By Jeffrey Rothfeder
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Outsourcers have responded to this shifting landscape by offering no-lose deals that many small and midsize companies can't refuse.
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Perhaps the most radical deal is offered by CenterBeam Inc., a San Jose, Calif.-based outsourcer that targets companies with up to 2,500 employees. Instead of long-term contracts for managing a client's technology infrastructure, CenterBeam offers month-to-month service agreements—in the simplest cases, costing about $50 per month for each desktop—that can be canceled with 30 days' notice.
That promise hooked John Musil, the CEO of Apothecary Shops of Arizona, a ten-store pharmacy chain headquartered in Scottsdale that focuses on providing drugs and medical equipment for diseases affecting women and children. Until recently, each Apothecary branch operated as a standalone store. This put the company at a distinct disadvantage compared to large national drug retailers, which have centralized record systems that allow customers to fill prescriptions at any outlet. It also made it difficult for Apothecary to cut sweetheart deals with manufacturers, because no pharmacist could easily produce a chainwide accounting of individual items sold, a tally that medical equipment makers use to determine which retailers deserve special discounts. Since Apothecary promises customized treatment for unique medical conditions—including the skills and inventory to make complex compound drugs and keeping a large number of medical devices on hand—the lack of an integrated computer network meant that the company was operating by the seat of its pants and mostly in the dark.
"We're a great pharmacy organization, not an IT organization," says Musil. "My corporate communications director was de facto head of IT, but when IT suddenly represented more than keeping a desktop computer operating—when it represented whether we could continue to compete in our own business—I knew we had to look outside."
CenterBeam's month-to-month deal made Musil's decision easy. If his plan for an outsourced storewide system didn't work, he could get out of the relationship with very little money and time invested. A network linking up all the Apothecary stores debuted in late 2002. Now, each store could view the customer and inventory databases, and management could obtain a complete picture of company activities. Musil says it has greatly improved the operating margins at his $50 million company (by contrast, Walgreen Co., which also does business in Arizona, has nearly $29 billion in annual sales). Sharing patient records among branches and keeping track of sales by store, or even by the healthcare provider who prescribed a drug or a device, are important benefits, as are two unexpected ones: Pharmacists from different branches are swapping war stories over the network, sharing their experiences about making drugs for more complex conditions, so they don't have to spend hours solving problems on their own. Meanwhile, company-wide inventory has been consolidated.
"It gives Apothecary the advantages of a larger chain without losing our distinct identity as a clinically based pharmacy," says Musil. Next step for the network is e-prescribing: Physicians will be able to send in prescriptions via PDA, an application that's 90 percent finished and that no pharmacy in Arizona, large or small, offers.
The renaissance in technology activity at small and midsize businesses is borne out of desperation, which even more than necessity is often the mother of invention. All of the small and midsize businesses interviewed for this article said that they would have found it difficult to thrive or even survive had they decided to save the money and avoid the risks of a new system, either internal or outsourced.
"The market's upside down," says CenterBeam CEO and president Kevin Francis. "A few years ago, no one would have expected small and midsize businesses to lead a new round of technology spending. But that's the sweet spot now."
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