Executives at Work/Family Directions Inc., a 14-year-old consultancy whose services include giving employees of Fortune 500 and smaller companies advice on personal and work-related issues, realized 18 months ago that the future of its industry was about to leave the runway. A study revealed that 71 percent of the employees at Work/Family's client companies wanted technology-based access to its services and that many companies were already putting such information as benefits plans and job openings on their internal Web sites. For many of the survey respondents, intranet access to HR resources was primarily a matter of convenience. But for others, the intranet promised something even more important: a greater degree of confidentiality than that offered by a conversation with an HR representative. |
"Certain people within the client base would prefer not to pick up the phone and ask questions about sensitive issues," says Kristin Schlageter, Work/Family's director of electronic commerce. "Others find our phone hours inconvenient."
Work/Family's leaders knew they needed to offer clients intranet-based services-and do it quickly. They also knew that whatever system they put in place had better be pretty sophisticated, or the company might catch the plane but end up hanging off a wing.
Shortly after the survey was completed in late 1995, Work/Family got started. The goal was an intranet that would allow employees of client companies to view pamphlets and order booklets on such topics as child care and coping with infirm parents. Work/Family also wanted to build an infrastructure that would allow employees to ask for referrals-for elder care providers, for instance-and other information by e-mail. And they were in a hurry.
"We wanted to finish it in four months because we felt our clients were moving forward quickly getting human resources and benefits information on their intranets," says Schlageter. "We wanted to be there with them."
To get things done fast, Work/Family chose not to build the intranet itself. Instead, they teamed up with technology consulting firm called Cambridge Technology Partners Inc.
Work/Family chose CTP because of the outsourcer's rapid application development expertise and experience with Web technologies, Schlageter says. But the outsourcer also earned its keep in another way: by taking difficult and potentially divisive decisions off Work/Family's busy plate.
"We had to make some tough decisions on which pieces of the project to build and which not to build in the first generation," Schlageter says. "An external party can be more impartial. They can afford to be the bad guy."
They could also afford to present opinions that chafed against Work/Family's idea of how the project should be designed. Work/Family, for example, heeding their survey results, had planned to deliver their service almost exclusively to their clients' intranets, a technological accomplishment that would have required special software for several technical environments. CTP recommended an easier route: linking Work/Family to its clients via the Internet. Ultimately, both models were built, although Work/Family has come to appreciate ( and promote) the Internet model, which can be updated with changes to a single source code.
To build the intranet, CTP put four full-time and two part-time people on the project, and the price tag was not inconsiderable. Still, Schlageter believes that if Work/Family had tried to go it alone, it would have taken at least twice as long and would have required Work/Family to hire at least as many workers as CTP assigned to the task. As it was, things worked well, and in November of 1996, Work/Family rolled out an extranet that will soon have a secure Internet connection. Employees of Work/Family clients are able to access Work/Family's offerings from their PCs. Outsourcing, says Schlageter, was the right choice.
As business use of the Web evolves from marketing and promotional purposes to offering online services and transactions, companies often find themselves in the deep end of the IS pool. After all, building and supporting Web-based transaction applications is far more complex than creating and posting content. So it's no surprise that more and more Web work is being farmed out to experts. Two years ago, less than 10 percent of CTP's business was Internet-related. Today, says Malcolm Frank, the company's vice president of marketing, Internet and intranet work accounts for more than half of its projects. One market research firm, Input, predicts that Internet and intranet outsourcing business will grow from about $300 million last year to $14.2 billion in 2001.
Companies turn to outsourcers for a number of reasons: The companies themselves may lack the in-house expertise in Web or related technologies, they may need to ramp up Internet/intranet projects quickly, they may want to offload back-office processes such as credit card authorization and order fulfillment, or they may appreciate the hassle-free advantages of creating virtual private networks using a third party's infrastructure.
Frank says that for those companies hiring outsourcers, one of the major attractions is speed. Net projects, he says, tend not to last as long as other types of outsourcing arrangements. Electronic commerce projects, in particular, tend to have abbreviated schedules, perhaps because they are driven by business managers or even CEOs who do not have the patience that IS managers have for technology projects.
Another attraction, of course, is simply having someone who has been there before to lead the way. Although they don't want to admit it, says Frank, many IS managers are almost paralyzed by the fear of making a misstep. "Some [IS managers] are thinking, 'I'm catatonic,'" he says. "'I fear whatever I choose will be wrong in six months.'"
By working with Web technologies on many projects, outsourcers acquire a depth of specialized knowledge that few IS shops can match. Some outsourcers form relationships with vendors to beta test new products. As a result, their clients are able to adopt new technologies early.
The Alcone Marketing Group, which operates the NetPerks marketing program, is another satisfied customer of an experienced consultancy. NetPerks is a frequent surfer program that allows netizens to reap rewards from sponsors in return for visiting certain Web sites. Alcone Marketing's business model hinges on its ability to get people to visit NetPerks' sponsors' sites and to provide demographic information about those visitors. The company also has to keep track of visitors' frequent surfer points and make sure they get their rewards, which include such things as free Internet use, product coupons and online magazine subscriptions.
To do that, NetPerks must support some sophisticated functions that recognize individuals as they visit various sites and then customize content for them in real-time. For example, a parent of young children would click on an automaker's ad and be shown the latest minivan models, while an unmarried college student might be shown a sports car.
"We, as a marketing and sales promotion company, don't have the resources available to do that work," says Linda Henry, executive vice president of Alcone Marketing. So the company found another that did: Electronic Data Systems Corp.
Today, EDS hosts the NetPerks Web server, but the relationship goes well beyond standard ISP services. The outsourcer, which built the system in collaboration with Alcone Marketing, also provides programming that allows the company to integrate its database with a sponsor's back-end system. For example, if an airline wanted to let users convert NetPerks points to frequent flier miles, it would have to extract information from the NetPerks database and convert it into a format that fits its system. EDS does it for them.
Why can't Alcone Marketing write its own program? It could, says Kevin Knight, the company's webmaster and director of creative technology, if EDS built a master interface to connect the NetPerks database system in Plano, Texas, with Alcone Marketing's Novell LAN in Irvine, Calif. But the convenience offered by EDS and the experience on which EDS can draw are hard to resist.
"Our programmers are accustomed to client/server systems, LANs and Windows workstations," Knight says. "EDS has the programmers to do Unix and mainframe programming."
The service that EDS offers NetPerks, integrating legacy database systems with Web applications, happens to be one of hottest areas for outsourced work. When customer service, manufacturing resource planning, inventory, billing, distribution and finance systems are integrated so that all the data they contain is accessible via desktop browsers, the thorniest problems involve ensuring that data in each system is consistent.
"Technical difficulties often have little to do with the Web itself," says CTP's Frank. "Data integration on the back end is what is most difficult."
Sometimes, even a company that is well versed in Internet technology will outsource a Web project, particularly when the application it hankers for is truly cutting edge. That was one reason Security First Network Bank (SFNB), whose Security First Technologies division develops software for Internet banking, chose not to create a Web-based multimedia customer service project on its own. SFNB is one of several companies betting on the convenience of electronic banking.
"With e-mail, we spend about $3 in staff costs on a customer service call," says Michael McChesney, chairman of the bank and CEO of Security First Technologies.
To reduce those costs, SFNB is laying the groundwork to answer customer inquiries using Web-based communications technologies such as Internet chat, Voice on the Net (VON) and videoconferencing. "We have the Internet expertise in-house but not the expertise for a traditional telephony call center," McChesney says.
The bank's plan relies on a relatively new technological feat: switching between an automated analog telephone call distribution center and TCP/IP protocols. "Having people who understand telephony and Internet technology is rare," McChesney says. So the company called in Cambridge Technology Partners as one of eight vendors coordinating telephony efforts. SFNB's relationship with CTP likely will continue as the system evolves. McChesney says that once the bank's Web-based applications are up and running, he hopes to market them to other banks.
As with traditional outsourcing projects, not all Web engagements end when the new system is shiny and complete. Many companies simply don't have the back-office systems for authorizing credit card payments, batching orders to fulfillment houses, sending order confirmation notices to customers and the like. Outsourcing firms will do that, too. Typically, they work with small startup companies, which usually have limited IS resources, but sometimes large, well-funded Web sites go that way as well.
IVillage Inc., the company behind Parent Soup, a Web site that publishes parenting information, earns most of its revenues from a percentage of sales of merchants' products that are conducted on the site. But iVillage's 15-person IS staff would rather spend its time sprucing up the graphics and interactive features of Parent Soup and its other sites-About Work and Vices & Virtues-than wrestling with back-office transactions. So iVillage signed up LitleNet LLC, a company that had for years provided credit card processing services for the direct marketing industry, to do the grunt work. Now, LitleNet grabs all orders from iVillage's sites on the Web and America Online and sends them in batches to affiliated merchants, such as Avon Products Inc. and Starbucks Coffee Co. LitleNet and iVillage are linked by an automated Unix mail system with PGP encryption to protect sensitive information such as credit card numbers, names and addresses. Merchants then download data from LitleNet into their own order entry systems.
The joint process doesn't stop there. "We require that merchants send order confirmations to LitleNet on our behalf," says Elaine Rubin, iVillage's senior vice president of interactive commerce and a former general manager of interactive services at 1-800-FLOWERS Inc. LitleNet then sends e-mail to the customer to confirm the order.
Such convenience has its price. LitleNet charges between 5 cents and $5 per transaction, depending on their complexity and the volume of transactions going to a single merchant. The simplest transactions capture data from Point A and transfer it to Point B. The most complex and most expensive transactions involve several processes such as order fulfillment, data analysis and payment processing. Still, no one at iVillage is complaining about the costs.
"We don't have to adapt to systems that our merchants have or adapt to any specific network," says Dan Goldman, chief technology officer with iVillage. "And we don't have to keep up with changes to [merchants'] systems. If we had to do that ourselves, it would take away from our ability to support creative work."
Outsourcing is also a handy way to control the risk for companies that are unsure of the viability of the Web as a sales channel. Catalog software reseller Programmer's Paradise Inc., for example, which has been selling software from paper catalogs for 10 years, is outsourcing electronic commerce services as a cost-effective way to test the waters of the Internet.
In addition to questioning the market for software on the Web, Programmer's Paradise worried that electronic distribution would invite credit card fraud.
"We were concerned that word could get out quickly over the Internet if our site was easy to hit," says Jeff Largiader, vice president of marketing.
Those concerns prompted Programmer's Paradise to outsource the transactional piece of the sales puzzle to CyberSource Corp., an electronic commerce outsourcer and online software reseller in its own right.
CyberSource, it turned out, was more familiar with the fraud problem than it would have preferred, having suffered a nightmarish experience with fraud on its own site, software.net, where the company markets software on behalf of some of its customers.
"It got so bad that our fraud rate was higher than legitimate sales," says Bill McKiernan, CyberSource's president and CEO.
To save its own skin, CyberSource developed a fraud screen system that analyzes 100 characteristics of user behavior to identify unusual activity. For example, "if your IP address is in Seattle and you're dialing in from Boston, that's unusual," McKiernan says. The system reduced CyberSource's fraud rate to less than one-half of 1 percent.
CyberSource's customers, which include Symantec Corp., Novell Inc., Adobe Systems Inc., Claris Corp. and IBM Corp., aren't likely to build something like that on their own, McKiernan says. Companies don't have a strategic incentive to spend millions on electronic commerce support systems.
It's far more cost-effective to hire a company like CyberSource, whose business arrangements generally follow one of two models. For companies that host their own transactional Web sites, CyberSource charges a $6,000 set-up fee plus an average charge of 75 cents per transaction. When CyberSource hosts transaction sites for customers, it charges $3,000 for setup and then about $1.25 per transaction.
The pricing models of CyberSource and other outsourcers are evolving, and they are growing like kudzu as the menu of services and products offered expands. Outsourcing intranet and Internet functions, as CTP's Frank points out, is a market that is just getting off the ground. And it's not coming down for a long, long time.
Staff Writer Peter Fabris can be reached at email@example.com
Help is On the Way
Like nature, the consulting and outsourcing industry abhors a vacuum. Major technology consulting and outsourcing companies have rushed in to fill the enormous demand for Internet and intranet services. Here's a sampling of what some are offering.
Advanced Paradigms Inc.
Specializes in Microsoft Exchange and related Internet systems
Integrates legacy systems with intranets
Evaluates new Net technologies and offers training in Microsoft software
Advises clients on business strategy, assesses organizational and technology readiness, and designs process change programs
Designs and implements Internet, intranet and extranet systems, and manages them on an ongoing basis
Cambridge Technology Partners Inc.
Builds and maintains intranet-based solutions
Integrates the Web with client/server and legacy systems
Integrates customer service call-center systems with Web technology
Coopers & Lybrand International
Offers best practices reviews of current and planned Internet services; Web application and intranet design and implementation
Provides Internet analysis, design and testing with a focus on designing gateways to internal company databases
Advises clients on managing Internet performance
Electronic Data Systems Corp. -- EDS Internet & New Media unit
Offers Web site hosting and design (both technical and creative) services
Helps analyze and plan business needs
Designs, implements and manages intranets