This chapter is from the book
This chapter is from the book
This chapter is from the book
Summary
The netsourcing value proposition to customers is compelling: no upfront investment costs in infrastructure or costly software licenses, faster delivery of applications (measured in days and weeks rather than months and years), scalable solutions that grow or contract with the customer's business, flexible solutions with minimal switching costs, and minimal expensive in-house support staff—to name a few. Given these benefits, who wouldn't want to netsource?
On the downside, there are significant netsourcing risks that must be mitigated. The netsourcing of business applications is still seen as an immature option primarily offered by unstable dot.com startups. Business managers worry about the reliability and security of the Internet, feel that their business requirements are too idiosyncratic for canned one-to-many solutions, and do not trust outsiders to supply mission critical systems. Many global 2000 companies initially rejected netsourcing on these grounds.
Despite these cautions, our research has found that nearly all organizations—large and small in both the public and private sector—will netsource at least some of their business applications over the next five years. Initially, netsourcing has appealed primarily to small and midsized enterprises (SMEs). The one-to-many business model offers SMEs low costs, little infrastructure investment, and rapid implementation. SMEs are willing to incur the downsides of the one-to-many model, such as lack of customization, to achieve these benefits. Moving to the global 2000—these customers will probably select noncritical, discrete business activities, such as document or image management, for their first netsourcing adoption. By "testing of the waters" in the netsourcing space, global 2000 players can gain the experience they need to exploit this option further. Global 2000 companies also have the clout to demand more services, customization, and integration from service suppliers than from SMEs. Thus the netsourcing model for these players will probably morph away from the one-to-many model. For the global 2000, however, netsourcing will probably always be viewed as merely one of the many sourcing options in their application portfolio.
Overall, research results on netsourcing are consistent with prior research on other IT management trends, such as IT outsourcing, business process reengineering, client–server technologies, and e-commerce strategies. Customer success depends on customer knowledge. Why are they adopting the trend? Are their expectations realistic? Have they evaluated the players properly? Did they mitigate the risks? Have they negotiated a clear, flexible agreement? Do they have internal capabilities to manage suppliers? As in any other new business practice, business managers will have to learn how to netsource successfully. Where does one begin? Throughout this book we provide business managers with tools to develop a sound sourcing strategy (of which netsourcing is merely one option), and to evaluate market options, mitigate risks, negotiate deals, and manage third-party suppliers. In Chapter 2 we step back inside the customer organization and describe the sound sourcing principles that serve as a precursor to a netsourcing evaluation.