SaaS Strategy: What The Top Brass Wants To Know

You’ve made countless presentations during your career, but there’s something about this one that has you particularly anxious. The CEO asked you to put together a presentation for the board about the company’s software-as-a-service strategy and “the cloud.”

The request nags. Why now? What have they been reading? What do they want to know? And what do they know that I don’t?

Relax. Whether it’s with the board of directors, an executive committee, or a group of business unit leaders, CIOs everywhere are having the SaaS talk. SaaS is at that point of maturity when business technology leaders need to have an opinion on it–where it works, where it might, and where it won’t. And given the implications for speed and cost of deployment, expect them to have their own well-formed opinions. There are several key points they’ll want to hear about, and some misconceptions you’ll want to clear up.

But first: Do you have a SaaS strategy? Most IT organizations don’t. In our InformationWeek Analytics survey of 131 SaaS customers, 59% say it’s a point solution, not a long-term strategy. Yet SaaS and the broader concept of cloud computing are the hottest topics in IT since the Internet itself, so it’s not surprising there’s much interest among your company’s leadership. Your CEO and CFO are reading about the trend; they hear it talked about at conferences. And your business unit leaders have been pitched by SaaS vendors, and they may have bought some. So any blanket “not for us” won’t cut it. Our survey finds that 47% of companies use some SaaS, and that number is certain to rise rapidly.

We talked with CIOs about how they discuss SaaS with the most senior leaders of their companies. Based on that, we offer five guidelines.

1. Manage Expectations

“Try to dial back the ‘cloud’ conversation,” says Laef Olson, CIO of RightNow Technologies, a provider of online customer service applications. That advice may seem surprising coming from an exec at a SaaS vendor, but there are two good reasons Olson is advocating a conservative approach. First, this topic has been “super-hyped.” Second, he’s a CIO (formerly head of IT for travel site Orbitz) and therefore a pragmatist when it comes to buzzwords. “Nobody says, ‘Boy, if I just had more SaaS in my organization it would be a lot better,'” he points out.

CIOs already know tech talk is deadly in a business meeting, or they wouldn’t be where they are. Fellow executives have been exposed to the proverbial “airplane article” (or two) about SaaS and the cloud and might feel talked down to by a primer. “Everybody in the room knows enough to be dangerous,” Olson says.

Instead, delineate what business problems you’re trying to solve. Of course, every CIO walks that line now: responsibility not just for the organization’s technical infrastructure, but also for delivering business solutions. But as our research suggests, most companies don’t have a strategic view of how SaaS fits into an overall tech deployment strategy. “I think you want to start there,” Olson says.

Manpower CIO Denis Edwards does have a SaaS strategy. He talked with fellow executives at the $16 billion-a-year staffing company about which project characteristics–such as the type of data involved–make sense for cloud applications, and which don’t. Edwards let his peers know that IT likes SaaS and cloud infrastructure as a service for their speed-to-market and cost-cutting benefits, and that it’s on the lookout for the right places to apply it. It’s an ongoing conversation.

2. Partner Internally

When it comes to the nitty-gritty of getting board or executive support for a SaaS investment, it helps to have a business unit leader backing the idea.

Mark Warren is a consultant and acting CIO for 20/20 Companies, which provides sales and marketing staffing ranging from door-to-door sales to in-store personnel. Each contract is specific to the client engagement, so each contract requires essentially a custom application, incorporating specific approaches to recording sales data and invoicing, for example. Custom development has “an amazingly high failure rate,” Warren says. “Believe me, I know.”

20/20’s IT organization was struggling to meet the demands of the company’s three growing business units, especially its retail division. So in 2008, he researched third-party development platforms as a service, a relatively new category of online software services that provide tools and infrastructure for crafting online apps. At the same time, the head of the retail division was looking at a single contract in the $20 million to $40 million range, with potential to double the group’s revenue. To fulfill the engagement, they needed custom development that Warren didn’t think the IT team could deliver in a timely manner with their .Net and SQL Server platform.

Warren proposed moving the retail division’s database and development technology to Salesforce.com’s Force.com platform as a service. But what pushed the proposal over the top, says Warren, is the head of the retail division attaching revenue along with his support for the project.

Warren’s 2008 proposal to the board on PaaS focused on the retail division but addressed possible future use should it succeed. It has. One of 20/20’s other divisions moved to the Force.com platform last year, and the other is in the process.

Manpower’s Edwards says SaaS applications and cloud infrastructure can fundamentally change how IT organizations perform, letting them meet business needs faster thanks to faster prototypes and quicker implementations. By explaining IT’s approach early on, Edwards thinks his fellow executives understand the potential and limits. “They’re comfortable in knowing that we’re looking at ways to be more innovative and be able to get things to market faster,” he says. “But they also know it’s not a panacea.”

3. Vet Your Vendors Well

The SaaS conversation has evolved from “What is it?” to “Who does it best?” Even more than with traditional software decisions, the SaaS decision entails mutual dependence and therefore true partnership.

Warren of 20/20 says Salesforce’s longevity and strong reputation helped in his company’s decision, even though the Force.com platform was only a few months old. Similar offerings from startups at the time were deemed “too risky to bet the business on,” he says.

Still, somebody has to go first. “We were the first Workday customer to do it globally,” says Steven John, CIO of H.B. Fuller, which manufactures industrial adhesives and sealants. “In some ways, we blazed the trail.”

John came to H.B. Fuller in 2008 and found an organization without the right IT resources. “Time was a factor,” he says. “We were on very old technology and so we couldn’t take the linear path of upgrades. IT didn’t have the capability to keep up with the growth of the company. I had to find creative ways to move it forward, and the cloud was the obvious solution.”

One nagging area was a failed HR software implementation. The company was paying dearly while using only portions of the software, and an upgrade was around the corner. It’s at moments like those that CIOs often consider SaaS. So John made a pitch for partnering with a then-newcomer in the market, Workday, which offers online HR software.

“They weren’t a public company, so we couldn’t get into the finances too deep. That had the finance people worried,” John admits. It helped that one of Workday’s founders, Dave Duffield, had founded HR software company PeopleSoft. John never made a SaaS presentation to the board. “IT doesn’t get a lot of airtime before the board,” he says. He did pitch the CEO and the CFO, but he stayed out of the weeds. “It was two or three bullet points in a presentation,” he says.

4. Be Careful About Cost

This is trickier than it might seem. Because SaaS is usually a subscription service, it doesn’t have the major up-front capital investment of licensed software implementations, and it’s widely expected that lower costs will be part of SaaS. “The Workday implementation was self-funded through cost savings,” says John. “Part of what I said when I took the [CIO] job was, if you leave my budget flat for five years I will drive out enough cost to self-fund replacing the architecture.”

Yet not everyone finds SaaS cheaper. More than a third (37%) of respondents to a recent InformationWeek Analytics survey on outsourcing say SaaS or cloud computing is providing the dream combo of higher quality at lower cost. Yet almost one-fifth say cloud/SaaS delivers better quality but at a higher cost. That’s not a story often told, so buyers should keep an eye on total, long-term costs.

Ken Harris, CIO of Shaklee, which markets nutritional products, has implemented 10 SaaS applications, at least of couple of them “very core,” he says. Harris made his presentation to the board about four years ago, though he’s not sure he ever mentioned the term SaaS, which is a “more technical term than what you want to put before the board.”

Instead, he says he talked about change–how do you change out your infrastructure faster, and how do you make more change happen even quicker. Cost was one part of the discussion, but it’s in context with the other benefits. “You talk about it as a fully existing solution, faster to market, and cheaper cost,” Harris says.

He cautions that all the long-term cost factors around SaaS haven’t made themselves apparent, because it’s still early in the adoption curve. For instance, what if your service provider goes out of business, or the two of you have a falling out? How costly will it be to disentangle these systems and reimplement them somewhere else? Given the symbiotic relationship between provider and customer, Harris says, “you’re dead if your vendor walks away.”

And even more than cost, Harris thinks speed is the most important feature. IT pros agree–in our SaaS survey, it’s cited more often than any other attribute, slightly ahead of costs. “You get functionality faster,” which is now “the Holy Grail of the app,” Harris says. “CEOs want flexibility and speed more than anything.”

5. Confront The Risks

If there’s one thing most boards have in common, it’s their desire to avoid risk. And with the SaaS model putting critical applications and possibly sensitive data in someone else’s data center, accessed over the Internet, it creates new risks.

SaaS has been used long enough now–Salesforce is 10 years old–that the fundamental model has proved itself. “There is at least a base level at which those questions have been answered,” says Shaklee’s Harris.

Still, that doesn’t mean all the questions have been answered–or even the most significant ones. H.B. Fuller’s lawyers have brought up questions around access to data, e-discovery, and data ownership, and the ability to transmit data across geographic areas, John says.

Some cloud computing providers, using multitenant architecture and multiple data centers worldwide, can’t guarantee, for example, that data won’t leave the country. That’s a deal-breaker for some regulated companies. Some providers can make that kind of guarantee, so it’s the kind of question to get answered early.

Almost a third (31%) of companies using SaaS consider those apps less secure than their internal one, the InformationWeek Analytics 2010 SaaS Survey finds. That’s why SaaS vendors are anxious to demonstrate that their security may actually be better than the customer’s. Given what vendors have at stake, it often is. But before committing to a vendor, be sure your compliance and security teams are satisfied. (See story, p. 32, for SaaS operations advice.)

Another risk area is performance. A recent trend among SaaS and cloud vendors is allowing greater transparency into their operations. Anyone, not just customers, can access Google’s and Salesforce’s “trust” sites for real-time and historic metrics. But many offer only historical reports, and SaaS customers often rely on vendors to monitor their own performance. That’s not a good plan. Be prepared to discuss how you’ll track performance and be kept up to date on problems.

Don’t duck the risk issue with fellow business leaders. For instance, H.B. Fuller’s John says, in terms of data risk, you need to work out a “prenuptial agreement” with the SaaS provider that addresses issues such as: Who owns the data? In what format will you receive it if you leave? If there’s a lawsuit that requires a hold on data, how does the vendor do that for you?

The same goes for performance risk. There are several things you need in every contract addressing performance, says Shaklee’s Harris, including guarantees around uptime, transaction time, and failover response time. And deviations should have economic consequences. “There’s got to be an incentive for the vendor to deliver after the contract is signed,” he says.

One final point. Don’t try to “sell” SaaS. It either makes sense for your organization or it doesn’t. Think strategic plan, not sales pitch.

Chris Murphy

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~ by momentaglobal on May 18, 2010.

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