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E-commerce is coming to all companies with its promise of riches and business-changing possibilities. For those looking to update their financial software to cope with the demands of e-commerce, can an application service provider help?

Dot-com crash or not, e-commerce is coming to all companies, big and small, with its promise of riches and business-changing possibilities. For those looking to update their financial software to cope with the demands of e-commerce, it may be a scary prospect -- and a tough decision. Can an application service provider help?

Choosing a financials software system can be a complex decision and, because it is not carried out very often -- say, every three years -- it is always an important one.

While smaller firms may opt to buy or update a relatively simple accounting package, larger firms these days usually employ a massive financials or ERP (enterprise resource planning) system, that may be capable of linking the company from its customer service reps through to its supply chain.

A recent survey by US-based Business Finance magazine found that most company decision makers spent more time deciding on financial system upgrades and add-on functions than on replacing their finance system's core software package. The survey also found that finance analytics, customer relationship management (CRM), integration and upgrades topped the list of strategic software projects. In the age of the internet any of these projects grows in complexity.

Because of the intrinsic nature of financial systems and the fact that they are kept in place often for a long time, software vendors expect change won't be rapid.

David McKee Wright, chief executive of financials software firm exo-net, says there usually has to be an event that leads to change, using the example of the introduction of GST in Australia, the launching of a company’s e-commerce system or the opening of a new division.

McKee Wright accepts the market for internet-enabled accounting and finance systems is slowly developing. “It will be a slow growth market because accounting is so inherent in all businesses, once people get comfortable with something they don’t want to change.”

The change is often in business automation, he says. “When people talk online accounting it’s not accounting where the growth is, the growth is in automating what are manual systems now.

“Production efficiency is the number one thing. If you can save people on the floor you’re saving costs.”

On top of the decision to upgrade their company’s finance software system decision-makers must weigh up whether to outsource or manage their chosen solution.

One particular area of note is the growth of application service providers (ASPs).

The hosted route

Instead of a business going and buying a software package to manage their accounts this can be done via an ASP. A monthly fee is paid to the ASP who provides the client with access to their web based accounting service. The ASP runs the software from their office with the client accessing the system via a web browser.

Targeted at small companies, dot-com start-ups or subsidiaries, the system claims a lot of advantages and a reduction in unnecessary hassles associated with the cost and time of setting up an accounting system.

Companies do not need expensive IT infrastructure and resources because the host provides the software on remote servers. All that is needed is an internet connection and a web browser.

ASPs can provide a lot of the infrastructure in the form of servers, security and database management that small businesses may not be able to afford. This includes regular upgrades and the latest most up to date applications.

The fact such systems are run over the web means clients can gain access to their organisation’s accounts any where in the world.

However, larger companies may find such systems problematic. Due to the often uni-dimensional nature of such systems large companies who have global operations and work in multiple currencies may find such systems are not flexible enough.

ASP-based systems in the US have been traditionally targeted at companies with fewer than 50 accounting software users.

What users say

Food service distribution company Rattrays went live at the end of July with the ASP-delivered exo-net service.

Managing director Chris Wheeler says the company, which employs 250 staff nationwide and has seven New Zealand offices, carried out a cost/benefit analysis and found the ASP model was 30% cheaper than buying the system outright.

“We decided to go with the ASP service because we wanted to spend money on our core business rather than technology. The main advantage of the system is that we have someone whose expertise is IT.”

Wheeler says it saves the company money, as they don’t have to hire staff with the skills and knowledge to maintain the system. “We’d rather have more sales focused front-office staff than back-office admin staff." He adds that the accounting systems within Exo-net are "definitely more user-friendly".

Another company that decided to outsource its accounting to an ASP is Auckland-based bathroom-ware manufacturer Athena. The company, which employs 80 staff nationwide, in February this year took the online approach through Microsoft Great Plains financials via Unisys.

Managing director Gary Guernier says the ASP model was the most cost-effective option for the company. “The savings for us are considerable in both cash-flow and investment.

“The main advantage for small to medium-sized companies like Athena is we are able to access large companies technology and systems. It’s made unaffordable software affordable. Here we are eight months later and we’ve got a great system.”

Guernier says the company did experience some initial integration problems with the ASP system. “But the reality is there’s going to be glitches.”

Guernier says the company thought security might be a problem with the ASP option due to the system's internet access. “We had significant security concerns but Unisys allayed those fears,” says Guernier.

Guernier says the offering is a whole business solution, but believes hybrid solutions such as those seen in America, where companies use ASPs only for certain applications, are interesting. “I think the future of ASPs is only the limit of the imagination.”

The real costs

Tim Whelan, IT services division manager for accountancy firm Brown Woolley Graham, which consults on Microsoft Great Plains, says the ASP model suits businesses who have operations in many different locations, often overseas and want all staff to be able to access the same database and information.

“As the cost/benefit rationale for a normal company can be marginal we would tend to recommend an ASP environment if the client has offices in several or many locations or the client does not wish to house the hardware on their premises.”

Whelan says it can be difficult for a normal business to maintain multiple wide area network (WAN) and virtual private network links using in-house staff.

“If the data is extremely critical or sensitive and their environment is not appropriate to house the data, for budgeting reasons they may wish to lease the entire application or hardware platform [leasing is often an option offered by ASPs].”

“Generally a common justification provided by ASPs is the lower cost of ownership. However, databases such as Microsoft SQL Server 7.0 and 2000 have very little maintenance required -- small firms can now run these databases in-house easier.”

Other customers use thin client technology. ‘What we have also seen is clients using a Microsoft Terminal Server or Citrix. Many clients have opted to use these technologies rather than use an ASP.”

Whelan says the bulk of the maintenance is in the form of the consultant who installed the accounting application writing new reports or performing accounting functions such as reconciliations. "Having your application at an ASP does not necessarily decrease this expense.”

“Integration is far easier when both systems - the accounting system and the third party system are in the same location. Integration over a LAN is far more successful and reliable than integration over a WAN. So it is preferred to have both applications either hosted or local.”

Oracle New Zealand e-business solutions manager David Rainbow says smaller companies can now access a full suite of such applications through an ASP, avoiding the cost of purchasing "best of breed solutions".

“The ASP environment can allow smaller businesses easy access to new pieces of technology and thus compete with, and in some cases lead, their bigger competitors in new markets.”

He says with the global acceptance by business of internet-based business applications many businesses are moving to reduce the complexity of their operations to reduce costs and increase efficiencies. “The main advantage of ASP and hosted systems is that it allows the client to focus on their business core competencies, without having to also invest its valuable resources in system administration.” There should also be an accompanying reduction in their operating expenses, says Rainbow.

Microsoft Great Plains Australasia managing director Richard Johnstone accepts there is a certain resistance to the take-up of ASP services.

“Mid-market enterprises have not generally gotten comfortable with the idea of placing what they see as private data in what they perceive in many ways to be a public domain,” says Johnstone.

However, Johnstone says the ASP model has a lot to offer, particularly in terms of flexibility.

“Business agility means faster responses to opportunities and needs. Better business agility simply means better growth potential. Interconnected business solutions will improve agility by enabling more timely and effective connections and communications with key constituents -- customers, employees, suppliers, business allies.”


The case against ASPs

Forbes is an Auckland journalist.