Software-as-a-service (SaaS) continues its rapid growth — becoming an increasingly strategic part of firms’ application portfolios. Firms are using SaaS across a wide range of applications from CRM to ERP to IT, for deployments of all sizes, and across multiple geographies. As firms make heavier use of SaaS solutions, CIOs must ensure proper due diligence in the selection process. Although some SaaS still comes in through under the radar screen, business led deployments, centralized groups in IT, sourcing, and vendor management should take ownership of the research, purchasing, negotiations, and ongoing vendor relationships for these solutions.
Forrester suggests CIOs ensure the following considerations in SaaS sourcing:
A recent Forrester snap-survey shows that 41% of IT decision-makers are seeing their relationships with business peers strengthen in response to economic conditions. And only 13% feel that the relationships have been harmed — being pushed back into more of a support role. These figures suggest that IT has the opportunity to play a lead role in bottom-line drivers — well beyond cost reduction. Smart IT leaders know that now is their chance to redefine IT’s value to the enterprise.
The bigger question is: What should IT leaders do to capitalize on this opportunity? We at Forrester have our ideas (hey, we’re a firm full of analysts so there’s no shortage of opinions here). Some that come to mind are:
I get this question all the time because, let’s face it, it’s a significant decision. For example, an Enterprise Agreement (EA) renewal for an enterprise with the main desktop suite on, say, 10,000 PCs could cost around $1,500,000 per year. So what do you get for this outlay? You’ve already purchased a perpetual license for the relevant Microsoft products via your original EA, so the renewal is merely an extension of the maintenance element, which Microsoft calls Software Assurance (SA). Like most terms in Microsoft licensing, SA looks like an industry standard concept, but has sufficient Microsoft-specific nuances that confuses customers. The key differences from most vendors’ software maintenance offerings are that SA:
Is not tied to product support. Customers that aren’t paying SA still get access to patches, and can purchase additional support services from Microsoft or its partners on a time & materials basis.
Delivers upgrade rights that live on after the agreement expires. Customers earn rights to any version that Microsoft releases while they are on SA. So, for example, a customer paying SA on Microsoft Office for the next 12 months will earn the right to the next version, Office 14, due out at the end of 2009, even if it doesn’t intend to actually upgrade to that version for another 3 or 4 years
Includes many additional benefits that, though hard to value, are far from worthless. For example, the extra training, online e-learning and rights to use the same version on a home PC will certainly translate to more effective use of the software and enhanced user productivity, but it's very hard to give that a dollar value.
Recently, I’ve had a number of conversations with CIOs and senior IT staff on the pressures caused by business belt-tightening.
This, of course, has cascaded to IT in the form of the need to cut. Favorite targets: new investments, whether for business-sponsored projects or infrastructure, followed by ‘IT overhead’ – travel, training, IT improvement programs, followed by opportunistic cuts in the operations budget. For most I’ve talked with, they have their budget for 2009, but are still watching for the request for further cuts.
Now, the hard part has started for them. As one said “having less to spend means I need to work harder to make sure it’s spent wisely’. The problem isn’t just one of picking areas to spend on, but also in making sure that the business execs who are getting more involved in these decisions agree it’s being spent wisely.
I constructed this formula to help the conversation. It basically lays out what I call the IT’s ‘cost/capacity/demand’ challenge. Perceived business value is business management’s belief that they are getting good value from overall IT spend. It’s a function of aggregate business demand; not just projects but also tactical requests for application enhancements, or expectations for service quality - spread over available capacity; both staff, external services and infrastructure capacity - at a particular cost. The cost is IT spend, and when spend goes down, capacity goes down.