Sourcing executives are setting their strategic direction for 2010 and beyond and increasingly asking: “What role should we play in SaaS buying decisions?”

Many sourcing executives see SaaS coming into their firms under the radar screen, through divisional, try-and-buy style purchases, often low-cost enough to go largely undetected – at least in their initial phases. However, they also see SaaS’ growing importance as a key strategic initiative in their firms and the trend towards SaaS becoming ubiquitous in the larger software market. Therefore, they want to better understand existing SaaS solutions that are being used in their firms today – where, when, why – and also understand when it makes sense to proactively push SaaS as the best overall solution based on factors such as TCO, flexibility, usability, IT staffing considerations, and upgrades.

Key considerations for sourcing SaaS include:

• Maturity of the application area. Some areas do not yet offer mature SaaS solutions. Some application areas – like ERP and supply chain suites – do not offer comparable functionality as SaaS to what firms can buy on-premise. Significant gaps exist in areas like feature/function, customization/platform, and vendor maturity/vendor viability. This means firms may deploy point solutions in silos of functionality in these areas but are a ways off from being able to buy full suites from leading applications providers.

• Maturity of the IT organization. SaaS has matured rapidly in some categories – like CRM and email. IT skillsets and cultural mindsets have not necessarily kept pace. Therefore, some firms may not yet be ready for the more “democratized” approach to deployment and may have gaps in the skills required for creating functionality on today’s leading SaaS platforms – like Force.com, Intuit’s QuickBase or even Facebook and Google as business platforms.

• Maturity of relevant technologies. Some types of SaaS solutions have significant needs in areas like bandwidth or browser / UI performance. For example, SaaS for backup and recovery adoption will be constrained by bandwidth maturity. And the limitations of browser-based application design – though significantly enhanced by technologies like Flash and by the advent of Smart Clients – still constrains SaaS success in application areas that require heavy processing or offline access.

In 2010 sourcing executives will take a more active role in SaaS: harnessing existing SaaS contracts, actively investigating where SaaS should make in-roads for their organization, and working with business units to ensure SaaS makes business sense – for the short- and long-term – when it is brought in. Key areas of focus will include SaaS vendor viability assessments, security guidelines, and templates for assessing ongoing SaaS solution value.

Keep in touch with Forrester to share your thoughts on and plans for SaaS deployment.

Liz Herbert, Senior Analyst

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