Companies that are planning to adopt the application service provider (ASP) model for software usage should ensure they draw up contracts with their ASPs that protect their intellectual property, including proprietary applications, software customisations and business data.
Richard Firth, chairman and CEO of MIP Holdings, argues that while the risks of network and information security have become over-played, companies are neglecting one of the key risks of entrusting their vital applications to the stewardship of an ASP.
"ASPs should ideally have the economies of scale to invest in enterprise-class security products and procedures, a luxury that most small to medium-sized companies lack. That means for many companies an ASP`s solution may actually be more secure than their in-house systems," notes Firth.
A bigger concern lies in the ownership of the critical data and applications that drive the business.
"Most companies are dependent on their IT systems to execute their vital business processes. If you don`t have access to the source code of your core applications, you don`t own the intellectual property that drives your business," says Firth.
In addition, says Firth, the ownership of the end-user`s data is a potentially thorny issue. The customer needs to thrash out an agreement with the ASP about which data is confidential, which data may be shared among the ASP`s community, and how and under which conditions the data will be returned to the customer if the relationship with the ASP is terminated.
Applications linked to generic industry-wide processes are the safest bets for outsourcing to an ASP. These processes are often transactional in nature, and carry little strategic value or proprietary intellectual capital.
For example, all medical aid administrators need to collect and bank money from their members with the maximum efficiency. The best benchmark for measuring the efficiency of this process is the monthly transaction cost per member.
"IT is becoming prohibitively expensive for smaller companies, thanks to the growing complexity of technology. That makes it attractive to drive down transaction costs for non-strategic processes through the economies of scale a shared infrastructure offers. Even if competitors are sharing this infrastructure, all benefit from reduced transaction costs," Firth says.
This has the knock-on effect of forcing companies to compete on the level of service they can offer their customers, their ability to use information for strategic advantage, and the development of innovative product lines.
Companies should be wary of getting drawn into the trap of throwing out proprietary processes and software that differentiate them from their competitors in favour of best practices promised by an ASP.
"What is an entrepreneur? It`s a person who goes against so-called best practice to create new ways doing business, and new intellectual property. Those ways of conducting business are the competitive-edge for the entrepreneurial company," says Firth. Systems such as customer relationship management systems or business intelligence may fall into this category.
"Customers can resolve all the data ownership and intellectual property issues by drawing up the right contracts and service level agreements with their ASPs. It is important, however, to know that these issues exist and to understand the software licensing agreements, including rights to the source code, before signing on the dotted line," says Firth.
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