maximum end-user satisfaction, or it can be fraught with frustration and disappointment.

Where organizations land on this spectrum depends on their initial expectations, project planning, and execution tendencies for the length of the outsourcing project. As IT organizations are continually mandated to do more with less — to increase service levels while maintaining or decreasing costs, for example — they are considering outsourcing both the hosting and support of enterprise applications to achieve these objectives.

The SAP Managed Services organization delivers application outsourcing services to over 400 SAP customers worldwide. We've learned many lessons from our experiences with these customers; I would like to share that experience through a handful of outsourcing dos and don'ts. These guidelines apply to customers who are embarking on new outsourcing projects, as well as those already executing an outsourcing plan.

These dos and don'ts apply to customers embarking on new outsourcing projects, as well as those already executing an outsourcing plan.

The Dos — Best-Practice Strategies for Successful Outsourcing Results

1. Clearly define your IT and business objectives before you begin

Before you start your outsourcing project, make sure that your service provider clearly understands both your IT and business objectives. Your service provider is your partner in this initiative, and the more specifically you identify and involve that provider in formulating your objectives, the greater the likelihood that you'll both be able to meet them.

On the IT side, clearly articulate exactly what services you will outsource, how these services will be delivered, the roles and responsibilities for all parties involved, and the detailed service levels required. Ensure that both parties understand and are held accountable for meeting these objectives.

A common mistake many organizations make on the business side is focusing solely on costs. Outsourcing can provide many benefits beyond cost savings, such as operational and business process improvements. Marie-France Posthumus, director of global infrastructure at Energizer, notes, "As a relatively small organization within Energizer, we never save a lot of money, but we expect to provide service improvement back to the company. If we reduce costs in the operating system, hardware, and support, that is good — but it is not our primary goal. Our job is to improve our IT operations and what we're delivering to the business, and we are doing this through SAP Managed Services."

2. Maintain control of your SAP systems, including strategic decision making and a key user network

When outsourcing some or all of your SAP systems, remember that these systems are mission-critical; you must maintain control of all strategic decisions that involve them. For many customers, SAP Managed Services is a trusted advisor, providing guidance on application operations, support, and enhancements — but final decisions about your SAP systems should always happen in house.

We often see that once customers turn to an outsourcing partner, they stop developing their own key user network — a group of "super users" with system competence and expertise. Maintaining this network of key users in house — so they can collaborate with IT and business stakeholders and end users, and fully understand the business processes, needs, capabilities, and limitations of the systems — is critical to ensuring that your systems can evolve with business change and that you get the maximum value from them.

3. Take advantage of an integrated offsite and offshore strategy, as well as the economic and delivery efficiencies such a strategy can provide

When many IT professionals think of outsourcing, they immediately think of low-cost, offshore service providers. While popular, pure offshoring is not the only engagement model for outsourcing. Today's service providers offer much more flexibility in where and how outsourcing services can be delivered.

Consider that you're embarking on a major ERP upgrade with a combination of both in-house and outsourced resources. The most effective strategy may be to have support resources offsite, but within the same geographic region for the first few months of your project. That way, you can ensure smooth project ramp-up and later, seamless knowledge transfer to offshore resources.

When developing your outsourcing strategy, make sure you leverage an intelligent mix of delivery resources with one model — and make certain that model meets your specific project requirements and goals. Remember, you get what you pay for! Focusing solely on the cheapest alternative won't always guarantee cost-effective results.

Through the various outsourcing offerings of SAP Managed Services, a company can benefit from having dedicated experts in all technical and functional areas of SAP without having to hire a team of full-time, in-house resources to provide this expertise.

4. Realize the benefits of shared resources

One of the greatest advantages of outsourcing services is shared resources. For companies leveraging the full SAP landscape, having the in-house expertise to cover the breadth and depth of the system can be overkill. Through the outsourcing offerings of SAP Managed Services, a company can benefit from having dedicated experts in all technical and functional areas of SAP without having to hire a team of full-time, in-house resources to provide this expertise. This enables IT organizations to keep mission-critical applications operating cost-effectively and at peak performance. This also provides the flexibility to pull in people with the right skills and expertise for individual projects, ramping resources up and down as needed.

The Don'ts — How to Avoid Jeopardizing Your Enterprise Application and Outsourcing Projects

1. Don't operate and support your SAP system alone if you don't have the in-house resources and expertise to do so

Finding and retaining fully trained and skilled SAP experts may be a challenge based on your location, industry, or specific competency requirements. And often our customers do not want to maintain these resources in house because of training and turnover costs. Many outsourcing providers offer incredible flexibility in the services and terms delivered, allowing IT organizations to leverage the experiences and best practices of others. You don't need to do it alone; you can turn to outsourcing service providers for the long or short term, for new SAP implementations and upgrades, or for ongoing, daily operations.

According to Hellmut Ometzberger, director of IT and QA at Cooper Industries, "Recognizing that the rapid development and integration of a global Enterprise Business System platform would require infrastructure and application operations expertise not available to Cooper, we decided to outsource this strategic component. SAP Managed Services' operations support, product knowledge, service commitment, and delivery flexibility have enabled Cooper to effectively implement its Enterprise Business System with accelerated delivery and significantly mitigated risk."

2. Don't let your SAP operations and support depend on only a few individuals

Many companies that manage their SAP operations and support in house are fully dependent on a few "key" individuals, without whom they would have major SAP technical and functional gaps in critical process and support areas. This resource structure could put your mission-critical business systems at risk if, for example, a key individual is out sick, takes a vacation, or resigns and you're not able to replace that person immediately.

What's more, this dependency often prevents these key individuals from focusing on proactive business support activities, such as enabling new system enhancements or upgrades. Instead, they're focused solely on managing day-to-day operations and system support. When this happens, IT organizations may be viewed by their business stakeholders as nonresponsive to business improvement and growth needs.

3. Don't expect to outsource your responsibilities

When companies form outsourcing relationships, they often expect that they can forgo responsibility for the outsourced services. This is the biggest mistake we see businesses make. While a reliable and responsible outsourcing provider can give your organization peace of mind, you should never fully relinquish responsibility or control.

In your outsourcing relationship, your management team must clearly define roles, responsibilities, and expectations and maintain control of the delivered services. Your management team must also institute a process to continually monitor and measure these services to ensure that they are meeting the defined objectives. Otherwise, your outsourcing relationship may require more people, time, and resources than you originally bargained for.

4. Don't strand yourself without top-level SAP expertise when tackling top-level issues

Most IT organizations don't have an in-house "Level 3 SAP expert," someone with the depth of knowledge in a particular area of SAP who can research or access the resources needed to address a high-level issue — a production-interruption or design-enhancement issue, for example. Yet this kind of resource is critical to successfully managing system operations.

By outsourcing your SAP system support to an experienced service provider, you can access Level 3 expertise whenever you need it, to help ensure the continued operations of your SAP systems.

When companies form outsourcing relationships, they often expect that they can forgo responsibility for the outsourced services. This is the biggest mistake we see businesses make.

Focus on the Dos — and Avoid the Don'ts — with SAP Managed Services

SAP Managed Services provides a portfolio of outsourced service offerings — including SAP Implementation Hosting, SAP Application Hosting, SAP Upgrade Hosting, SAP Remote Application Operations, and SAP Application Management services — that enable SAP to plan, build, and run SAP solutions on behalf of its customers. SAP customers can select and tailor these offerings to meet their specific needs, then benefit from timely, comprehensive service, unrivaled access to SAP expertise, increased financial predictability, and integrated support for all business processes.

With SAP Managed Services, customers can concentrate on their core business while qualified experts ensure they derive maximum value from their SAP solutions. SAP also has a broad range of qualified partners offering hosting and application management services to our customers. To learn more, and for a detailed explanation of SAP Managed Services offerings, visit

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