Software-as-a-Service (SaaS)

Software-as-a-Service (SaaS) expands the limits of outsourcing even as it shakes up the traditional governance role played by IT executives. Will sourcing professionals inherit the burden of sourcing or managing on-demand software initiatives?

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Page 4 of 4

Enterprise-wide Adoption

Innovations notwithstanding, there are two major challenges that are still to be met by SaaS providers: Enterprise-level integration, including connecting to legacy systems and provision of and adherence to better service levels.

SaaS, at the end of the day, is a service. And it has to be delivered and measured by using typical service industry-parameters. The providers have to think like service providers. “They have to be service-oriented,” says McNee.

Typical ISVs have to deliver on functionality and ability to solve business problems. It is difficult for them to think like service providers at the back-end. While the pure-play SaaS providers still are comfortable with the idea, the large ISVs like Microsoft and Oracle who are now seriously charting out their SaaS roadmap, have never gotten their hands dirty with integration, leaving it to the service providers and VARs. It is very difficult for them to change overnight and think like a service provider.

What can a global service provider do to help make SaaS happen on a global scale? “I see no reason why an Infosys, a Wipro or a Tata [TCS] cannot package this stuff,” says McNee. “They should get into the SaaS game, build on cheap infrastructure, leveraging open source and combine their own proprietary applications and offer it as SaaS to a client.”

That sounds absolutely radical, yet extremely logical. In fact, in its study, Saugatuck identifies IT service providers as a category of SaaS providers.

Arguably, IT service providers — and not just the offshore-based ones — have an edge in the SaaS game. Consider these arguments:

Where the global service providers cannot match the pure-play SaaS providers is in the depth of expertise in this type of development. But there is an age-old solution to this lack of expertise: Buy it. McNee actually expects a lot of mergers and acquisitions happening around the SaaS space. Especially for the India-based providers such as Infosys, TCS, Cognizant, Wipro and Satyam, it should not be too much of an issue, considering the huge acquisition currency available to them, thanks to their high valuations.

If that actually happens, the last barrier — the wall between software products and services — will fall. And that would be good news for the buyers of software, business and technology services.

There Is No Alternative to Strategy

For most enterprises, the challenge is to step back and consider a coherent, centralized SaaS strategy, while still allowing room for decentralized implementations in areas where that is needed. While the individual business units decide on their applications, they must conform to some common standards laid down by the central IT department. In short, there should be a SaaS/on-demand framework for the entire organization.

Such a framework is not just useful to prevent a financial disaster resulting from ERP integration issues. It is also useful to evaluate and deal with service providers in a uniform manner.

A SaaS strategy that involves the central IT department, adds business discipline to the sourcing and governance of SaaS providers. Many IT executives today possess some provider management and evaluation skills, a lot of which they have learned the hard way.

Also, there is too much emphasis on cost. In the Saugatuck study, most of the respondents said that reducing operational costs is the number one reason for SaaS implementation. But taking any new step with a cost-orientation at its core could be dangerous, as we have seen in the case of many severed outsourcing contracts. While cost savings is a key objective, service levels, reliability, governance and integration should not be overlooked while formulating and executing a SaaS implementation strategy. Sooner or later global sourcing expertise will come in handy here, too.

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