Companies looking at the business benefits of the application service provider (ASP) model often overlook the effect it will have on their IT departments. Although originally aimed at small and medium-sized enterprises with small in-house IT functions, the ASP model is now being adopted by larger organisations.
And for big companies with fully-fledged IT departments the implications of transferring applications to a third party are far greater.
At present, there is a limit to the amount of applications that ASPs can handle and that their clients are willing to outsource to a third party. But although companies will not be able to dispense with their IT departments completely, they may well want to downsize. Staff who find that their roles have been taken over by the third party will need to be retrained to co-operate on other projects, refocused to oversee the relationship with the third party or laid off.
Arnold Pijpers, vice-president at application performance infrastructure company Packeteer, does not believe that the ASP model, as it stands, represents a serious threat to the IT department.
Pijpers says that businesses are not yet in a position where they can trust mission-critical applications to service providers that cannot guarantee services or reliability
and whose futures are uncertain. However, he does believe that even at this early stage, use of ASPs could lead to downsizing.
Pijpers points out that the impact of the ASP model on your IT department will depend on the enterprise and the size of the company. "If a large company decides to use an ASP, you may see in some cases that IT staff will not be needed any more and the IT department will be downsized," he says.
However, the spectre of redundancies and lay-offs is not an issue for highly skilled IT staff as such people are difficult to find and companies do not want to lose them.
But Mike Portlock, a consultant with the Impact programme - a Government-funded action group which aims to help disadvantaged people improve their employment skills - believes that the effect on IT departments and their staff could be more severe in the ASP model than in the traditional outsourcing model. "I think there will be downsizing," he says. "In larger companies, the adoption of the ASP approach will bring about job losses in the way conventional outsourcing has not."
Whereas in the traditional outsourcing model the company would take over the affected IT staff, Portlock feels that fewer staff will be needed to support the one-to-many approach of the ASP model.
Some IT staff will be laid off and may have to invest in training to make themselves more marketable. Others will need to be refocused on managing the relationship with the ASP. But, says Portlock, these changes should be viewed as an opportunity. Companies will be able to free up some of their more highly skilled IT and support staff for other projects and this could help to alleviate the skills shortage.
"Change is the only constant in industry and that's true in IT," he says. "The demands will be different but there's a lot of demand out there for people with the right skills."
This point is taken up by Mike Albarn, an associate director at consultancy firm Arthur D Little. "I've never met an IT person who was afraid of finding another job unless they were rubbish," he says.
Albarn believes that the ASP model will result in a remixing of where people are employed but, like Portlock, does not feel that changes should be feared. He points out that many IT and helpdesk staff are flexible and have already been through similar processes as a result of outsourcing, job changes, takeovers by new employers or redundancy. "I think it's a healthy, standard cycle," he says.
Albarn also doubts that ASPs will risk creating bad feeling by poaching skilled IT staff from their clients, although he predicts that some will look to recruit select candidates if the client company is willing to let them go.
But for IDC analyst Euan Davis, although there are many things to consider before adopting the ASP model, addressing the impact it will have on your IT department is not one of them.
"That's a bit of a non-starter," he says. "You might see it in five years but it's too early at the moment. There's not much to worry about."
Davis bases this view on the belief that the ASP market will not take off for another four or five years because companies rushed to overhaul their IT systems in the activity surrounding Y2K and will not look at doing so again until 2005.
In the meantime, more larger software suppliers, such as Microsoft and SAP, will start to adopt "ASP-style strategies", says Davis, who predicts that these second-movers will pick up the spoils.
The view that the impact of the ASP model will not be felt for another few years is borne out by David Roberts, chief executive of The Infrastructure Forum.
"The experience of most of our members is that the arrival of ASPs has had very little impact on the IT department as yet," says Roberts. "This is because, despite the hype, very few companies have yet bought the services of ASPs. Most of our members expect the ASPs to have much more success in 2003 or 2004, once they have begun to close the perceived gap between expectation and reality."
Before the ASP sector comes of age it will need to go through a period of consolidation or even a major fall out. Until that happens, the market will remain in a state of flux. But IT departments will still be needed.
If any lesson can be learned from the major outsourcing debacles of the past 10 years, it is that leaving your company exposed by outsourcing all your IT functions, effectively putting all your eggs in one basket, is not a good idea.