SaaS Is Outsourcing Alternative for Some Companies

Ann All

It's been about two years since I wrote about Gartner's prediction that software-as-a-service could be "a viable alternative" to more traditional outsourcing arrangements for at least some companies. Last week I spoke to Carl Gammon, the director of information systems for a company for which this is true, Minneapolis-based medical device manufacturer Minntech Corp.

 

Gammon, who will attend IT Business Edge's Midmarket CIO Forum on March 14-16 in Orlando, does outsource a few functions to supplement his eight-person IT staff, but not many. An outside company provides remote performance monitoring for the UNIX server that runs Minntech's ERP system and some additional monitoring for a SQL server.

 

While Gammon has considered increasing his company's use of outsourcing, he says his cost calculations show it just doesn't make financial sense for Minntech. "With what we've looked at, it's more expensive, and in some cases quite a bit more expensive, for us to outsource than to have internal staff provide services." One of Gammon's staffers splits his time between tending to the UNIX server and other IT duties, with an outsourcer providing a few hours of remote monitoring every week. Outsourcing the UNIX function entirely would cost more, Gammon says.

 

Three of Gammon's staff handle development and support for Minntech's Manage 2000 ERP system. Its implementation features an IBM UniData (U2) database based on the somewhat arcane Pick programming language, which means outside development resources are hard to find and expensive, Gammon says. As I've written before, organizations using technology that relies heavily on legacy programming languages such as COBOL often find themselves paying a premium for those skills.

 

Gammon wants to add electronic document management and workflow management capabilities in the coming year. Rather than outsourcing those functions, he says he is considering SaaS because he thinks it's a "less expensive point of entry" for smaller companies that want to add new applications. "I'm leaning toward looking at SaaS instead of adding software and hardware we need to support, either internally or through outsourcing," he says.


 

Minntech has been using a SaaS-based payroll and accounting system provided by ADP for the past year and has been satisfied with its performance. In addition to freeing up IT staff for other duties, it has reduced the workload for Minntech's accounting and human resources staff, says Gammon. SaaS also makes it simpler to provide access to shared human resources applications for employees of three other companies owned by Minntech parent Cantel Medical Corp.

 

(If you're the IT executive of a midmarket company, like Gammon, you might want to consider attending the inaugural Midmarket CIO Forum in Orlando. You can get more information by clicking on the "Learn More" link included with this post.)



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Feb 8, 2010 5:19 AM Graham Perry Graham Perry  says:

If Minntech's IT operations are stable with few projects then outsourcing probably would be expensive - ie if Minntech's cost base is 8 staff there is little room for an outsourcer to reduce costs.

But outsourcing is done for reasons other than cost reduction - legacy platform migration, freeing up internal capacity to deliver new projects, extending to 24x7 operations etc.

There is a new twist to this discussion where (for the right applications) SaaS can reduce costs and introduce flexibility and therefore provide an alternative to outsourcing.

The SaaS solution presents a challenge to outsourcers and systems integrators in that a lucrative revenue streams from system management and hosting will be lost to SaaS. How they respond is yet to be seen.

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Aug 10, 2010 2:17 AM software company software company  says:

Gammon has wise increasing his militia's use of outsourcing, he says his outgo calculations feigning it right doesn't sort business signified for Minntech.

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