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Keep Eyes Wide Open When Considering SaaS

Virtualization Journal

16 March 2012


Identify business requirements during the strategic planning process

Organisations today rely heavily on their IT software to drive the business objectives to meet the needs of the market. There are a number of sophisticated software applications that have grown in demand and complexity to support an organisation's value chain such as Customer Relationship Management (CRM) and, conversely, the back office, Enterprise Resource Planning (ERP). In the traditional model, to meet the needs of the organisation the IT department designs software, hosts applications, codifies software and manages the operational functions to distribute the internal software packages to customers.

However, while many IT departments manage this function internally, customers have recognized that IT often takes too long to deploy software packages.

Software as a Service (SaaS) disrupts the traditional software model and many buyers have recognized some advantages such as:

  • Small to medium organisations can leverage SaaS to scale and compete with large organisations to gain competitive market presence.

  • SaaS pricing structures are consumption-driven, which makes for low total cost of ownership (TCO), enabling immediate value due to rapid access to those investments.

  • Organisations struggle to get management information from their ISO quality management system. SaaS packages have allowed teams to change their focus from tactical work to the strategic need to capture and analyse information, further enabling an organisation's competitive stance by relying on a factual approach to decision making to improve business outcomes.

Organisations will fail unless the following six things are done:

1.      Organisations cannot assume that by engaging in SaaS you can simply outsource software development resources. Organisations will require a governance model for technical and vendor management resources to ensure the contract value and benefits are captured. In addition, contract legal terms have to incorporate the global privacy, regulatory and loss of data due to increased hacking incidents. An organisation should consider shared liability for data loss and business impact with SaaS providers.

2.      SaaS providers are constrained by their regional support organizations. Based on an organisation's deployment choice, it may require the organisation to consider a systems integrator to implement the solution. If an IT organisation does not have a proper service management capability, they might find deploying the new services very challenging and may miss customer expectations.

3.      SaaS vendors have a great product offering when there is no customisation. Many organisations view SaaS products as parallel to commercially available off-the-shelf products that are ready for use. If an organization requires customisation of its SaaS products, then the business case begins to deteriorate at a significantly high rate. Without strong leadership on the buy side, what was once seen as a win-win is now deemed a false economic fallacy that will in turn leave value on the table.

4.      Organisations evaluating their vendor partners will use multiple methods. One method is the vendor financial health. Few SaaS providers are publicly traded, while many are privately funded or funded by venture capitalists. This makes it difficult to evaluate vendors' financial viability. Yet SaaS providers have been opportunistic in niche markets and have cannibalised the customer base, making it more challenging to obtain a solvent partner.

5.      Many organisations have sunk costs in their already deployed internal ERP systems and may not be willing to invest in this changing model to adopt SaaS. While ERP providers don't offer commercial SaaS alternatives, they too are now evaluating future SaaS offerings to provide to their customers.

6.      The business partners are "cutting IT out of the loop" on the solution design process and bypassing capital investment committee reviews due to the SaaS TCO pricing structure. This creates new organisational and management challenges on who is accountable for managing the business value chain.

Organisations should carefully evaluate SaaS solutions as part of their decision making as they can leverage a higher degree of success in achieving their business objectives. Organisations should identify their business requirements during the strategic planning process and integrate IT service management and sourcing best practices to ensure that what you see is what you get.

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