Outsourcing Services
ExecutiveEdge Series
point of view
Outsourcing ERP, A New Competitive Lever
It’s Not Whether to Outsource ERP—It’s When
The competitive playing field is changing as leading companies are
outsourcing ERP to cut costs, improve organizational efficiency
and realize intended benefits
Whether you call it Adaptive ERP or ERP II
or ERM (Enterprise Resource Management),
the facts remain the same. Today's enter-
prise application software packages are ever
more pervasive, promising broader benefits
with superior connectivity and perfor-
mance. But along with the promises come a
host of proliferating challenges.
The latest generation of application soft-
ware expands beyond classic “back-office”
functions. Adaptive ERP now features
sophisticated CRM (Customer Relationship
Management) systems, fully integrated
supply chain management, product life-
cycle management and other extended
collaborative applications.
Robust ERP solutions, such as SAP and
PeopleSoft, enable companies to expand
Issue 2
their business processes into opportunistic,
real-time collaborations with business part-
ners. In today’s volatile environment, chief
executives say that, ultimately, applications
solutions help to build shareholder value.
Nevertheless, the full promise of ERP
remains elusive. “Most companies have not
been able to capture and impact the Total
Cost of Ownership (TCO) of their pack-
aged applications,” says Ben Franklin, Vice
President, Cap Gemini Ernst & Young.
That’s because the demands of supporting
ERP solutions have turned increasingly
complex, consuming time, money and
valuable resources. It is not economical for
most companies to maintain the level of
specialization required to maintain and
optimize their ERP systems. “As applica-
tions become more complex and interrelated,
“Over the past few years, many
companies invested in Tier 1
enterprise resource planning
and customer relationship
management systems such as
SAP and Siebel without fully
understanding the costs
associated with supporting
them internally. During these
times of belt-tightening, they are
turning to service providers to
off-load the burden of in-house
application management.”
IDC, Worldwide and US Application
Management Services Forecast and Analysis,
2003-2007
March 2003.
Total Cost of Ownership
In-House Costs
COST
Outsourcing Costs
Y0 Y1
it has become increasingly difficult to syn-
chronize the technology with organizational
needs,” explains Franklin.
Adding to the challenges, companies must
keep pace with new technology or poten-
tially lose intended benefits. This year,
2003, marks a critical turning point for
ERP. The majority of installed ERP applica-
tions went live in the late 1990s, typically
to prepare for Y2K. Since then, most soft-
ware vendors have released sophisticated
upgrades of their core products.
“Unfortunately, many customers have not
kept up-to-date,” reports Gartner analyst
Brian Zrimsek.1 Gartner’s review of the larg-
er-vendor installed database reveals that a
staggering half to three-quarters (50% to
75%) of ERP customers are operating with
older versions of their vendor’s product.
The conclusion: “To remain on a supported
version after 2005, or to hope to achieve
ERP II, those enterprises must act in 2003.
Gartner estimates approximately 52% of
the R/3 installed base are using releases
prior to 4.6, so many users must decide
between continuing with their migration to
4.6C or migrating directly to R/3 Enterprise.”
Upgrades, too, can be costly. The process
can take well over a year to complete.
In-House Costs Outsourcing Costs
• Large upfront investment for • Transition costs contained through
Transition (duplication of people, the mutualization/redeployment of
processes, tools) resources
• Ongoing support includes cost • Ongoing support leverages
peaks for patches, upgrades, processes, tools, experience from
enhancements, turnover, training, etc. and across multiple clients,
stabilizing costs over time
Y2 Y3 Y4 Y5
Source: CGE&Y
1 “Management Update: 2003 ERP Predictions Point to the Year of the Version Upgrade,” 8 January 2003, Edward Younker,
Brian Zrimsek, Lee Geishecker, Yvonne Genovesee.
2 “The AMR Research Report: ERP Upgrades Are Big Business,” March 2002.
AMR Research interviewed more than 150
end-user companies to learn more about
their upgrade experiences. The average
company surveyed spent $1.5 million on
its ERP upgrade. Compare this to the $1.4
million it expected to spend on the pro-
ject. Relative to the initial costs of ERP sys-
tems, the upgrade was an average 18% of
the initial ERP implementation. Of users
AMR Research surveyed, only 13% listed
lowered costs as a primary benefit.2
Few organizations planned on such hands-
on monitoring after ERP deployment.
Business leaders today must reduce operat-
ing costs, achieve measurable productivity
gains and improve competitive positions.
Yet they find themselves with increasingly
complex, integrated applications portfolios
and tighter constraints on IT expenditures.
Why Leading Companies Are Outsourcing
To remain competitive and advance ERP to
the next level, more and more leading
companies are turning to outsourcing. The
key to jumping ERP hurdles is a strategy
that minimizes the Total Cost of
Ownership (TCO) of the systems’ life
cycles, not to seek one-time savings in the
cost of implementation. “Outsourcing may
reduce the total cost of ERP ownership by
as much as 10% to 30%,” says Ben
Franklin. “These savings, combined with
improved business performance, greatly
enhance a company’s ability to compete
and adapt to market conditions.”
Cap Gemini Ernst & Young has responded
to the complicated and costly ERP envi-
ronment by offering clients a scalable ser-
vice that takes responsibility for the exist-
ing ERP application environment. Through
the CGE&Y ERPRun, companies achieve:
• Reduced Total Cost of Ownership (TCO)
Y6 • Predictable and transparent cost model
• Improved enterprise value of application

Benefits of CGE&Y’s ERPRun Offering
CGE&Y makes it easy by offering ERP
Application Management, ERP Operations
and Infrastructure Management in one
ERPRun contract.
CGE&Y’s unique global distributed deliv-
ery network, inclusive of 24 Applications
Management Service Centers (AMSCs),
provides support to clients from the most
appropriate location using highly scalable
and adaptable infrastructure. Benefits flow
to clients as reduced Total Cost of
Ownership (TCO).
Additional Benefits of ERPRun Include:
• Direct access to technology competence.
A leading IT services and consultancy
company, employing more than 50,000
people worldwide, CGE&Y provides
extensive and proven experience in ERP,
Packaged Based Solutions, Systems
Integration, Outsourcing and
Applications Management.
Global Leader in SAP Build/Run
CGE&Y is a global leader in SAP, includ-
ing more than 1,000 SAP implementa-
tions and over 20 SAP projects where
CGE&Y implemented SAP and provided
ongoing support.
• 15 years of SAP experience and ranked
among the top three worldwide SAP
Integrators
• Designated by SAP as a Tier 1 Global
Implementation Partner
• More than 80% of CGE&Y SAP profes-
sionals have at least five years experi-
ence; more than 75% have cross-func-
tional and multiple module experience
point of view Outsourcing Services
• Highly scalable applications. ERPRun is “Our pricing is on a price-per-
focused on real customer needs.
seat basis and the cost is
• Pay-per-seat pricing. ERP invoicing is aligned to the size of your
transparent and predictable cost-per-user
organization. We include the
per month.
cost of upgrades, so keeping
• Aligned business strategies. With regular
Innovation Impact Analysis Workshops, current with technology is
CGE&Y aligns client business needs and included in base pricing.”
new functionality of ERP releases in a
Ben Franklin
blueprint for major upgrades.
Vice President, Cap Gemini Ernst & Young
What Makes CGE&Y Different
CGE&Y Wrote the Book on ERP from
Technology and Consulting to
CGE&Y’s Network of Global Delivery Centers
Outsourcing.
SPAIN ITALY
CGE&Y is a global leader in implementing FRANCE NORWAY
CANADA FINLAND
and running ERP applications, including
UNITED STATES UNITED KINGDOM
SAP, PeopleSoft, Oracle and JD Edwards.
INDIA SWEDEN
Worldwide, over 7,000 ERP-dedicated AUSTRALIA GERMANY
professionals share best practices. NEW ZEALAND DENMARK
In addition, with CGE&Y, you get thirty SINGAPORE NETHERLANDS
CHINA BELGIUM
years of applications management experi-
POLAND TAIWAN
ence based on more than 1,300 clients. JAPAN
Global Leader in PeopleSoft Build/Run
CGE&Y is a PeopleSoft Global Solutions
Provider. CGE&Y has completed 300 Application Center Network
PeopleSoft implementations and provides 24 Accelerated Solutions Environments (ASE)
the ongoing management of PeopleSoft 27 Accelerated Delivery Centers (ADC)
for numerous clients around the globe. 24 Applications Management Service Centers (AMSC)
25 Infrastructure Managament Service Centers (IMSC)
• PeopleSoft Global Alliance Partner since 05 Business Process Outsourcing Centers (BPO)
1991 and ranked among the top three
worldwide PeopleSoft Integrators
and growing...
• Designated as a preferred integration
partner for the healthcare market
• Completed six PeopleSoft 8.0 imple-
mentations, with 24 currently in process
• Awarded the PeopleSoft Partner of the
Year for Asia Pacific in 1999
 www.us.cgey.com/outsourcing
“Building and maintaining ERP
applications is part of our core
business. When our clients
outsource their ERP applications
to us, they release the burden,
tap into a wealth of ERP
expertise and can focus on what
they do best for their customers.”
Mike Thomas
Vice President, Cap Gemini Ernst & Young
ExecutiveEdge
To date, the economic conditions of the 21st century
CAP GEMINI ERNST & YOUNG US +1 917 934 8000 04/03 3K
have forced corporations to continuously reevaluate
their core strategic direction or else fall victim to the
complexities of today’s global markets.
Rising to the challenge, Cap Gemini Ernst & Young
ExecutiveEdge advises corporate leaders on securing
a competitive advantage in their markets through
leverage of outsourcing as a requisite component for
their overall business strategy.
Tame unpredictability and its impact to your business
through transformation of your IT and business func-
tions into a dynamic and nimble environment, deliver-
ing sustained value through unstable times.
Publisher: Outsourcing Services
Managing Editor: Maureen Barry
For more information regarding Outsourcing Services,
please call 972-556-7240.
The Cap Gemini Ernst & Young Transition Factory is a set of processes and tools that
make transitioning ERP to CGE&Y seamless while maintaining quality service levels.
• MOBILIZE TEAM
• AUDIT SYSTEM • KNOWLEDGE BASE • USER SUPPORT
ERP • TRANSITION PLAN • ESTABLISH RUN TEAM • FOLLOW PROCEDURES
OUTSOURCING • SERVICE QUALITY PLAN • STAFF TRAINING • MONITOR & REPORT
• SERVICE LEVEL • STABILIZE WORKLOAD • IMPROVE & ENHANCE
AGREEMENT
1 START UP 2 TAKE ON 3 RUN
CGE&Y Makes It Easy applications is CGE&Y’s business,” says Ben
CGE&Y puts the word “collaboration” into Franklin. Key methodologies and tools
action through flexible agreements and enable speed, insight and quality in CGE&Y
adaptable (“living”) Service Level services. To name a few:
Agreements (SLAs). CGE&Y backs its claim
• Adaptive ERP Index. A framework to
SM
through OTACE (On-Time Above Client
help you identify where additional busi-
Expectations), a client satisfaction measure-
ness value can be unlocked.
ment process. “CGE&Y has the experience
and scale to design and support a relation- • Transition Factory. A set of tested
ship that offers meaningful benefits and processes and tools that allow for seam-
visible cost savings for our clients,” says less transitioning of your ERP to CGE&Y.
Mike Thomas, Vice President, CGE&Y.
• Applications Healthcheck™. A rapid
Tested Processes and Tools assessment of existing support for your
CGE&Y successfully manages hundreds of applications.
applications, including SAP, PeopleSoft, For further information, contact Ben Franklin.
Phone: 972-556-7240 Email: ben.franklin@cgey.com
Siebel, Oracle and JD Edwards. “Managing www.us.cgey.com/outsourcing
© 2003 Cap Gemini Ernst & Young LLC
The Cap Gemini Ernst & Young Group is one of the world’s largest providers of Consulting, Technology and Outsourcing services. The company helps businesses
implement growth strategies and leverage technology. The organization employs approximately 52,700 people worldwide and reported 2002 global revenues of
7.04 billion euros.