Clarence Bastarache thought it would take him four weeks to choose an application service provider to run the SAP financial software he needed. It ended up taking eight.

"I asked for a list of resumes for the people who might work on the project, interviewed them and even turned down one or two," says the chief information officer at DaimlerChrysler Capital Services, the commercial lending unit of the trans-Atlantic automaker. "I tried not to treat it any differently from what we would do internally."

Six months after going live on an application package that is hosted and managed by application service provider (ASP) Qwest Cyber.Solutions, Bastarache is happy enough to have extended the deal to five years from the original three and bumped his user count from 50 people to 100 people. "We're pleased with what this model has brought to us," he says.

But what his organisation brought to the model was just as important. Careful preparation and an understanding of the ASP as an extension of his department, not a replacement for it, have been critical to the project's success.

The company, which manages an US$8.5 billion portfolio and has about 500 employees around the world, needed new financial software in the wake of the merger of Daimler and Chrysler. With limited in-house knowledge of hosted applications, Bastarache made a point of bringing in an experienced hand, Vic Inglese, to serve as his global project manager.

"If you go into a deal like this with your eyes closed, you could be in trouble," says Inglese, a hosting business veteran. "When we had some trepidation, we would do some more research."

QCS Chief Executive John Charters says preparation at the customer end is a key to success. "We act as an extension of corporate IT (information technology) on a strategic and tactical level, but it's difficult for us to be successful if your house is in a shambles," he says. "People will blame us if stuff goes wrong, anyway."

While Inglese and Bastarache were impressed by QCS' data centers, they didn't pay too much attention to the numbers promised by the service level agreement, which guarantees uptime and other metrics of performance. "An SLA is only as good as people doing it," Inglese says. More important was a carefully wrought contract that lets DaimlerChrysler Credit escape if it isn't getting the price and performance it needs.

Again, research was involved. "We talked to a couple of QCS clients and found out stuff that was helpful in our negotiations," he says. "It's a new industry, so you want everything spelled out in the contract."

Says Charters of the contract negotiations, "We'll have some flexibility for that kind of account." He says he also welcomes the vetting of his people by potential customers. "That's part of our heritage as a service business," he says. "We may put 175 resumes in front of a client who will need just 18 or 20 people."

Benefits of the outsourcing deal have included quicker implementation and a lower cost of operation than he could manage in-house, Bastarache says, but neither factor is as important to him as off-loading a project that would have drained resources from his group's central mission.

"The main benefit is the ability to focus," he says. Instead of worrying about turnover among workers with scarce SAP expertise, his group can do what it does best. "Our value add is more about point-of-sale solutions than back-end solutions," Bastarache says of the Daimler Chrysler unit. "Having a service provider to deal with the nuts and bolts of a large financial system has freed us to do projects like adding a document-imaging application."

DaimlerChrysler Capital is evaluating ASPs in hopes of outsourcing human resources applications from PeopleSoft. This time, Bastarache has a roadmap. "A consultant could put together a methodology based on what we learned," he says. "We haven't formalised our selection process, but the guidelines are all there in our old email, and we're using them now."

Software services rules of the road Five lessons from DaimlerChrysler Capital's successful outsourcing of financial applications to an application service provider — Get your own house in order: Adding an ASP to an inefficient operation won't make it any more efficient. — Do your homework: Find out as much about the ASP as you can, including the people with whom you will work. — Take ownership of project: Treat the outsourced software as an extension of your capabilities, not a replacement. — Understand your service goals: Performance is measured in user satisfaction, not the number of decimals in a service level agreement. — Protect yourself: Negotiate a contract that gives you room to maneuver if serious problems arise.

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