What happened to the ASP revolution?

ASPs were supposed to transform the HR technology market. They haven’t
By David Brown
|Canadian HR Reporter|Last Updated: 12/04/2002

Not so long ago one of the hottest topics among business technology experts, and therefore many HR technology experts, was application service providers.

These ASPs were supposed to make it much easier for organizations to take advantage of the technological advances transforming the business world.

Highly sophisticated business software applications promised better, more efficient operations and processes.

In human resources, HR information systems (HRIS) streamlined administration and freed departments from countless paper processes. The problem was that the software applications were often extremely costly, time-consuming to implement and required a great deal of IT human capital.

But with the evolution of broadband Internet connections, came the realization that these considerable problems need not be problems at all. Application service providers would buy the software from the vendor, manage it from one remote location and “rent” access to the software over the Internet (for more, click on the links below). The simplicity of the concept enamoured many. The future for application service providers seemed bright. That isn’t the case anymore.

“We were very interested in this ASP buzz,” says Eric Smith, vice-president of HR Technologies, a Toronto-based HR solutions provider. “We started positioning ourselves so we could do it; started talking about it but no one was willing to go for it. Not one,” he says.

In late 1999, Montreal-based HR management systems provider D.L.G.L. jumped into the ASP market and announced it would waive the fee for its software, and instead charge for access over the Internet. It has since stopped giving away the software.

“We thought the ASP model would be more in demand, that is why we decided to make our software free but the experience showed us that the demand was not there,” says Richard Rousseau. They do have a few clients using D.L.G.L. as an ASP and those arrangements have been very successful, he says. But on the whole the market was not ready for it.

True believers in the ASP model still take it as an article of faith that ASPs are the way to go.

“It’s now well established that ASPs deliver applications better, faster and cheaper,” wrote Art Williams in a recent article for aspnews.com. But the fact is many organizations resisted.

“One of the most common anecdotes heard in the ASP market goes something like this,” wrote Williams. “A customer nods in agreement with the compelling enumeration of ASP benefits, but still doesn’t sign the contract.”

So what happened? In talking to business and HR technology experts, several different explanations are offered.

Smith says people got overly excited about the ASP model — which was a good one in theory — but didn’t realize that a culture change was just as important as the technology itself.

For example, business leaders balked at the idea of handing their data over to another organization to manage. The fear is misplaced because ASPs offer as much security as any other system, he says. There is essentially no information that is completely safe anymore, but that doesn’t stop organizations from doing banking over the Internet, he says.

Nevertheless organizations just aren’t comfortable putting HR information on a remote server. “That in essence is why it has failed to date,” says Smith.

Similarly, often when D.L.G.L. went out to meet with potential clients who were looking at going ASP, the first thing they would ask would be if they could keep the server in-house, says Rousseau.

ASPs have not taken off the way some people predicted because early adopters of ASP solutions were unhappy with the results, says Brian Beatty, principal with Birmingham, Mich.-based benefit administration outsourcing company Great Lakes Strategies.

ASP customers miscalculated both what it would do for the organization and what it required to take full advantage of the system — word spread and the shine quickly fell off of the ASP star, he says. There were three reasons for this.

The first was that many organizations underestimated the amount of internal reengineering required to get the most from an ASP.

An HR department may look at using an ASP to access a new HR software package which should, in theory, improve the efficiency of the department with little capital expenditure up front.

“They would expect a certain amount of savings that should arise internally from going to an upgraded technical capability. There should be a more efficient HR department. It doesn’t happen because the real work hasn’t yet been done,” he says.

“Whenever you introduce a completely different way of doing work, a higher technological capability (for example), you have to rethink your processes to take advantage.”

Closely linked to this is the degree of change management required as roles and responsibilities shift.

Both of these represent additional costs to an organization. Not necessarily obvious capital costs, but time and resources nonetheless, and these costs were often overlooked in many of the business cases, he says.

The third failing was the lack of support offered by the ASP. The client company needed support that combined both technical expertise about the software with HR understanding, and the ASPs were unable to deliver, says Beatty.

“To get the best out of the tool you need somebody that knows HR and knows the application tool and that doesn’t always come with an ASP. That is the bottom line,” he says.

Lack of support and disappointing service is a particular problem in HR where changes to the software are so frequent, be it personal information or legislation and regulatory, Beatty adds.

Concern about a lack of support has slowed the adoption of ASPs in Canada, says Lise Dellazizzo who manages the Canadian ASP research program for IDC Canada, an IT market research firm.

It’s a common observation among HR technology experts that Canadian organizations typically lag behind the United States in embracing new technologies. This is particularly true in the case of ASPs.

“What we have learned is that in Canada it is a very different type of marketplace,” says Dellazizzo. However, she says she believes ASPs will yet become a popular option for Canadian organizations, but the definitions will have shifted. The lines between application outsourcing (highly customized service to one client) and ASPs (a less customized multi-client model) have blurred.

Canadian organizations are not necessarily averse to having an outside party manage their business applications but they want full service, she says. When the concept first emerged in the United States so-called “pure-play” ASPs did not offer that value-added, highly individualized customer support since they were working on a one-to-many model: one software package rented to many clients.

In Canada larger application hosters like CGI, IBM global services and EDS, that already provide application outsourcing and can offer process expertise and business services will likely see their ASP offerings catch on because they can offer additional, more customized expertise that the pure-play ASPs traditionally have not. The challenge for providers will be to find the balance and the cost structure between mass distribution and customized service. Another consideration will be making ASPs attractive to smaller companies.

Despite the early disappointments, both Smith and Rousseau believe ASPs’ day will come. “It will be successful. It may be 10 years down the road, but the idea has a lot of merit,” says Smith.

In the mean time, HR Technologies adopted one of the attractive options of an ASP model for its traditional methods.

Organizations like the idea of little or no capital expenditure up front, instead paying month to month out of operational expenses. So HR Technologies now allows organizations to implement in the traditional HRMS way with the system in-house, but pay monthly as they would for an ASP.

Beatty also expects hybrid options to evolve. HR people will have more choices at their disposal, he says. But if ASPs are going to offer value-added services they are going to have to charge more, and perspective clients may find the service they want costs more than they are willing to pay.

Jeff Koven, vice-president of Toronto-based Cyborg Systems Canada, says they have enjoyed some success offering HR software through the ASP model, however he expects it to become more popular and that is good news for the company. Any time a vendor can replace a single hit of revenue with regular payments over the long term they are going to be better off.

“I think overall, over the long term, this is a very promising revenue source for us,” he says.

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