Can knowledge management be outsourced?
A small but growing numbers of executives seem to think so. Realizing that they need to capture and share knowledge within their organizations but lacking the time, expertise and money to develop their own systems, executives are turning to an application service provider (ASP) that specializes in knowledge management. And many are finding that outsourcing KM is the fastest, most direct and usually least expensive way to enjoy benefits such as increased community, online information exchange and online collaboration.
Transora, a Chicago-based business-to-business (B2B) exchange for the consumer packaged goods (CPG) industry, is only a few months old. Needing to build online communities, this start-up chose to outsource the project to Communispace Inc., a KM ASP in Cambridge, Mass. "We don't build experts in communities here," says Laurie David, Transora's chief human resources officer. "I'd much rather have them worry about it than me."
"If you want to access knowledge, people, best practices and ideas from people who may not work in your work site," says David, "an ASP is an excellent way to facilitate that."
Faster and Cheaper
ASPs of all kinds are attracting attention because they can simplify the introduction of a new application, which is accessible through a Web browser, for a fraction of the cost of owning, operating and maintaining it internally. Yet 87 percent of 131 respondents to an ASP usage survey conducted by Zona Research Inc., a market research company in Redwood City, Calif., said that their primary reason for choosing an ASP was that it helped them to focus on strategic business objectives.
Cost finished a close second. According to Zona, 85.5 percent of survey participants cited total cost of application ownership as a motivator, while 84.7 percent say that ASP outsourcing enables their organizations to implement new applications more quickly. The study also notes that additional incentives for choosing ASPs include freeing IT resources for other tasks, reducing or eliminating administration chores and enabling remote access to applications.
The number of ASPs overall has grown rapidly, from 200 providers in mid-1999 to more than 1,200 at the end of year 2000, according to David Boulanger, enterprise management systems service director with AMR Research in Cambridge, Mass. AMR predicts that the ASP market will reach $4.7 billion in value by 2004. The most common applications that ASPs offer include hosting of Web sites and e-commerce, and enterprise resource planning (ERP), customer relationship management (CRM) and supply chain management (SCM) applications. KM applications are relatively new in the ASP arena and are still in the early stages of adoption. Analysts have yet to break out KM applications as a separate part of the market.
The slow takeoff of knowledge management as an ASP competence probably stems from the fact that KM itself is still a developing discipline, as are its technology enablers. Moreover, KM requires not just application expertise but also an understanding of company cultural practices and an in-depth knowledge of the vertical market the customer competes in.
There is no easy way to categorize Web-hosted KM services, since most ASPs in that market provide a variety of capabilities. Most prevalent among KM-related suppliers are online communities and collaboration, which tend to involve management of projects, documents and knowledge bases. (For a sampling of vendors, see the sidebar, "KM ASPs.")
A Perfect Match?
Industry analysts are divided as to whether the ASP model is as good fit for KM as it is for ERP and CRM applications. "KM implies humongous databases massaged in ways to glean what might not be obvious information for an organization," says Greg Blatnik, a Zona vice president. "That's a really tall order for the current state of ASP services."
If Blatnick's idea of KM sounds a lot like data warehousing, that's because they share some common characteristics, such as many users accessing large databases. Data warehouses are oriented toward structured data, but KM databases often contain much unstructured data, such as e-mail messages, presentations, working drafts and scanned documents.
In Blatnick's view, this makes KM less suitable as an ASP service. Having to access those large databases residing at the ASP's Web site, users might find performance over the Internet to be slow and unreliable. Also, the general concern of some companies about having valuable proprietary information reside outside the corporate firewall could make them reluctant to use ASPs as a knowledge resource.
In contrast, AMR's Boulanger argues that KM makes a good match for ASPs, largely because it is a new and often confusing area for which many businesses lack internal expertise. "Most businesses are not set up to deal with knowledge management. They're still thrashing about trying to implement e-commerce, supply chain and enterprise resource planning applications. The internal expertise is usually not there," he says. "In the KM area, we see a number of delivery and service models starting to gel. KM is by definition collaborative and highly interactive and therefore would be an ideal application for an ASP to operate."
Yet even Boulanger says that users should proceed with caution due to the uncertain dynamics of the ASP market. "Seventy percent of ASPs today will be out of business next year," he says. "It's a capital-intensive business, and most players don't have the capital to be around two to three years from now."
Boulanger cites an unnamed ASP he met with recently that spends $80 million annually on marketing, $3 million per year on building data centers, employs 600 consultants and has a hosted revenue stream of $20 million per month. "It doesn't take much [insight] to see that you go through most of your venture capital funding in the first 18 months," he says.
Protect Your Investment
Because the ASP business model is so new, most observers urge would-be customers to dig as deeply as possible into a potential provider's financial stability and future prospects. "You need to do a significant amount of due diligence today," says Larry Buchsbaum, e-sourcing strategies director with the Yankee Group, a market research company in Boston.
Kip Bowes, consulting services director with Allaire Corp., a Web site software developer in Newton, Mass., placed the source code of his ASP, QuickArrow Inc., in escrow. "If they go out of business, I have all the information we'd need to further run and enhance the system ourselves," says Bowes, who notes that "it's standard practice" to escrow source code.
As in any escrow process, a third party acts as an impartial intermediary. In this case, the third party would store a copy of the source code in case the vendor, by going out of business, was unable to deliver that code to its customer.
Barton Malow, a construction management firm in Southfield, Mich., outsources its KM functions to Bidcom Inc., which has merged with former competitor Cephren Inc. to form Citadon Inc. Barton Malow, which is 76 years old, was aware that ASPs comprise a volatile, emerging marketplace. "I went into it with my eyes open," says Barton Malow CIO Phil Go, who
has put the source code to his hosted application in escrow to ensure immediate access to its application data. "If I bought software and the [vendor] company went out of business, so what? I'd live with the software until it died," says Go. "With this [ASP model], they shut their doors and I'm dead."
Yet despite the risks, Go went ahead, because he knew that the alternative would cost Barton Malow five full-time staffers, $3 million and up to two years just to build the computing infrastructure for these collaboration functions. Adding content would cost additional time and money.
Domain Expertise Needed
Ideally, the right ASP for a company's KM applications will have expertise in both the application and the customer's vertical market, or domain. Knowledge-oriented ASPs that target their solutions at particular vertical industries offer "a fairly specific, industry-focused set of tools to market," according to AMR's Boulanger. With that vertical concentration comes domain expertise, adds Yankee Group's Buchsbaum.
From the ASP perspective, those hosting KM applications must concentrate on specific vertical niches just to survive, says Boulanger. "Even collaboration and communities might not be specific enough," he states. "Maybe they have to offer collaborative chat rooms for engineers or construction and engineering companies."
Many KM-related ASPs do just that. Citadon, for example, enables engineering and construction companies to collaborate and communicate, conduct and manage business processes and capture and use knowledge across the extended enterprise of partners and suppliers, says Tom Glenwright, the company's product strategy director in San Francisco.
Skila Inc., based in Mahwah, N.J., is an ASP that targets pharmaceutical, medical device and biotechnology companies with its business intelligence applications. "More than 50 percent of the employees in this company are from the pharmaceutical industry," says John Neeson, Skila's CEO. "To build an ASP based on knowledge, you have to have domain expertise inside the company."
A number of ASPs, including Metier Ltd., Portera Systems and QuickArrow, target professional services organizations (PSOs) by offering management of projects and knowledge bases and collaborative applications. Integrated KM capabilities in QuickArrow's Enterprise Consulting Suite enable companies to disseminate data and best practices.
Joy Spicer, president of Elegrity Inc., a technology consultancy in San Francisco, uses Metier's WorkLenz platform to gather knowledge about her company's consulting jobs and disseminate it among her eight employees. "If a customer asks me to provide them with a virtual private network (VPN), I might have 10 VPN projects I have knowledge about, [such as] how much time it took to implement and what kind of tasks were needed to implement it," says Spicer. "I use WorkLenz to produce an [accurate] plan based on corporate knowledge rather than guessing. I'm not recreating the wheel."
WorkLenz is more than a project manager, Spicer says. "It's a warehouse of historical data of how we work," she adds. "It's not just what we've done but how we've done it."
Metier also provides ongoing support, answering questions directly from Elegrity's engineers. Metier personnel can also customize reports and build them on the fly to the customer's specifications. And Spicer likes offloading technical issues to the ASP. "I don't have to worry about how big our database or attachments get," she says.
People Get Ready
As well as collaborative and project management areas, a crucial competence for a KM ASP is building online communities. Potential customers should make sure that the ASP can help them to get started and, once the communities are up and running, keep them active and relevant.
The primary challenge to any online community is that almost everyone in the organization must use it or it will lose value. "If people don't operate within a community, then you won't capture their knowledge and discussion in one site," says Transora's David. "People all have to be committed to [the concept] that this is where we're going to work."
In the end, it's the people who matter. "The killer content of communities is the people in it," David says. "Software without human intervention is software that's not used. You can't just stick this out there. You have to work at it and draw people in [by engaging them with] fun stuff and relevant business issues."
To some extent, this lesson applies to all knowledge management efforts, and users organizations should remember that its people must participate. Outsourcing KM functions to an ASP is not for every company. There are risks, but if you need a KM site in a hurry or need to augment existing KM initiatives already in place, renting what you need from an ASP can be the quickest way to get there.