Firms Get More Strategic About SaaS Sourcing in 2010

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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Best Practices For SVM Software Selection And License Negotiation

At Forrester’s Services & Sourcing Forum earlier this month in Chicago, Patrick Connaughton and Duncan Jones led a breakout session on common problems with software selection, organizing the selection process, and negotiations strategy. Below are some tips from clients and vendors at the session.

Plan ahead
One client recommended plotting the next 90 days of negotiation milestones in order to plan sourcing’s involvement. This helps you structure your approach so that you close the deal at the point when you have the best leverage. Formalizing and documenting the process also helps you demonstrate to the business that you did your homework.

Get involved before the vendor selection phase
Establish the value of what you do and let the business know how you can help throughout the process. Bring information the VPs don’t have, like benchmarking. The earlier you are brought in, the more you can plan ahead, and the better your understanding of what is important to the business before you meet with vendors.

Focus on differentiators
The RFP process is so mature that vendors often respond in a way that highlights themselves without showing any real differentiators. Don’t just use packaged, boilerplate RFPs — pare down the criteria to reflect what’s important to you.

You have more leverage as an early adopter, and when replacing a competitor
In both cases the vendor is likely to send the A-team and to concede higher discounts. The vendor may see you as a potential marquis client that can act as a reference and even speak at events.

Look beyond the typical references
On the flip side, try to talk to references who haven’t already spoken to a dozen prospects for the vendor and participated in webinars.

Don’t skimp on the TCO analysis — but don’t do it too early either
One client lamented at a software selection that overlooked some necessary hardware upgrades. However, a TCO is very time consuming, so whittle the list down to a few vendors first.

Don’t let the vendor entrench itself
When validating your choice via a POC, one client warned against letting the vendor provide services free of charge, making it more difficult to go back on your decision. Although you are evaluating the vendor’s ability to customize and support the software, be prepared to pay for what it does.

Bring in the hardest to satisfy stakeholders
The software is never as easy to use as the pre sale rep made it seem. Involving heavy users and the harshest critics will ensure everyone buys in.

Rosslyn Analytics Offers Up A FREE SaaS Spend Analysis Solution…

Rosslyn announced today the launch of its free SaaS automated spend analysis tool, RA.Pid. This effort to bring spend analysis to the masses enabled by a SaaS deployment model is long overdue. Traditionally we see spend analysis solutions deployed as license based solutions installed locally on site. In today’s economy, companies are looking for alternatives to that model and Rosslyn really hits the mark with this offering. What was previously reserved for the most advanced procurement and sourcing teams is now being packaged into a simpler to use and setup solution -- enabling less advanced companies to get their feet wet. Click here to see the press release.

We followed up with some key questions you are likely asking about this free solution. Here are the highlights:

Forrester: How long can the user stay active without a fee? What other terms and conditions should we know about?
Rosslyn Analytics: Organizations can use RA.Pid for free as long as they want.  The only caveat is that one person per company is permitted to use RA.Pid for free. Subsequent corporate licenses cost $150 per person, per month. 

Forrester: Are there any limitations on the volume of data? Number of uploads? Interfaces? 
Rosslyn Analytics: The data limit is 100 MB. This means a user could upload as many completed data templates (as many times as they want) up to this limit. 

Forrester: Who owns the data? For example, does Rosslyn own it and could you in turn use it for benchmarking with other clients?
Rosslyn Analytics: Rosslyn Analytics does not own the data. However, in the terms and conditions of the contract, we request that the data is used in the strictest confidence, and anonymity, for benchmarking purposes.

Forrester: Can free users leverage your help and support just like a regular user?
Rosslyn Analytics: Yes, there is a comprehensive online/email support service that has been designed to make sure it’s a simple user experience.

Forrester: What reports exactly are available out of the box for free users?

Rosslyn Analytics: Users have access to more than 20 ready-to-use “slice and dice” reports.

As a side note, we also recently completed an interview with one of Rosslyn’s references and they spoke highly of the solution. For those companies seeking a spend analysis solution and looking for an alternative to the usual suspects, Rosslyn is a good option to consider. Let us know what you think. And especially if you sign up and try out the software, send us a review.

Patrick Connaughton, Senior Analyst

Key Takeaways From The Services & Sourcing Forum

I love going to our Services & Sourcing Forum. As always, our event in Chicago was a great experience. In many ways it’s the highlight of my year as Research Director of the Sourcing & Vendor Management team. The forum takes almost a full year to pull together: picking topics, finding speakers, preparing content…all in the hopes we can help our clients learn something that will help them do their jobs better.

And in return for all that work, the SVM team always learns something too. The attendees, generally senior sourcing execs from big companies, are so willing to share their experiences with us and with each other that I always leave the forum feeling productive and smart and humble. Smart because I leave knowing we provided great content but humble because I always realize at the forum how much I still don’t know (or know well enough).

What did I learn this year? Here are some key nuggets (in no particular order or pattern):

• If you want innovation make a list of your top five challenges as a business, then give that list to your vendor’s research or product management group (this advice from Dev Mukherjee, President of Toys and Seasonal Business, Sears Holdings).
• Sourcing teams struggle most on software negotiations rather than hardware or services, because its cost basis is not as clear as the other two (from one of our Forrester Leadership Board members).
• Vendor risk is still a hot topic. When building a vendor management group remember that having a good process lets you then systematically decide how you are going to streamline those processes with compromising your outputs (from Dave Higham, Director of Vendor Management Services, Russell Investments).
• Smart companies teach their vendors. I mentioned this in my keynote and several attendees talked to me about it afterwards. Telling your vendor where your company is going and what you’re going to need doesn’t take away your negotiating leverage: it makes your vendor more interested in helping you get to your goal.

On the flip side, what got attendees’ attention?

• Managed services. This was a hot topic during keynote Q&As, track sessions, our action workshop, and at networking breaks. Big companies want to get out of the labor-based services game and move to an outcome-based model. (Despite attendees’ uncertainty about what a fair price is for a service when you can’t necessarily deconstruct the cost basis.)
• Multisourcing. Often in relation to moving to managed services, attendees could not get enough content around doing multisourcing right and getting the most value from using multiple providers.
• Vendor risk and governance. Vendor viability is only becoming a bigger issue. Earlier this year, the question was “will my provider survive the recession?” During the conference it was “should I stay with my provider that just got acquired (this on the heels of ACS and Perot being acquired by Xerox and Dell respectively), “how can I judge vendor viability in a cloud model if profitability depends on volume,” and “can I make sure my vendor didn’t quote me an unsustainably low price?”

For those readers that attended the Forum, feel free to add your top takeaways in the comment section.

Christine Ferrusi Ross, Vice President and Research Director

Enterprise cloud service offerings are coming — but be on the look-out

While most IT decision-makers are still quite reluctant towards the implementation of enterprise-level cloud services, a growing number of firms is nevertheless currently investigating and running pilots to establish whether those would be suitable and economically viable solutions for their businesses. With this new market opening, it's inevitable for vendors to come rushing in, and Forrester sees both IT service providers and telcos gearing up to offer cloud services to enterprise clients. Unsurprisingly, potential savings are one of drivers behind this growth in interest — and with shorter ROIs, these are particularly appealing to enterprises needing to upgrade in this climate. This emerging services technology is typically based on the concept of standardized, billing based on consumption, scalability, and access, but can vary considerably from one provider to another at this day. Web-based offerings, SaaS, PaaS and IaaS represent the typical general types of cloud services, but those are more-or-less covered depending on the current vendor capacity. On top of this, as with any emerging technology, the lack of maturity can be a hindrance. In this case, enterprise IT decision makers need to analyze vendor offerings in detail to make sure their provider has the necessary real latent capacity, that can easily be turned on or off, and that the offering is not merely a claimed utility or on-demand service capability, with the appeal of cloud services but lacking the core processes.

You can read more about this in Paul Roehrig’s series of documents "Cloud IT Services Market Overview — Real Enterprise Value Or Just Vapor?"

CSC Expanding Operations Through BearingPoint’s Brazil Assets

In a recent press release, CSC announced the completion of its acquisition of BearingPoint’s operation in Brazil.  Specializing in consulting and systems integration services, BearingPoint’s Brazilian business unit employs 550 people in offices in Brasilia, Rio de Janeiro and Sao Paulo. With this acquisition, CSC expands their horizontal capabilities and vertical industry expertise in its Chemical, Energy and Natural Resource sectors.  BearingPoint Brazil’s clients include some of the world's largest producers of oil, gas and iron ore.  This acquisition of BearingPoint Brazil is yet another for the company after declaring bankruptcy in February (significant portions have been sold to Deloitte and PwC; more recently Keane said it had reached an agreement to acquire portions of BearingPoint's North American public services unit).
 
In addition to looking to Brazil’s domestic market for continued growth, CSC also adds to their global delivery model with this acquisition.  CSC Chairman, President and CEO Michael W. Laphen said: "We will establish a meaningful foothold in one of the world's largest emerging markets, add capabilities that extend and complement our own and position CSC for increased success both internationally and domestically."  Brazil is highly attractive as an alternative offshore geography, as well as a local market as the world’s ninth largest economy.  Although some barriers exist, such as language barriers and security issues in large cities, Brazil is rich in local IT culture and systems and has a large base of mainframe skills.  Additionally, Brazil is an appealing offshore location because of its time zone shift from the US and its highly educated and young population.  CSC joins vendors such as IBM, EDS, Accenture and TCS who have already established themselves in the Brazil offshore/export market. 

Multisourcing – an opportunity to drive value if done well

Sourcing executives are investigating multisourcing as a way to drive down costs and improve agility. The picture is not all green though: multisourcing’s success is dependent on the effectiveness of service integration between suppliers, which shows a number of challenges.

• Multisourcing’s value is founded on the concept of managing your suppliers simultaneously, which is why a skillful sourcing team is needed. Scoping and establishing a multisourcing deal will take more time and investment, but this is the first crucial step in getting it right.

• Once a multisourcing deal is established, keeping it running strategically and efficiency requires irreproachable collaboration between internal and external teams. Just don’t count on vendors for spontaneous collaborations – although one vendor is usually predominant, it is up to the sourcing teams to facilitate this through governance, pre-established rules, and round tables.

Wipro Is First To Market With Global Run SAP Certification

In recent interviews with client references, clients have told us that must haves in working with implementation services providers are tools or methodologies that lead to cost savings and a faster time to value. This is especially true for something like an SAP implementation, which is often a high profile undertaking that extends over several years and promises significant benefits.

In response, service providers are adopting the latest SAP methodology called Run SAP. Run SAP provides best practices, procedures, content, services, training, and tools for end-to-end solution operations. It focuses on application management, business-process operations, and administration of SAP solutions. It includes uniform tools and methods to reduce complexity, allows for the adjustment of standards to meet a wide range of requirements, and provides guidelines for knowledge transfer to employees tailored to the needs of a particular organization.

Wipro recently announced that they are the first SAP partner to be certified in Run SAP Methodology globally. Other large SPs like EDS and Keane are also certified Run SAP partners, but only in the United States, as well as niche players in local markets like Al Bilad Arabia. It’s safe to say that other large providers will follow Wipro’s lead and seek global certification, but for now, Wipro will certainly use this certification as an effective marketing tool for clients seeking faster value delivery and cost savings — but broader utilization in large SAP deployments and wider spread adoption in the SP community will be key to fostering its success

Offshore Slowed Down But Still Growing

Despite a renewed focus by clients to cut costs and to renegotiate rates, offshore providers are showing some positive signs — with Infosys, TCS, and Wipro recently posting better than expected quarterly earnings. Strong dependence on US and on banking and financial services clients had created fears that offshore business would be hit particularly hard in the economic downturn.

However, preliminary data from Forrester's 2009 Enterprise IT Services Survey shows an increase in offshore outsourcing this year. Half of respondents, up from 42% last year, indicate they use offshore (including commitment to offshore IT services and pilot projects). Furthermore, 54% of respondents have put implementing or expanding the use of offshore resources as an agenda item, a dramatic increase over 30% last year.

Clients should remain cautious and continue to monitor the health of their providers. A new report by Sudin Apte, "Will Your Offshore Provider Survive The Recession?" outlines key indicators of vendor risk and can help you plan for mitigation.

NetSuite’s Full Court Press: Vendor Incents Sage Partners To Move Business To The Cloud

NetSuite Inc. recently announced a new offering to entice Sage partners in the U.S. and U.K. to join NetSuite’s Solution Provider Program.  NetSuite encourages businesses to enter the cloud by offering 50% margins on all new one-, two-, or three-year subscriptions to NetSuite for the first 12 months.  The Solution Provider Program is designed to give Web-based business solutions to growing companies.  NetSuite offers solutions for accounting / Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Ecommerce.

    NetSuite’s offering comes in the wake of recent failure of MIS Group, Sage’s largest value-added reseller. NetSuite continues to establish itself as a top player in cloud computing and more and more companies are beginning to adopt their solutions to run key business operations.  In a press release this morning, NetSuite announced that three of the most recent technology Initial Publish Offerings were by companies working with NetSuite, including OpenTable, Inc., SolarWinds, Inc., and LogMeIn, Inc, proving that SaaS continues to be a strong option for fast-growing companies who want low capex costs, flexible solutions, and outsourced IT.  

    The advantages and popularity of SaaS are becoming hotter and hotter for various reasons, such as reduced cost of and quicker adoption, on-premise cost avoidance and improved flexibility.  SaaS benefits can also include long-term cost savings and higher adoption rates overall (See Liz Herbert and Jon Erickson’s recent report, The ROI Of Software-As-A-Service).  While some Sage Partners may be enticed by NetSuite’s revenue sharing, the real issue for many end-user companies remains whether or not they are ready to make a jump to the cloud – and whether the business case makes sense for them.

HCL AXON Expands Vertical, Geographic Footprint With UCS Group Deal

Building on the 2008 acquisition of Axon, HCL Technologies announced Thursday a strategic partnership with UCS Group, and a deal of up to USD 18.5 million to take over its SAP practice. The acquisition adds to HCL AXON's strength in implementation areas related to SAP and process consulting in the retail and wholesale industry. HCL AXON presently boasts process consulting expertise in industries including public sector, aerospace & defense, oil & gas, and transportation.

This acquisition also expands HCL Axon’s global footprint. While the acquisition of UK-based Axon boosted its European market presence, HCL AXON's business is predominantly in North America and Asia Pacific. UCS Group will give HCL AXON a strong presence in South Africa.

Look out for Forrester's latest SAP Implementation Providers Wave, which evaluates 19 vendors across 60+ criteria including vertical expertise, global presence, and ability to provide best-in-class services for all portions of an implementation and each of the service areas. The Wave is set to publish in August.