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13–10 Switch to an Application Service Provider
action volume in a single location will reduce the cost per transaction processed.
This theory has proven to be true, resulting in the centralization of such functions
as accounts receivable, accounts payable, payroll, and cash application. It is even
listed earlier in this chapter as a recommended best practice.
As a result of this intense focus on efficiency, many organizations have
achieved remarkably low costs per transaction. However, one must ask if the
focus of company management should be centered on activities that are generic
transactions or on value-added activities—in short, has the drive toward excellent
operations been in the wrong area of the company? If the answer to this question
is “yes,” then perhaps the next step is to sell the shared services center.
By selling the center to a supplier that specializes in outsourced services, a
company can realize a cash gain from the sale for a one-time jump in profits and
cash flow, while also writing into the sale agreement a clause that requires the
buyer to continue to use the center to provide services to the company for a des-
ignated period of time and at prespecified rates. This approach eliminates the
management time invested in the process, continues to result in low transaction
costs, and yields a cash payment. Why would a supplier agree to such a deal?
Because it gains a large block of business from the seller for a period of years,
while also gaining the expertise of the employees running the center. The supplier
can then sell the services of this group to other customers, thereby expanding the
scope of the shared services business. Consequently, this best practice is one that
enhances the position of all involved parties.
Cost: Installation time:

13–10 SWITCH TO AN APPLICATION SERVICE PROVIDER

The typical accountant has a great deal of training and experience in how to
process accounting transactions, but much less in how to select, install, and main-
tain an accounting software package. Despite this shortcoming, often an accoun-
tant will be called on at some time to either fix or maintain an existing accounting
software package or select and install a new one. The most common issue of all is
the continuing addition of software upgrades, and dealing with the technical
issues caused by them. Not far behind is dealing with the problems that arise
when a software system crashes. Given the lack of expertise in this area, it is no
surprise that many accountants do not show a high degree of competence when
this happens, which can have a significant impact on their careers.
Luckily, it is now possible to leave the software problem to someone else
through the use of an application service provider (ASP). This is a company that
maintains accounting (or other) software on its own computer system, and is
responsible for its upkeep and reliability. Users of the ASP’s services simply log
in to process their transactions, and depart when they are done—leaving all sys-
tem maintenance worries to the ASP’s staff.