from remote hosting to self-hosting of an erp system: lessons learned from the city of el paso

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From Remote Hosting to Self-Hosting of an Erp System:Lessons Learned from the City of El PasoAdriano O. Solis a , Karl B. Putnam b , Leopoldo A. Gemoets b , David Almonte c & TonyHuerta Montoya ca Is ([email protected]) an assistant professor of production and operations management at theUniversity of Texas at El Paso.b ([email protected]) an associate professor of accounting and LEOPOLDO A. GEMOETS([email protected]) is an associate professor of computer information systems at theUniversity of Texas at El Paso.c (Almontedr@elpasotex as.gov) the director of the Office of Management and Budgetand TONY HUERTA MONTOYA (montoyatx@elpasotex as.gov) is the director of informationtechnology for the city of El Paso.Published online: 21 Dec 2006.

To cite this article: Adriano O. Solis , Karl B. Putnam , Leopoldo A. Gemoets , David Almonte & Tony Huerta Montoya (2006)From Remote Hosting to Self-Hosting of an Erp System: Lessons Learned from the City of El Paso, Information SystemsManagement, 23:3, 88-101, DOI: 10.1201/1078.10580530/46108.23.3.20060601/93710.9

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FROM REMOTE HOSTING TO SELF-HOSTING OF AN ERP SYSTEM: LESSONS LEARNED FROM THE CITY OF EL PASO

Adriano O. Solis, Karl B. Putnam, Leopoldo A. Gemoets, David Almonte, and Tony Huerta Montoya

This article describes how the city of El Paso, Texas, initially used an application service pro-vider (ASP) model, allowing the city to fast track its enterprise resource planning (ERP) system implementation. After a change in the ASP arrangements led to less responsiveness to its needs, the city government moved to a self-hosted ERP system. Lessons learned in the evolu-tion from ASP hosting to self-hosting of the city’s ERP system are compared to previously pub-lished literature.

AVING EVOLVED FROM THE MATERIALrequirements planning (MRP) systemsof the 1970s and the MRP II systems ofthe 1980s, enterprise resource plan-

ning (ERP) systems are widely regarded as oneof the most innovative information technology(IT) developments of the 1990s (Al-Mashari,2003). Acknowledging that enterprise resourceplanning (ERP) systems have only in recentyears started to penetrate the public sectormarketplace, Miranda (2000) nonetheless re-fers to ERP systems as “the backbone of digitalgovernment.” An ERP system allows the finan-cial, human resources, supply chain and pro-curement, and other functional components ofa government agency’s overall business systemto share the same information (Sclafani, 2000).

The successful introduction of an IT solu-tion requires far more than the purchase ofhardware and software (Wigand, 1996). This isparticularly evident in the implementation ofERP systems, which are extremely complex

pieces of software requiring huge investmentsof financial resources, time, and expertise, andcareful planning and execution. Stevens (2003)stresses that the ERP system involves a trio ofresources: standards, ERP software, and third-party software. These resources must all be in-tertwined for the system to function effective-ly. It is not surprising, therefore, that ERPimplementation projects generally take from 6to 18 months, but may drag on for several years(Bryson and Sullivan, 2003).

Because ERP projects are probably the mostcomplex that an organization will ever imple-ment in the realm of IT, it is not uncommon forERP adopters to employ consultants or consult-ing firms for implementation support (Brownand Vessey, 1999; Bingi et al., 1999; Trimi et al.,2005; King, 2005). When such implementationpartners are involved, the client will seek notonly to “go live” with the ERP system, but also tohave its internal staff fully trained and eventuallybecome capable of operating and maintaining

H

ADRIANO O. SOLIS ([email protected]) is an assistant professor of production and operations management at the University of Texas at El Paso.

KARL B. PUTNAM ([email protected]) is an associate professor of accounting and LEOPOLDO A. GEMOETS ([email protected]) is an associate professor of computer information systems at the University of Texas at El Paso.

DAVID ALMONTE ([email protected]) is the director of the Office of Management and Budget and TONY HUERTA MONTOYA ([email protected]) is the director of information technology for the city of El Paso.

ERP IMPLEMENTATION AND MANAGEMENT

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the system themselves (King, 2005). Tinnirello(2002) and Grossman and Walsh (2004) empha-size that potential problems may arise in theuse of such implementation partners; for in-stance, the consulting company may not be fa-miliar with a new version of the ERP software.Moreover, they declare that there will be ahigher likelihood of success if the organiza-tion’s employees play a more significant role insystem implementation. A study recently con-ducted at the University of Pittsburgh (King,2005) identifies two factors that have beenhighly predictive of success in ERP projectsemploying implementation partners: (1) the“arduousness” of the relationship between cli-ent and consultant and (2) the degree of“shared understanding” in terms of similarwork values, standards, and approaches be-tween consultant and internal team members.

In many cases, ERP implementationprojects have been poorly managed, with theorganization having inadequately trained per-sonnel install, customize, and maintain the sys-tem. Some organizations have experiencedfailures in implementing ERP systems. Formerexecutives of FoxMeyer Drug have argued thatits ERP system helped drive the company intobankruptcy (Bingi et al., 1999; Legare, 2002).Hershey Foods Corporation, in its 1999 AnnualReport, declared that implementation of the fi-nal phase of its ERP system led to significantproblems in the areas of customer service,warehousing, and order fulfillment. Barker andFrolick (2003) report on the case of a majorsoft drink company that tried to cut cornersduring ERP system implementation, relying tooheavily on its own staff rather than consultants,in the process ending up with a high staff turn-over and losing significant ERP system func-tionality.

ERP IN THE LOCAL GOVERNMENT SETTINGFrom the experiences of the consulting prac-tice of the Government Finance Officers Asso-ciation (GFOA) in advising more than a dozencity, county, and special district governments, anumber of obstacles to ERP implementation inlocal government have been identified byMiranda (1999). Table 1 summarizes these ob-stacles as well as some of the ERP project sug-gestions found in several case studies of localgovernments (e.g., Fontayne-Mack, 1999; Gla-ser, 1999; Harris, 1999; Jacob and Wagner,1999; Riper and Durham, 1999). Many of theseissues are similar to those reported for ERP

projects in the private sector (e.g., Davenport,1998; Laughlin, 1999; Bingi et al., 1999; Legare,2002; Barker and Frolick, 2003; Grossman andWalsh, 2004; King, 2005).

Yet, public- and private-sector ERP imple-mentation issues may be different in many re-spects. For example, the core businessprocesses in a public-sector setting may be fun-damentally different from core business pro-cesses in the corporate sector. Another issue ofhigh significance is that pay scales in the publicsector are far from competitive, and it has prov-en increasingly difficult for this sector to attractand retain skilled IT personnel (Government Fi-nance Review, 2003). A survey on E-govern-ment undertaken in 2000 by the InternationalCity/County Management Association and Pub-lic Technology, Inc. (with 1,881 out of 3,749municipalities surveyed responding), rankedthe shortage of IT workers as the number onebarrier to E-government at the local level (Nor-ris et al., 2001). Lack of financial resources wasa second major issue cited by more than 50 per-cent of the respondents to the E-government

TABLE 1 ERP Implementation Issues in Local Government Settings

Obstacles to Implementation (Miranda, 1999)

Failure to recognize limitations of ERP systemsDifficulty in establishing project management

capabilitiesDifficulty in identifying full-time staff resourcesUnderinvestment in change managementRarity of “live” public-sector ERP sites to visitTurf battles over system ownershipDifficulty in finding experienced implementation

partnersBottlenecks in the issue resolution processSuboptimization of system capabilities

Suggestions for Successful Implementation (based on Fontayne-Mack, 1999; Glaser, 1999; Harris, 1999; Jacob and Wagner, 1999; Riper and Durham, 1999)

Top management commitmentDetailed planning of the implementation processSelection of an experienced and reliable

consulting firm for implementation supportAggressive but achievable schedule and

timelinesFull evaluation of infrastructure requirementsCross-functional participationProcess mapping and business process

reengineeringEffective change managementSelection of the right employees for the project teamProper employee training

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survey. One of the main ways of addressingthese challenges to E-government at the locallevel has been the outsourcing of IT services(Y.C. Chen and Gant, 2001).

ASPS AND VARIATIONS OF THE ASP MODELKing (2004) states that more than half of allfirms are expected to use some form of IT out-sourcing in 2006. Application service provi-sioning is “a form of outsourcing that providescompanies access to cutting-edge technologiesand enables an organization to focus on its corecompetencies and goals” (IDC, 2001). Applica-tion service providers (ASPs) deliver applica-tion functionality from remote data centers tomultiple clients, managing their outsourcingservices via the Internet or private communica-tion lines (Dewire, 2000; Kavanagh, 2001; Soli-man et al., 2003; Trimi et al., 2005). Kern et al.(2002) have proposed the term netsourcing asa “broader nomenclature” for ASP and identi-fied seven alternatives in a “netsourcing servicestack,” ranging from network connectivity ser-vices (e.g., Internet service providers and tele-com companies offering an array of connectivityoptions) through business process delivery ser-vices (e.g., an ASP processing human resourcesfunctions for a client firm). Within this spec-trum is hosting infrastructure services (e.g.,an ASP providing data center facilities, leasingservers, and managing server performance),which is the ASP focus of this study.

Kern et al. (2002) have developed a risk-as-sessment and risk-mitigation framework for anASP sourcing approach. Their list of nine highrisks for ASP hosting (out of 15 risks for IT out-sourcing in general) can be found in Table 2. In-complete contracting, identified as a very highrisk, refers to situations where contracts fail to

provide adequate details, for instance, on costs,service levels, or nonperformance penalties.

ASP Hosting of ERP SystemsSome software vendors, including ERP ven-dors, offer ASP hosting services. For instance,in January 2000, JD Edwards launched its ownASP division, changing its previous partner-only ASP strategy (Wainewright, 2000a). Al-though rival ERP software vendors PeopleSoftand SAP followed suit and soon set up theirown ASP divisions, JD Edwards abandoned itsASP division in October 2000, deciding to con-centrate on strengthening its ASP partner chan-nel (Wainewright, 2000b).

Apicella (2000) provides the following fair-ly down-to-earth description of what takesplace in ERP system hosting by an ASP:

[W]hen you outsource your ERP appli-cations to a service provider, you mustmove your data off the company’s pre-mises to be hosted on the ASP’s datacenters. The typical scenario looks likethis: The ASP hosts your applications inone of its data centers, providing yourclients browser-based access over theInternet. Your data is stored in the ASP’sdatabases at the same location, and theASP takes care of routine data manage-ment tasks such as making backup cop-ies, providing sufficient storage capacityfor your information, and rotating addi-tional copies to a vault.

The entire process of buying an expensiveERP software license along with upgrades,building and maintaining the hardware andsoftware infrastructure required for the ERPsystem, and spending months on a lengthy ERPsystem implementation project has made itclear to a growing number of small and medi-um-sized organizations, particularly in the pub-lic sector, that remote-hosted ERP solutions canbe an effective way to proceed. Y.C. Chen andGant (2001) examine the potential of ASPs totransform E-government services at the locallevel and declare that the ASP model assists lo-cal governments in overcoming the shortage ofskilled IT staff and limited financial resourcesand “offering next wave e-government servic-es.” Liang et al. (2000), in fact, identify the ASPmodel as the most promising alternative forsmall to medium-sized government entitiesstruggling to support state-of-the-art technolo-gy without the highly skilled staff that they can-not afford to attract and retain. They point out

TABLE 2 High Client Risks in ASP Hosting

(1) Unrealistic customer expectations(2) Customer’s lack of maturity and experience

with IT outsourcing(3) Oversold supplier capability(4) Supplier going out of business(5) Supplier subcontracting problems(6) Security breach(7) Application unavailability(8) Slow response time(9) Incomplete contracting

Source: Based on Kern et al. (2002)

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that an ASP invests extensively in technology,people, and methodologies and acquires ex-pertise in servicing various clients facing thesame challenge; hence, an ASP can make so-phisticated software applications such as ERPmore easily accessible and affordable.

Advantages and disadvantages associatedwith ASP-hosted ERP systems relative to inter-nally hosted systems have been identified anddiscussed fairly extensively in the literature(e.g., Joplin and Terry, 2000; Ekanayaka et al.,2002; Bryson and Sullivan, 2003; Trimi et al.,2005). L.-D. Chen and Soliman (2002) note thatuse of the ASP model “has not been smooth sail-ing for many organizations,” and few organiza-tions have a formal approach to making adecision on ASP outsourcing. Perhaps the great-est disadvantage of remote-hosted systemswould be the risks arising from not being incontrol of day-to-day ERP operations, whichmay include the potential for significant systemdowntime (Trimi et al., 2005). Service levelagreements (SLAs) generally are used by thecustomer and the ASP to establish and manageexpectations, although Karten (2004) cautionsthat such agreements fail if they are drawn up in-adequately or, on the other extreme, are far toocomplex. Moreover, a selected ASP may mergewith or be acquired by another firm; accordingly,appropriate protections should be built into anASP agreement to address this possibility. Still,Trimi et al. (2005) conclude that the ASP routewill prove extremely attractive to many organiza-tions compared with the more costly and lessflexible self-hosting of ERP systems.

ASP Suitability for Public-Sector ERP SystemsThe GFOA Research and Consulting Center re-ports on an ERP hosting example in a large citythat had earlier implemented a $25 million ERPsystem in house and then switched to an ASPsetup (Government Finance Review, 2003).Having to contend with multiple software up-grades and patches since initial system imple-mentation, the IT staff could not find the timeto provide support, as “internal consultants,” todepartments in reengineering business pro-cesses and improving the use of the ERP sys-tem. Under the remote-hosting arrangement,the ASP not only hosts the system but also takesfull responsibility for all system maintenance,including implementation of upgrades, patch-es, and fixes, under a regular maintenanceschedule.

This article reports on a case opposite tothe preceding situation. The city of El Paso ini-tially used the ASP model (allowing it to fasttrack its ERP system implementation) andswitched to a self-hosted ERP system two yearsdown the road. To the best of our knowledge,this is the first case example of a local govern-ment agency switching from remote hosting toself-hosting of an ERP system.

Table 3 provides a chronological overviewof key events associated with the city’s ERP sys-tem, starting with issuance in September 2000of an RFP (request for proposals) for the initialsystem and culminating in the switchover to in-ternal hosting in December 2003. Details of thecase study are provided in the next section, fol-lowed by a case analysis. The case study in this

TABLE 3 Chronology of Major Events

September 2000 RFP* issued for “financial and human resources information system”

March 2001

Contracts awarded to same vendor for ERP solution and ASP system hosting; separate contract awarded to consultants for overseeing system implementation

April 2001In-house core project team formed; consultant project team commences

preparations for system implementationMay 2001 City hires IT director

September 4, 2001ERP system “goes live” with remote hosting at ERP vendor’s eCenter in

California

January 2002ERP vendor announces new IT industry partnership for management of its ASP

businessJuly 2002 Process of migrating system hosting to data center in Tampa, FL, commencesOctober 2002 System migration to Tampa data center in place

Late November 2002Upgrade to Web browser–based version of financial management system

reported “completed”March 2003 Steering committee calls for preparation of proposal for internal system hostingAugust/September 2003 Work commences on migration to internal hostingLate December 2003 Switch over to internal hosting

* RFP, request for proposals

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article is based on interview data collected bythe first two co-authors from various people in-volved in the ERP project, internal and externalto the city government, as well as informationand insights provided by the other three co-au-thors, who currently serve in the city govern-ment or have served on an IT advisory boardfor the city.

CASE STUDY: THE CITY OF EL PASOThe U.S. Census of 2000 reported El Paso ashaving a population of close to 564,000, al-though unofficial estimates place the currentnumber at probably more than 700,000. El Pasoand its sister city, ciudad Juárez in the Mexicanstate of Chihuahua, comprise the largest metro-politan area on the U.S.–Mexico border, with acombined population of around two million. ElPaso is the fourth largest city in Texas andamong the 25 largest cities in the United Statesin terms of population. It is a comparativelypoor city, ranking only 312th in per capita in-come among all U.S. standard metropolitan ar-eas in 2000 (Zlatkovich and Putnam, 2000).The city government has nearly 6,000 employ-ees. El Paso operates on a relatively tight bud-get; during the fiscal year ending August 2001,when the ERP system was initiated, the city’sannual operating expense budget was reportedby its Office of Management and Budget (OMB)to be only 155th among all U.S. cities despitebeing in the top 25 in population.

Until 2001, the city of El Paso and the coun-ty of El Paso had shared, via a nonprofit agencycalled Consolidated Data Processing, an IT sys-tem utilizing mainframe technology and con-sisting of four major subsystems: a financial andmanagement information system, a personnelmanagement information system, an advancedpurchasing information system, and a budgetpreparation system. In 1998, a contract wasawarded to the original software provider toupgrade the existing system, even as an RFPhad been issued to acquire a new IT system inplace of the old one. Under the “upgraded” sys-tem, delays and inaccuracies in the recordingof revenues and expenditures led to month-endfinancial reports not being available until themiddle of the succeeding month. Constant ad-justments to the month-end reports resultedfrom time lags in reporting overtime work, va-cation and sick leaves, and special compensa-tion. Accordingly, reports forwarded to thecity’s senior management and the city councilroutinely included disclaimers as to the accura-cy or validity of the information.

ERP System for the City of El PasoIn 2000, the city government approved a rec-ommendation by an executive committee con-sisting of key senior managers to terminate theConsolidated Data Processing agreement withthe county of El Paso and establish an IT systemthat would effectively and efficiently meet thecity’s financial management and human resourc-es information requirements. Given that the cityhad not had its own IT department, and with theexpected difficulty of attracting and retaining ca-pable IT staff in view of the low salary levels thatthe city could offer, it was evident from the be-ginning that the desired financial and human re-sources management applications should behosted by an ASP. In addition, it was recognizedthat an ASP arrangement would allow the cityto avoid a high, up-front investment in comput-er hardware. Other than user workstations andinternal wiring on site, servers and other hard-ware would be owned, operated, and main-tained by the ASP. The city’s plan also includedthe appointment of a chief information officer(CIO), who would take overall responsibilityfor the development, management, and contin-uous improvement of its information systems.With an ASP hosting the new system, the CIOwould not have to contend with staffing andhardware acquisition and maintenance con-cerns, but instead would focus on informationsystem development and process improvement.

In September 2000, the city issued an RFPfor a “financial and human resources informa-tion system,” with no specific reference to anERP system, along with a separate RFP for theASP arrangement. Seventeen proposals werereceived for the financial and human resourcesinformation system. In the city’s evaluation ofthe proposals, system capability and flexibilitycarried more weight than the cost. In March2001, the city contracted with a leading vendorfor its ERP solution to the financial and humanresources management information require-ments. The ERP license, which the city pur-chased at a cost of $2.1 million, covers theFinancial Management System (FMS), HumanResources Management System (HRMS), andEnterprise Performance Management (EPM)suites. Separate contracts for a time manage-ment reporting system and a cash managementsystem were awarded to independent vendorsof these systems, which were to operate as pe-ripheral processes by way of modules that in-terfaced with the ERP system.

The city also awarded the ASP contract tothe ERP vendor, which was ranked by GartnerDataquest as one of the largest ASPs in North

t was evident from the beginning that the desired financial and human resources management applications should be hosted by an ASP.

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America at that time. The contract for ASP ser-vices provided for a three-tiered set of monthlyfees, with a five-year guaranteed monthly fee atestablishment of full functionality.

In the absence of its own IT department,and consistent with the earlier cited fact thatmany ERP adopters traditionally contract instal-lation support to consultants, the city awardeda $2.2 million consulting contract to a Dallas-based firm as an implementation partner tooversee and assist with ERP system installation.An IT professional with several years of experi-ence implementing the selected vendor’s soft-ware for various clients headed the consultantteam.

The total initial direct project cost, inclu-sive of the ERP software, the ASP, and othersoftware contracts, as well as the implementa-tion partner contract — but exclusive of addi-tional hardware for system users — wasapproximately $6 million. Internal wiring plusnew workstations and related hardware for var-ious system users were estimated to cost anoth-er $2 million.

Initial ERP System Implementation: Timetable, Issues, and ProblemsA steering committee, composed of city offi-cials representing the key business process ar-eas of human resources, budgeting, benefits,purchasing, and finance, was constituted tooversee system implementation. Members ofthe steering committee chaired subcommitteesassigned to review, modify, and improve cur-rent business practices in their particular areasof competence. An IT director (in lieu of theoriginally planned CIO position designation)was hired in May 2001, shortly after the ERPsystem implementation project was started,and became a member of the steering commit-tee. The IT director remains the only regular cityemployee on the IT technical staff; all other ITtechnical personnel have been hired on a con-tractual basis because of stringent civil servicesalary levels. A full-time internal project leader,based in the Office of Management and Budget,was designated in early April 2001 to head an in-house core project team that would directly in-terface with the implementation partner’s team.The core team included one representative eachfrom purchasing, human resources, finance, andthe Office of Management and Budget, and twofrom the IT department.

Some basic modules of the ERP system(general ledger, accounts payable, accounts re-ceivable, purchasing, fixed assets, projects

accounting, human resources, payroll, andbenefits management) and the cash manage-ment system were targeted to be in place bySeptember 1, 2001, the start of the city’s fiscalyear. The initial ERP modules were actuallymade operational as of September 4, 2001,whereas the cash management system wasmade operational on September 13, 2001. Theintroduction of the time management system,originally planned for December 31, 2001, wasmoved up to September 4, 2001.

There were some issues and problems withthe initial September “go live.” For instance, aproblem was experienced in the use of the pay-roll module, which required using the old pay-roll subsystem for three weeks after systemstartup. Nevertheless, those issues and prob-lems proved fairly manageable.

Insurance enrollment information (effec-tive as of January 1, 2002) was updated usingthe ERP system’s benefits management modulein the month of November 2001. Finally, thebudgeting module was planned for initial useby February 2002 (in preparing the budget forthe September 2002–August 2003 fiscal year)but was postponed until an improved, Webbrowser–based version of the module was tobe available. As an interim solution, the consult-ant firm provided the city with an Excel-basedbudgeting application.

The FMS and HRMS suites initially installedwere from version 7.5 of the PeopleSoft ERPsystem, based on a client–server architecture.This client–server setup required the use of Ci-trix servers at the eCenter, which allowed ac-cess to the application servers and databases.The HRMS suite was first upgraded in early2002 to Web browser–based version 8.0. Theupgrade to a Web-based FMS suite, originallyexpected to be achieved by April 2002, was de-layed until October 2002. Planned for later im-plementation was an activity-based costingapplication within the EPM suite.

ASP HostingUnder the original ASP architecture, the ERPsoftware and servers resided in the vendor’seCenter in California, and on-site user worksta-tions communicated with the servers by way ofa T1 connection (a fractional T1 connection at256 kbps) through MCI, the vendor’s recom-mended telecommunications firm. It was, infact, the vendor that contracted with MCI forthe T1 connection, and the city paid MCI’sfixed monthly fee through the vendor. To pro-vide for redundancy, an ISDN (Integrated

his client–server setup required the use of Citrix servers at the eCenter, which allowed access to the application servers and databases.

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Services Digital Network) connection betweenthe city and the eCenter (at a significantly low-er monthly fee) was recommended by People-Soft, although the city never did establish sucha redundant connection with the eCenter. ThisASP service delivery model is what Kavanagh(2001) refers to as a traditional ASP model, withan independent telecommunications companyproviding the communication link betweenthe ASP and the city. Notwithstanding the ab-sence of a redundant connection between ElPaso and the eCenter, the city experienced nomajor problems with the remote hosting ar-rangement.

On January 29, 2002, the ERP/ASP vendorannounced a partnership with a well-knowncomputer manufacturer and service providerfor the global expansion of its eCenters, usingthe partner’s international network of data cen-ters. Under this partnership, the ERP vendor’sapplication-hosting business would be man-aged by the partner. The city was subsequentlyinformed about the partnership and that itwould result in the remote hosting of the city’sERP system being moved to the partner’s datacenter in Tampa, Florida. At the time, the city’sIT director hardly had any concerns, becausethe international data center network’s re-sources and technical capabilities were well re-garded by ASP references. Moreover, a

significant number of PeopleSoft eCenter per-sonnel were expected to be transferred to thepartner’s network of data centers. Not surpris-ingly, therefore, there was an air of optimismsurrounding the impending migration of theERP system to the data center in Tampa.

In July 2002, the process of migrating thecity’s ERP system commenced, with a copy ofproduction data initially transferred from theERP vendor’s eCenter to the Tampa data center.A more robust 796-kbps T1 connection was es-tablished through MCI between El Paso andTampa via San Antonio, along with a redundantconnection (also a T1 line, via San Antonio andAtlanta). The principal connection was upgrad-ed to a DS3 connection three months later,with the original principal T1 connection be-coming the redundant line. This revised setupis shown in Figure 1. Because the remote-host-ing facility was moved to Tampa, the responsi-bility for contracting with MCI for thetelecommunications link was transferred fromthe ERP vendor to the city. Other provisions ofthe hosting and SLAs remained the same.

The city’s first IT director left in July 2002 fora new position and the erstwhile assistant direc-tor became interim IT director (and was extend-ed a regular appointment as IT director in March2004). Although full system migration to theTampa data center was originally expected to be

FIGURE 1 ASP Setup for City of El Paso ERP System with Remote Hosting at Tampa Data Center

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completed by August 2002, initial difficultieswere experienced and the target date wasmoved to October 2002. Nevertheless, the in-terim IT director and other city officials in lateAugust 2002 continued to express a firm beliefthat the migration of the city’s ERP systemwould prove beneficial to the city, citing thenew ASP’s technical resources and the profes-sionalism of its staff, not to mention the appar-ently quicker system response initiallyobserved using the more robust T1 line.

However, with the system migration to theTampa data center by early October 2002, thecity started to observe a deterioration in ser-vice in terms of both system uptime and re-sponse times to service requests. Installation ofPeopleSoft patches and fixes required twoweeks’ notice, sometimes taking up to threeweeks to actually set in place. Moreover, incon-sistencies seemed to arise in implementationamong the various system environments(demo, development, testing, and production),which were also reported to occur far less fre-quently than when the ERP vendor’s eCenterpersonnel were still implementing the fixesand patches.

These problems were further compoundedwith the release of a fully Web browser–basedversion of the FMS suite. The upgrade to thisversion began in October 2002 and it was re-ported to become operational by late Novem-ber 2002. In the ensuing months, the cityreportedly experienced a noticeable instabilityin the system, characterized not only by signif-icant system downtime, but also very slow sys-tem response, in spite of the apparently morerobust communications link. The SLA called fora minimum system availability performance(defined as the percentage calculated by divid-ing system uptime by primary hours of opera-tion) of 99.0 percent, with a graduatedschedule of credits toward the next monthlyhosting fee whenever actual performancewent below the 99.0 percent threshold. Al-though the Tampa data center was reporting a98.4 percent system availability performance,the city perceived actual system uptime to beonly between 80 and 85 percent. With the slowsystem response and relatively frequent systemdowntime, it took two days or more for month-end closings of financial data, whereas closingswere usually completed overnight when thesystem was hosted at the eCenter in California.

Further, by December 2002, the monthlyASP hosting fee had increased from $33,000 toabout $73,000 (or roughly $880,000 annually)because the number of ERP system “power

user equivalents” (PUEs) had more than dou-bled. Five user categories were defined in theASP hosting agreement based on different lev-els of access to system applications, startingwith a “self service” user at the lowest level(with the lowest PUE rating) through a “poweruser” at the highest level (with a correspond-ing PUE rating of 1.0). With the Web browser–based version of the ERP system, employeebenefit documents, for instance, became readi-ly accessible for updating by individual employ-ees, resulting in an increase in the number ofself-service users and, accordingly, PUEs. In ad-dition to the monthly hosting fee, an annual feeof about $270,000 was charged by the ASP forsoftware maintenance, not to mention a cost ofaround $60,000 for connectivity through MCI.

THE MOVE TO AN INTERNAL HOSTING MODELIn March 2003, the city’s ERP system steeringcommittee called for the preparation of a pro-posal for internal hosting. Although the ASPhosting costs had significantly increased, thesteering committee’s decision was based pri-marily on dissatisfaction with overall systemperformance. The ASP hosting agreement in-cluded clauses for termination with or withoutcause, and the city opted to send a notice oftermination without cause.

The Dallas-based consulting firm had con-tinued to be retained as an implementationpartner to assist in internal work associatedwith system migration to the Tampa data centerand the upgrade to the Web-based version ofthe FMS suite. A proposal for internal hosting,up until then viewed as being unrealistic, wasthus prepared by the first week of May 2003,with the assistance of the consultants. The pro-posal incorporated provisions for, among others,Dell servers and Oracle database software. Theproposal also called for retaining the services ofthe consulting firm and hiring three additional ITdepartment employees. The initial direct projectcost estimates included $1.2 million for the hard-ware, $400,000 for the Oracle operating system,and $320,000 for the Dallas-based consultants, ora total of about $1.9 million.

Basic system operating criteria included re-liability and redundancy. A threshold of 98 per-cent of uptime was established initially. Twostorage area networks were planned: a primarynetwork at city hall and a backup network atpolice department headquarters, with a fiberoptic connection between the two network lo-cations, along with a DS3 link for redundancy.

he ASP hosting agreement included clauses for termination with or without cause, and the city opted to send a notice of termination without cause.

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Separate environments for demo, develop-ment, testing, and production were to be estab-lished at the city hall location, with aproduction backup at the police departmentsite. It was the intention that the productionbackup would be up and running within onehour of failure of the production environmentat city hall.

The initial project timetable for switchingover to internal system hosting was planned forMay 16–November 15, 2003, consistent with asix-month timetable, which was viewed by thecity’s external auditors as realistic. However, anew city mayor took over on June 10, 2003,and the start date was delayed until September15, 2003, with the target date for the actualswitchover moved to the end of December2003. Under a new agreement between thecity and the consulting firm (costing the citysome $520,000 in consulting fees), the latter:

❚❚ Developed a project plan for the migration toself-hosting

❚❚ Assisted in the development and implemen-tation of a configuration setup for the system

❚❚ Provided consulting and technical assistancetoward the accomplishment of all tasks iden-tified in the project plan

In particular, the consultants provided tech-nical system and application support in (1) theconfiguration, design, and planning of thehardware environment needed for internalhosting of the ERP system, (2) the configura-tion, planning, installation, and fine-tuning ofthe Oracle database platform and the ERP Inter-net architecture, and (3) the application and re-application, as required, of ERP softwarepatches, fixes, and custom changes. In addi-tion, the consultants provided assistance to thecity’s financial and human resources/payrollpersonnel in the transition to an in-house ERPenvironment.

The year-end 2003 switchover target was at-tained. The project leader from the consultingfirm is credited by the IT director as being keyto the successful migration to internal hosting,with detailed planning and the careful analysisof “what if” scenarios. Moreover, the lead exter-nal auditor during the period leading to theswitchover was earlier involved in auditing in-house ERP system implementation projects insome local government units (e.g., the state ofNew Jersey) and became a key ally in the city’sswitchover efforts, sharing his insights and pro-viding useful advice.

In 2004, the county of El Paso purchased acriminal justice records management system

for use by the Sheriff’s Department. Around Au-gust 2004, the county and the city decided toshare the operation of this records manage-ment system. This has led to a further enhance-ment to the overall architecture, illustrated inFigure 2, under which the city’s ERP system op-erates. The telecommunications network nowincludes as well a fiber-optic link between cityhall and the county. With an SBC Communica-tions solution involving switches and routers,the city hall, the El Paso Police Department,and the El Paso County Sheriff’s Departmentare all linked through a DS3 network, whichprovides redundancy for the ERP systemshould some failure occur in the primary fiber-optic links.

CASE STUDY ANALYSISThe ASP Hosting DecisionWhen the city of El Paso decided to acquire andinstall an ERP system in 2001, ASP hosting wasconsidered the only realistic way to proceed.As pointed out earlier, even large corporationswith apparently significant IT resources, interms of both staff and infrastructure, hadfound self-hosting an ERP system to be a formi-dable undertaking. Most significantly, the city,having just decided to terminate its Consolidat-ed Data Processing relationship with the coun-ty of El Paso, did not have any IT personnel inplace as of April 2001, when the project com-menced. An IT director was appointed only inMay 2001. The dearth of IT professionals, thehigh salary and benefits levels required, andthe rigidity and noncompetitiveness of localgovernment pay scales would have made it dif-ficult for the city to attract and retain experi-enced and competent IT staff to install,operate, and maintain an ERP system.

Kavanagh (2001) reports the following tobe factors that top ERP vendors consider criti-cal in assessing whether an ASP is suitable forremote hosting of a public-sector ERP system:

❚❚ Stable company❚❚ Technologically advanced and committed to

dealing with technological hardware change❚❚ Willing to agree to performance standards❚❚ Understands the software and the needs of

the government marketplace❚❚ Has unified and effective application and

technical support

In electing to use the ERP vendor’s eCenterfor ASP hosting, the city appeared to have effec-tively addressed these factors. In particular,there was unified and effective application and

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technical support, given that the support cen-ter and the eCenter, responsible for functionaland technical issues, respectively, were collo-cated in California and effectively coordinatedwith each other.

On the other hand, the top ERP vendors in-terviewed by Kavanagh (2001) further stressthe need for a clear exit strategy, in the eventthe city needed to leave the ASP. Unfortunately,no exit strategy was formulated in this case, al-though the city recognized that it would be ful-ly dependent on the vendor’s ability to deliverASP hosting services in accordance with thehosting and service level agreement.

Of the nine high risks that Kern et al. (2002)identified for an ASP sourcing approach (seeTable 2), the risk that most clearly applied tothe remote hosting of the city’s ERP system wasRisk #2: the “customer’s lack of maturity and ex-perience with IT outsourcing.” For this high-risk

factor, the mitigating strategy suggested byKern et al. was sourcing incrementally: “startsmall to gain experience with capabilities re-quired to successfully outsource.” However,this would hardly have been applicable in thecurrent case, given the highly complex natureof ERP systems. Instead, the involvement of anexperienced, reliable implementation partnerappears to have been an effective risk mitiga-tion strategy.

Two other high-risk factors that seeminglyapplied to the ASP hosting of the city’s ERP sys-tem were application unavailability (Risk #7)and slow response time (Risk #8). However,the initial eCenter proved to be an effective re-mote ERP system host, and the city was satis-fied overall with application availability andresponse time. Although incomplete contract-ing (Risk #9) was not a problem, the city’s lackof maturity and experience with IT outsourcing

FIGURE 2 Communications Network for Self-Hosting of City of El Paso ERP System

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gave rise to some misinterpretation, on thepart of responsible city officials, of terms andconditions in the hosting and service levelagreement — in particular, the interpretationof the number of system users (in terms ofPUEs).

ERP ImplementationIt is easy to understand, given the total absenceof IT staff and infrastructure at project incep-tion, that a good number of the obstacles toERP implementation in local government iden-tified by Miranda (1999) also applied in thiscase (see Table 1), particularly:

❚❚ Failure to recognize limitations of ERP sys-tems

❚❚ Difficulty in establishing project manage-ment capabilities

❚❚ Difficulty in identifying full-time staffresources

❚❚ Underinvesting in change management

Consistent with the suggestions associatedwith successful ERP implementations in localgovernments in other case studies (see Table1), the city’s steering committee did addressthe following issues:

❚❚ Top management commitment❚❚ Selection of an experienced and reliable con-

sulting firm for implementation support❚❚ Detailed planning of the implementation

process❚❚ Aggressive but achievable schedule and time-

lines

The city was also fortunate to have foundan experienced and reliable implementationpartner, which has been suggested in the liter-ature to be a critical success factor in many in-stances (e.g., Brown and Vessey, 1999; Bingi etal., 1999; Trimi et al., 2005; King, 2005). Miran-da (1999) also cited difficulty in finding such animplementation partner to be an obstacle inpublic-sector ERP projects. The city of El Paso’simplementation partner provided significant,effective assistance in the detailed planning ofthe implementation process, as well as in help-ing establish an aggressive but achievableproject timetable.

However, due to the city’s obvious lack ofIT project experience, the other six implemen-tation suggestions from the case studies inTable 1 were not properly or adequately ad-dressed. In particular, a number of key issuesand problems were experienced during the ini-tial ERP system installation:

❚❚ The project team leader was given theresponsibility, but not the authority, to over-see the participation of core team members,some of whom continued to be on call forother work related to their home depart-ments.

❚❚ Some members of the core team did notappear fully dedicated to the ERP project (asrecommended by Fontayne-Mack, 1999;Miranda, 1999).

❚❚ Some department managers hesitated inassigning their star performers to take on keyuser roles in system implementation; thesame held true for personnel assigned to par-ticipate in “train the trainer” programs.

❚❚ Not enough direction and pressure wasapplied to city employees to ensure full andproper use of the system.

Especially at the initial operation of thetime management system, improper swiping ofID cards through the card readers by a signifi-cant number of employees created problemswith the payroll module. This situation oc-curred even though the employees had beentrained on how to swipe the cards. As a result,a parallel run of the old payroll subsystem wasundertaken for three additional weeks beyondthe planned three initial parallel trial runs.

Problems with Transfer of ASP Hosting to Tampa Data CenterA deterioration in service performance, interms of both system uptime and responsetimes to service requests, was noted very soonafter the migration to the Tampa data center. Anumber of different factors, either within orbeyond the data center’s control, may havecontributed to the poor system availability per-formance. Clearly, any failures in the MCI tele-communications link were outside of the ASP’scontrol, but that link reportedly failed only a totalof about 15 minutes from the time system migra-tion to the Tampa data center was effected.

As previously mentioned, a major disadvan-tage of ASP-hosted ERP systems would be therisks arising from not being in control of day-to-day ERP operations, which may include the po-tential for significant system downtime (Trimiet al., 2005). Revisiting the factors that top ERPvendors consider critical in assessing whetheran ASP is suitable for remote hosting of a pub-lic-sector ERP system (Kavanagh, 2001), onecan see that the ERP vendor’s new ASP partnerwas (1) a stable company, (2) technologicallyadvanced and committed to dealing with tech-nological hardware change, and (3) willing to

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agree to performance standards. References forthe ASP spoke highly of the international datacenter network’s resources and technical capa-bilities. However, these references were not us-ing the same ERP vendor’s systems. The needfor “unified and effective application and tech-nical support,” also identified by Kavanagh(2001) to be critical, became questionable, asdiscussed below.

Of the high risks in ASP hosting identifiedby Kern et al. (2002) in their risk-assessmentand risk-mitigation framework describedabove, here the other relevant high risks be-came (1) oversold supplier capability and (2)supplier subcontracting problems. The riskmitigation strategies suggested by Kern et al.for these two added risks — selecting supplierswith proven track records, demanding custom-er references that illustrate turnaround cases,and requiring full disclosure and customer ap-proval of all subcontractors — were outside ofthe city’s control, because the turnover of thevendor’s ASP hosting business to its partnerwas already a “done deal” by the time the citywas informed. When the city entered into theoriginal ASP hosting agreement, this change inASP partner arrangements had not been envi-sioned.

In addition, a number of other factors thatmay have potentially given rise to the reportedslow system response and unsatisfactory sys-tem availability performance are:

1. Improper compliance with the ERP ven-dor’s established procedures for systemmigration

2. Lack of coordination between the ERP ven-dor’s support center and the Tampa datacenter (which led to some finger pointingin which each entity would declare areported problem to be a technical issue forwhich the other entity is responsible)

3. Inadequacy of servers, as installed andoperated, in coping with the system’s loadrequirements, especially for the FMS ver-sion 8.4 (which requires separate, dedi-cated database, application, Web, andreporting servers, particularly in the pro-duction environment)

In view of the city’s lack of maturity and ex-perience with IT outsourcing, it is not surpris-ing that insufficient thought was put intodefining the SLAs for remote hosting. The SLAentered into for ASP hosting at the Tampa datacenter contained the same terms and condi-tions as the original SLA for hosting by the ERP

vendor. In particular, city officials did not fullycomprehend the conditions on pricing basedon the number of PUEs nor the mechanics inthe calculation of system availability perfor-mance. Kern et al. (2002) caution that SLAsshould be properly negotiated and guaranteeswell defined and agreed to mitigate risks asso-ciated with application unavailability and slowresponse time. The current case has clearly il-lustrated this point.

Benefits and Risks of Self-HostingGiven the earlier stated difficulty of attractingand retaining qualified IT personnel, the risksassociated with self-hosting were considered tobe very significant. The IT director and thecity’s ERP steering committee, however, wereconfident that the consulting firm would con-tinue to be an effective implementation part-ner in the switchover to an internally hostedERP system, and this has proven to be true. ERPpatches and fixes have typically been imple-mented within 24 hours of release. From thetime self-hosting commenced in late December2003 through mid-July 2005, the primary pro-duction environment has been reported downonly three times, with an aggregate downtimeof only 45 minutes. System uptime has, accord-ingly, been better than 99.9 percent. As a corol-lary, the backup production environment atthe police department headquarters has thusfar been used only for database backup purpos-es and not at all for emergency data recovery oractual production. Month-end closings of finan-cial data have been completed overnight andpayrolls have been generated within 30 min-utes. These results illustrate the point made byTrimi et al. (2005) that being in control of day-to-day ERP operations, with the ability to givepriority to certain identified processes in theassignment and use of system resources, is aclear advantage of internal over ASP hosting.

However, because of the city’s limited fi-nancial resources and inability to compete sal-ary-wise for qualified IT staff, the city’s ITdirector believes that the city’s ERP system maysuffer on an ongoing basis from a lack of an es-tablished in-house knowledge base. In particu-lar, with the exception of the IT director andthe department secretary, who have regular ap-pointments, all other IT department staff mem-bers were still contractual personnel and, as ofJuly 2005, no internal IT staff had had formalOracle database training.

hen the city entered into the original ASP hosting agreement, this change in ASP partner arrangements had not been envisioned.

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CONCLUSIONThe decision for remote hosting of the ERP sys-tem by the ERP vendor’s eCenter, along withretaining the services of an installation partnerthat had significant experience with the select-ed ERP vendor’s software, allowed the city of ElPaso to fast track its ERP system implementa-tion. The city was able to go live with its ERPsystem within five months of the start of theimplementation project, with most of the keymodules (general ledger, accounts payable, ac-counts receivable, human resources, payroll,and benefits, among others) being operational.With no existing IT assets and personnel at thattime, the city would have taken significantlylonger to implement the ERP system had it de-cided initially on internal system hosting.

However, problems experienced by thecity when remote system hosting was movedto a data center not managed by its ERP vendorconvinced city officials to host their ERP sys-tem in house. Despite inadequate internal ITstaff and tight financial resources, the city hasmanaged to successfully migrate to a self-host-ed system, with the assistance of a team of ded-icated consultants from its implementationpartner. To the best of our knowledge, this isthe first case of an ERP system being switchedfrom remote hosting to self-hosting in a localgovernment setting.

When the city first decided to use an ERPsystem for its financial management and hu-man resources information requirements, ASPhosting was undoubtedly the only way to pro-ceed. Given the city’s apparent success inswitching from ASP hosting to self-hosting twoyears down the road, it may be argued that a vi-able hosting strategy for a small firm or govern-ment entity with limited IT resources mightwell be to use ASP hosting as a jumpstart to ac-celerate ERP system implementation, and thenlater transition to self-hosting.

Finally, the city has continued to use its ERPimplementation partner as its ongoing produc-tion support team for the ERP system. Howev-er, such an approach needs to be a well-thought-out outsourcing strategy rather thanan unplanned outcome, as in this city’s case.For all vendor and consulting partners, theneed for properly defined SLAs is a key factorin managing outsourcing risks. ▲

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from remote hosting to self-hosting of an erp system: lessons learned from the city of el paso

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