Is the “software as a service” phenomenon a blessing or a curse? Sorin Toma takes an informed, balanced look in this detailed analysis.
Myth – It’s new, it’s risky and it’s expensive!!!
Not true. It has been done successfully. It’s not as risky as you think and the benefits are there.
We were using the term “Application Service Provider” as far back as the late 1990s. The “as a Service” paradigm has been around in some shape or form for a long time now. In fact, I have been able to track the term SAAS (Software as a Service) as far back as 2002 (Gartner) and McKinsey wrote a well-read paper in 2007.
A more detailed search of the web may unearth evidence going even further back. I even remember, some years ago, Microsoft attempting to charge for Office Software on a “Pay per click” model. Although there was a backlash, Microsoft has managed to move to a “subscription” type model for most of its software products.
What’s changed? Why is “As a Service” taking off so rapidly now?
A number of factors come into play, such as;
The “Cloud” makes it easier to deploy SAAS,
Some vendors, especially the big ones, see the “Cloud” and SAAS as an opportunity to make more products available as SAAS,
Governments and some industry sectors are under a lot of pressure to cut costs or have less money to spend – this trend was accentuated by the Global Financial Crises and the collapse in commodity prices, which resulted in lower Government revenues and lower economic growth,
Small business enterprises see SAAS as an opportunity to get access to software platforms and applications they couldn’t otherwise afford and thus improve their business, their productivity and their competitveness.
So, what is the difference? What does “AAS” mean to any enterprise?
Key aspects of “as a service” (AAS) include the following;
1. A change in Funding Mix – Shift from Capex to Opex or Pay-as-You-Go. It is funny how many reasonably sophisticated enterprises miss this. They go through a procurement exercise for “as-a-Service” and then realise they haven’t adjusted their budgeting and possibly, have not even spoken to the CFO. Oooooops! Yes, we want “as-a-service” but we have no opex although we have lots of capex! A fundamental mismatch!!! For some vendors this is almost like Christmas. Because they can make their clients pay for their solution twice – once in capex for integration, data migration and other one-off costs and then embed the same costs in the opex component.
2. Fit-Gap Instead of Requirements. In most cases the client does not have to specify requirements. Developing requirements is a time-consuming, expensive and risky exercise anyway, that often results in failure-because requirements are thrown in without being qualified whether legitimate or not. You can end up with a set of requirements that does not have any corresponding solution in the market place. Worse, you may end-up replicating legacy problems and legacy systems. Ouch!!!
Therein lies the trap. You do not need to specify detailed requirements, but you do need to run a detailed “fit-gap” on the vendor’s standard SAAS solution to make sure it appropriately delivers for you (e.g. there are no major gaps). That requires involving your best people through constructive debate and efficient organisational structures. Not easy. What’s more – any deviations are likely to be expensive, not just to develop, but also to maintain and support on a long term basis. Worse – such deviations may lock you into a particular vendor.
3. There are Significant Benefits to be Obtained When You Pair SAAS with the Cloud. Not just cheaper, but increased flexibility, availability and for smaller enterprises, access to software platforms previously unaffordable. This is resulting in increased productivity and competitiveness. Speed to market. Increased ability to respond appropriately to market events and changing customer needs. No wonder Cloud SAAS is taking off!!!
4. Emphasis on Improved Commercial Capabilities and Vendor Relationships.
If you enter into an “as-a-Service” agreement the balance of power is with the vendor, where you as a client are far more reliant on the vendor to make changes and to be responsive to your needs in a changing market environment. This is by comparison to an outsourcing agreement – let’s say. Using SAAS is more of a partnership or a “marriage” than an outsourcing commercial relationship, so you want to make sure you get it right. It is far more difficult to exit such a relationship or change, than it is to exit an outsourcing agreement – because you do not own the software platform or IP, so you can’t just take the systems back!!!
Therefore, you need to work out in advance what you will do in case you wish to exit the relationship. It is necessary to have a legal and commercial way out, as well as a technical procedure that ensures the integrity of your data. Then, test both to verify they work as expected. Best relationships may be those that can be easily terminated if they go sour. That will certainly ensure the vendor pays attention to your needs and is more responsive to your requests. Nevertheless be reasonable – vendors have to make money, they are not a charity.
A recent article in The Economist (October 17th Edition) on page 16 “The Sky’s the Limit” deals with vendor “lock-in” more from a Cloud perspective, but equally true for SAAS. It is not easy to move to an alternate provider especially once you have accumulated huge amounts of complex data. “Being locked into a provider is risky” as vendors will take advantage by increasing prices eroding your benefits!!! You may want an exit option that lets you buy a temporary software license.
5. Standards/Compliance is Critical, Meaning;
a. Enterprise Architecture standards,
b. Data standards, and
c. Integration – interoperability standards.
Enterprise Architecture. It is essential you avoid duplication of functionality, waste and inefficiency. Good enterprise architects are rare. Stick to those with experience rather than accreditation. Have robust Enterprise Architecture strategies in place, and application “stacks” clearly defined. Enablement is just as important as compliance. However, remember it is pointless to have standards, strategies and plans if they are not followed or utilized effectively.
Data. The viability of your own organization may be dependent on your data, and your ability to access and manipulate it. Avoid data islands, duplication and unreliable or incomplete data sets. Data cleansing is a painful exercise. However, there are major benefits to be obtained from such an exercise. Furthermore there are now multiple vendors that specialize in data cleansing and remediation. Deploying a new SAAS platform should be preceded by a major data cleansing exercise to ensure you obtain all the benefits you should get.
Interoperability. Finally, few if any software applications work in isolation in today’s networked mobile world. Have clear and robust integration standards in place that are widely supported by most market software vendors. Compliance is not negotiable. This is also essential to avoid vendor lock-in by developing an integration layer that enables you to switch providers more easily.
6. Security is Paramount.
There may be data and applications that provide your organization with a competitive advantage, IP or differentiation. If that is the case, do what other large organisations like GE do – keep critical data and IP to yourself in your own data center. Only deploy SAAS where it is appropriate, relevant and likely to deliver major benefits to your enterprise. And even then, ensure that security is of the utmost importance in your agreement with your SAAS solution provider (e.g. the consequences of a security breach must be clearly specified).
7. Proactive Vendor Management is Essential to Success.
Set the appropriate KPI’s to monitor to ensure you continue to derive value from your SAAS vendors in the long term. If you don’t measure it – then it isn’t happening. I will not go into detail here because there are many high quality sources of information on this subject.
8. “As-a-Service” Panels are Utterly Inadequate.
Some organisations have setup “As-a-Service” panels to make procurement or sourcing of “As a Service” platforms and applications easier. Great in principle. Useless in practice. Why? Panels are not accompanied by matching Enterprise Architecture Standards. Sometimes vendors have been included in panels without any process to check or verify their claims. In some cases, so many vendors have been certified so quickly, it is even unclear as to which categories or products they are supposed to have certification.
Many organisations also fear legal consequences of not including some vendors, so the gate is left wide open to all comers to avoid the risk of expensive litigation. If you rely on panels there is only one certain outcome – failure. Use panels as guidelines and nothing more. You still have to do a “fit-gap” – you can’t assume that a particular SAAS solution will be fit-for-purpose for your organisation because the vendor is on a panel.
Some vendors are arrogant enough to say that they support thousands of clients world-wide and if their solution doesn’t fit, then your organization is doing something wrong. Perhaps. However, if that was the case, then in theory the Queensland Health Payroll debacle would have been impossible. In reality – the fact that 9 out of 10 IT projects run over budget, over schedule and deliver less than projected benefits – seems to indicate that many solutions are over-sold, inappropriately targeted, or simply not fit for the intended purpose. Therefore, you have a duty and responsibility to verify that a particular solution is ‘fit-for-purpose’ for your organisation. You cannot rely on any vendor’s claims.
IS “AS-A-SERVICE” A SILVER BULLET?
Of course not. There are significant benefits to be obtained using “As-a-Service” applications and software as described above. And yet, with a heavy heart, I predict many organisations will fail to realise such benefits. No paradigm will automatically deliver benefits without proactive management, suitably qualified and experienced staff and paying attention to important factors such as those described above.
Furthermore, “As-a-Service” does have significant implications in terms of cultural change, adjustment and change in the way IT operates in your organisation. Not to mention, change in the way IT is governed. Over time, IT may shrink, but require far more specialised and highly skilled staff. There is significant potential to improve the relationship between business and IT. That may be a subject for another blog/post as it is quite an important topic in itself.
This post/blog is not meant to be a formula or methodology for deploying “As-a-Service” solution, but rather just a set of some key guidelines to start the thinking process for those who are considering “As-a-Service” solution at this time.