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E-mail outsourcers say they can deliver, but most companies are withholding their stamp of approval.

1Oct


Pushing the Envelope
Adecade ago, workers who wanted computerized communication with their cohorts were likely to sign up for MCI Mail or similar offerings. Despite its heritage as an outsourced service, however, today E-mail is one function that most companies seem unwilling to leave to others. "And yet," argues Scott Chasin,


chief visionary for USA.Net, "E-mail is an application like any other, and one that is more easily outsourced because there are well-established standards."


Chasin and his competitors are working hard to drive home that message, and with some success. Companies as large and diverse as American Express Co., United Air Lines Corp., and Circuit City Stores Inc. have all signed contracts with outsourcers to provide E-mail to thousands of employees, and most analysts say the approach is even more appealing to small and midsize companies.


The benefits of outsourced E-mail are similar to those of other forms of technology outsourcing: better reliability, lower cost of ownership, and the ability to focus internal staff on more important tasks. A bevy of communications standards makes it relatively easy to provide Web- based E-mail, or to host proprietary systems off-site. And vendors are touting prices as low as $5 per mailbox per month, whereas internally supported E-mail can cost hundreds to thousands of dollars per user per year, according to The Radicati Group Inc., a Palo Alto, Calif.-based consultancy.


Therefore it's not surprising that companies that specialize in outsourced messaging services, including USA.Net, Critical Path Inc., Mail.com, and others, are experiencing triple-digit revenue growth. Traditional outsourcers such as IBM Global Services and Compaq, as well as most telcos, are also pursuing the market. Yet, despite the advantages and the competition, fewer than 5 percent of large companies currently outsource their messaging, according to David Ferris, research director at Ferris Research, in San Francisco. "It absolutely makes sense to outsource it," he says, "and five years from now it will be common."


A Top-Line Boost
For that to happen, says Ferris, vendors must do a better job of understanding the market. "Most are out there selling purely on cost savings," he says, "but customers are more focused on reliability, security, and predictability of costs."


In fact, some companies view outsourcing as a way to boost top-line potential. For instance, Circuit City recently gave thousands of its sales associates access to Web-based E-mail from Critical Path (www.cp.net), in an effort to improve training and communicate details about sales promotions more effectively. The Richmond, Va.-based electronic- products retailer hopes that more information will result in more sales.


Using an E-mail outsourcer on a limited basis appears to be the method of choice for many companies, and is "a great way to get comfortable with the idea," says Maurene Kaplan Grey, senior research analyst at Gartner Group Inc. And companies do seem to be getting more comfortable. A Gartner survey conducted in late 1998 found that 73 percent of respondents wouldn't outsource any component of their messaging systems. Eighteen months later that figure had dropped to 56 percent. One major inhibitor, Grey says, is security. "There is so much intellectual property in e-mail," she says, "that companies are hesitant to outsource."


But security was the motivation for Bloomington, Ill.- based insurance company Country Cos. Hundreds of its employees relied on an antiquated, modem-based system that was vulnerable to hackers, so it gave some employees access to outsourced Internet E-mail. "We're still using the old system," says Steve Heisler, the company's senior analyst for Web services, "but we'll likely phase it out." To an outsourcer? Heisler says that's unlikely.



IT PRIORITIES



E- commerce Tops the Charts


Financial executives are unanimous in proclaiming E-commerce a critical priority, even as they admit it can be hard to decide how much to invest in technology and harder to assess its ultimate value. These are some of the key findings in the third annual "Technology Issues for Financial Executives" survey conducted by the Financial Executives Institute (www.fei.org ) in conjunction with Computer Sciences Corp.


Nearly 60 percent of the 345 executives polled said that developing an E-commerce strategy is a "very critical" issue for their company. That's a big jump from last year, when only 26 percent ranked E-commerce strategy as a very critical issue. And it's clear that executives see big things ahead for E-commerce: asked how the Web will affect business other than facilitating transactions, half the respondents predicted that channel structures will change, 49 percent said it will create new channels, 45 percent said it will create new businesses, and 39 percent said it will make possible new products or services.


This isn't lip service. The number of respondents who indicated that their firms are now piloting E- commerce applications jumped from 32 percent to 52 percent, while those who said they have no involvement in E-commerce and no plans for it fell to a mere 5 percent. "E- commerce clearly dwarfs all other concerns," says Dewey Norton, vice president of finance at the Ricon Corp., in Panorama City, Calif., and vice chairman of the FEI's Committee on Finance and Information Technology.


And it may signal a fundamental shift toward more- strategic thinking about information technology. Last year, companies pegged "inability to reduce enterprise operating costs" as the area in which insufficient IT solutions posed the biggest constraint. This year that concern falls to sixth place, replaced by new complaints: that IT doesn't adequately facilitate analysis and decision making, or enable companies to measure product and customer profitability. Other concerns involved the ability to integrate strategy with daily business operations, and positioning the company for profitable growth. "These issues point to a strong move from tactical to strategic thinking," says Norton, adding that this appears to be driven both by the possibilities inherent in E-commerce and the overcoming of Y2K concerns.


Companies appear willing to put their money where their strategy is. E-commerce now accounts for 18 percent of IT budgets (and probably more, since some of the 23 percent slotted for development no doubt touch on E-commerce functionality). One- fifth of respondents said that over the last three years spending on IT has increased by more than 30 percent at their organizations, while 36 percent reported more modest increases and 37 percent said spending was flat.


But efforts to measure the effectiveness of IT spending show little sign of improving. When asked about the return on investment for technology spending, a whopping 31 percent said they simply don't know. The survey also found that financial executives aren't happy about their inability to measure success. Forty percent said they were either "somewhat dissatisfied" or "very dissatisfied," while 36 percent dubbed themselves "neutral."


Norton says interest in measuring the benefits wrought by IT spending remains high, "but in the absence of hard numbers most people frame it as 'Did it accomplish a stated goal?' and render a subjective evaluation." Thus only 2 percent of respondents said that the primary criteria for measuring success is whether a project pays for itself; almost half (42 percent) focused on whether it meets user needs, while 24 percent cited "improved competitive position." Thirteen percent said that if a project was on time and within budget, it was a success.


If ROI is perplexing, Norton sees progress elsewhere. "More managers today are highly literate with IT issues than ever," he says, "which drives the kind of teamwork that's vital to IT success."



IT CONSULTANTS



Buyer's Market


It's not exactly McKinsey Meets Ebay, but it's close. Companies in the market for consultants can now use Web exchanges to post RFPs (request for proposals) and then sit back while the contenders prepare responses and underbid one another. Some exchanges take a laissez-faire approach, simply providing a meeting place in which buyers and sellers of services interact. But one firm, Chicago- based IQ4hire (www.iq4hire.com), hopes to succeed by injecting an element of human expertise.


In this model, a company looking for consulting help downloads a form from IQ4hire's Web site and spends about an hour filling out an RFS (request for service). The information is then uploaded to a "trading pit," where an IQ4hire exchange director assesses the request, helping customers refine it if need be. That's a crucial edge, the company claims, because preparing an RFS (or RFP) the old-fashioned way can costs tens of thousands or even hundreds of thousands of dollars, yet still not adequately define the project. IQ4hire charges both the buyer and successful seller an equal percentage of the contract's value (sellers also pay a one-time "shelf-space" fee to be listed).


Once the RFS is deemed ready, customers can specify up to five consultants who will receive it and have the option of bidding for the business. Why not open it up to a larger universe? "There's value in limiting the number of consultants who receive the RFS," says Brian Sommer, IQ4hire's CEO. "Projects stay on track in part by focusing on a select group of vendors who have the right experience to tackle the job." The buyer can specify which firms see the RFS or rely on the exchange director for recommendations.


Chris Paul, senior vice president of MIS for Oakwood Homes Corp., in Greensboro, N.C., recently used IQ4hire to find a consultant who can help the housing manufacturer make the transition to a new ERP system. "We needed to move quickly," he says. Using the service, Oakwood was able to draft an RFS in 3 days, and within 10 days it received four bids. "We had spent $110,000 to get a previous RFP out the door, and it went nowhere," Paul says. "If I pay IQ4hire 5 percent of the contract, we'll still save a lot." The contract will ultimately go to a company Paul had never heard of, pointing out another advantage of such exchanges: the ability to link buyers with a much wider universe of sellers.


Sommer says that certain aspects of the process will be refined going forward. The company recently added a "bidder conference" feature that lets buyers and sellers communicate once the initial screening is done. "There's a relationship component to every engagement," says Brad Everett, chief business development officer at Internet consultantcy and implementation firm Groundswell Inc., which participates in IQ4hire. "This new feature addresses that issue of chemistry."


IQ4hire faces competition from Mirronex Technologies Inc. (www.mirronex.com), Vivant Corp. (www.vivant.com), and other firms, but is betting that its trading pit will provide critical differentiation. "In such a structured process," says Paul of Oakwood Homes, "we were able to do an apples-to-apples comparison." That may ultimately matter more than price: Paul says three of the four firms that bid on the project were within 7 percent of each other, while the fourth was vastly overpriced.


"Cost is about fourth on a buyer's priority list," Sommer says. "What they want is a successful engagement."



OPERATING SYSTEMS



Linux Lands A Lab


Linux, the perennially upstart operating system, got an apparent boost recently when a consortium of computing giants announced that they will build a laboratory where Linux can be tested, refined, and otherwise made ready for corporate service.


IBM Corp., Hewlett-Packard Co., and Intel are among more than a dozen companies anteing up for the facility, which will be built on a site to be determined near Portland, Oreg., late this year. Despite the deep pockets of its backers, the lab is described as "independent and nonprofit," a place where developers can share ideas and take advantage of equipment they may not otherwise have access to. "If you want to test something on a 16- way server," says Mike Balma, director of marketing for HP's Open Source and Linux products, "you may be constrained by whatever your company runs. With the lab, you can use the Web to access many different types of hardware configurations."


"Linux is the fastest- maturing operating system ever," maintains Ross Mauri, vice president of Unix software at IBM. "This lab isn't trying to change the development model of Linux, just provide help in moving it forward."


Linux can be downloaded free from the Internet and is being constantly refined by developers around the world, who freely share their enhancements. The companies establishing the lab were quick to point out that it has the support of several Linux luminaries, lest developers fear that corporate interests are encroaching on what is, for many, a labor of love. While some analysts question its viability for mission- critical use (see " Are You Being Served?"CFO, August), there is unquestionable momentum behind Linux, and Mauri vows that the lab will help make it suitable for high-end deployment.

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