Posts Tagged ‘Sustainability’
Thinking of SaaS: Churn, Partner Channels, and SaaS Master Agreements
Recently I noted that SaaS vendors that specialize in business applications are attempting to roll out new programs to attract channel partners and reduce customer churn based on more stickiness in their contracts. One example is here. As such, I did some research around the web and found a really good blog here that is worth a read to the growing market of ERP, CRM and BI SaaS providers.
The blog articulates the three critical areas for SaaS vendor success, those being (and I quote):
1) Number and cost of prospects acquired
2) Velocity rate and conversion costs of turning prospects into customers
3) Churn Rate
Mr. Cleveland then goes on describing why addressing churn rate is crucial to long term success and as such it needs to be someone’s daily job. I wholeheartedly agree with this point.
In my most recent role with a very large software multi-national, I lived in a world where teams and virtual teams constantly mulled over business strategy, marketing execution, sales excellence, etc. More often than not these teams failed if there was not two things 1) a clear leader 2) a leader with authority.
The reason I feel this is important is that in a very recent discussion I had with a VP of Operations at a North American company that uses SaaS happened to comment the reasons they continue to stick with SaaS are:
1) the trust that the vendor can do the job better than they can (b/c its their focus);
2) the belief that SaaS is the future; but most importantly
3) they forged a strong relationship with the vendor and have someone accountable on their side if there is a problem.
It’s interesting to me that to address this that vendor’s might try to develop a partner network to displace this responsibility. Not to say it cannot work, but I question for how long? And how committed is the vendor to the partner and their ability to support the end customers?
Rather than SaaS customers waiting for vendors to define the engagement model that best suits them, it is my opinion that this is the best time for end-user and those ‘fence sitters’ that are starting to seriously consider SaaS to run, manage and secure business applications that they begin sharing ideas and examples of what assurance they needs/expect from a provider.
My advice for end-user when engaging a SaaS supplier, they need to ensure they have a master agreement of their expectations in place. A good starting place is here with the SaaS customer bill of rights. Take this very well written document and use it as a starting place for a SaaS Master Agreement template – potentially similar to current IT vendor/support Master Services Agreement that you may current have.
(update) I was referred to a document “All About Cloud ROI” can be accessed at http://www.itincanada.ca/itpublic/All_About_Cloud_ROI.pdf that outlines Cloud ROI that was brought to my attention by a reader. Thanks!
ERP Software-as-a-Service: Choosing the Duck versus the Chicken
Have you ever noticed the price premium of duck over chicken in restaurants?
There are many reasons (e.g. numbers raised in captivity, diversity of usage across products, cost to domesticate, maintenance, etc.) and I am sure you can come up with more on your own,. Fundamentally though, ducks and chickens are both birds and I imagine that if consumers wanted eat more duck that vast farms wouldn’t be outside of our capabilities.
Nonetheless, comparing the domestication of common water fowl versus a staple of our diet isn’t the purpose of this blog. (And yes, I did both Bing and Google my question and did not find a discrete answer. Has nobody but me wondered this question?) Rather my analogy came to me on my walk home as I was thinking about a debate I listened to and read/researched about today.
The latest in the ERP SaaS debate arose from recent research released by the Panorama Consulting Group and was commented on by others. The report stated, “Software as a Service (SaaS) implementations take less time than on-premise ERP, but deliver less benefits: 6.2% vs. 6.9% cost as a percentage of sales, and nearly 50% less likely to deliver expected business benefits.” These concerns were not new and after a simple search I found older posts on this topic (see reference below).
In response to Panorama’s release and webcast, vendors on both sides of the SaaS discussion began promote their views. As an analyst, former ERP product manager, and marketer I can see why the arguments on each side make sense, but fundamentally (repeated from paragraph 1) I think that there will be fewer and fewer large, intricate on-premise ERP implementations over the coming decade. The challenge then becomes not whether the vendor has ERP SaaS solutions, rather how their approach fits the needs the customer is seeking to address.
In my analogy, the ‘duck’ represents more complex line-of-business SaaS offerings that integrate into existing systems and can be entwined with other systems via industry standard (.Net or J2EE) code or in some cases proprietary legacy code. Think of the later as that layer of fat on a duck beast that needs to be cooked perfectly to create that flavour and texture worth paying a premium for – or in the context of an business application it represents the custom tailoring to generate competitive advantage.
Meanwhile ‘the chicken’ in most cases may be the ERP SaaS for the rest of us. It’s not as glamorous as the duck, but do we really need it? This version of ERP SaaS will be easier to deploy and something more apt to be ‘just turned on’ to deliver just in time, flexible, yet secure business application services to our users. Think of this as the ERP SaaS that addresses the commodity part of the market – currently serviced by a wide variety of packaged financial, billing, accounting and payroll applications. This version will offer simple core functionality, but will be dressed up by vendors, partners and end-user that are then able to share their customizations and tweaks within their organization and across others.
From a consultant or integrator’s perspective, the duck will always be a better choice than the chicken. Yet, for the customer while the exotic nature of the former may seem enticing, often the needs of the organization may be better suited to choosing the later and leaving room for other investments that can improve the implementation, adoption and sustaining of their business application needs.
Research shows we are still at the early stage of ERP SaaS and while certain parts of the ERP portfolio are commoditizing (core financials, accounting, etc) other business applications components are continuing to provide significant value to an organization (lean manufacturing, quality management, global sourcing and inventory management, etc). As such, vendors and their partners should work together to outline roadmaps that assure customers their current and future investments are sound. Clarity is a key to customer satisfaction.
In the customer’s eyes, the ‘hero vendors’ will offer a choice of how to deploy, support and integrate a mixed ERP environment that grows (and contracts) with the needs of the business. Successful ERP SaaS solutions will allow customers and their partners to invest in standards based technologies to amplify the usage of the commodity components (e.g. extending financial data to line of business professionals) in a format that ‘makes sense’ to their users. At the same time, more complex ERP SaaS solutions will be deployed to meet the needs of select requirements (e.g. discrete operations modules for pharmaceuticals). These SaaS solutions will be sought after as both on-premises and via the cloud.
Customer and vendors can benefit from both versions of the ERP SaaS as they share the benefits of high quality solutions while mitigating costs. Moreover they can deploy solutions more equitably throughout their business and ensure many of the latest innovations are applied seamlessly. In fact by adopting the cloud approach to SaaS, both ERP vendors and customers may benefit from the network effect of innovation at fractional costs.
In conclusion, it my opinion that the choice the customer makes should be based on the relevance and business need to move, consolidate, rip and replace their current business application for something new. None of the current business assessments, benchmarking, research/consulting efforts should be foregone with the expectation that an ERP SaaS will deliver the goods without equitable investment on the parts of all parties. The market is evolving and there are choices out there to fulfill different needs and expectations and often the choice that is most appealing may also draw a higher level of scrutiny resulting in greater opinions on satisfaction. So consider your needs and willingness to take risk and the ability of your organization from its IT department to its users to stomach the exotic versus the staple.
References:
http://www.sdn.sap.com/irj/scn/weblogs?blog=/pub/wlg/17888
http://panorama-consulting.com/saas-vs-on-premise-erp-software-understanding-fact-and-fiction/
http://mybibeat.wordpress.com/2009/09/27/is-saas-right-for-your-business/
http://www.successfactors.com/company/technology/
http://seekingalpha.com/article/149603-why-gartner-s-saas-satisfaction-survey-is-misleading
http://www.gartner.com/it/page.jsp?id=1062512
http://www.crmforecast.com/tco.htm
http://news.cnet.com/8301-13846_3-10453066-62.html
http://en.wikipedia.org/wiki/Duck
http://en.wikipedia.org/wiki/Chicken
SAP’s One-Two Punch
SAP’s non-renewing of Leo Apotheker’s contract and subsequent replacement with the appointed of Bill McDermott, head of field organization; and Jim Hagemann Snabe, head of product development has raised many questions about SAP, it’s future and impact this might have on customers.
While I don’t pretend to have all of the answers, I do feel this is a positive move for the company, its shareholders and the market in general. Why?
Well as for Mr. Apotheker, he was a great contributor to SAP’s growth for over fifteen years and was key to developing the company into its leadership as a world-class enterprise business applications provider. It’s most recent focus on sustainability was overshadowed by the controversy of raising maintenance fees and the delays in SAP’s Business By Design SaaS ERP offering. Nonetheless my experiences hearing Leo articulate strategy and his focus on growth never led me to doubt that SAP would continue to grow with him at the helm. I wish him well.
Nonetheless, the markets have changed. The global recession hit everyone hard, but especially the global manufacturing and supply chain sectors. Also known as SAP’s bread and butter. While I have seen SAP successfully win share from Oracle (and others) in finance and energy sectors, they have only begun to grow in the midmarket and lag in areas of collaboration tools and partnerships.
Enter the two rising stars. Since the departure of Shai Agassi in 2007, Bill McDermott and Jim Snabe have both been on everyone’s radar as the heir apparent. Both of these two gentlemen have incredible talents in growing the business (McDermott) and with the new technology trends of the current decade (Snabe).
Given SAP’s focus on competing with Oracle, Infor, Microsoft, and others, having a person like McDermott at the helm promises a very competition and customer savvy change that SAP may very well need – at least in the eyes of many of its customers and stakeholders – in order to remain independent and continue to attract new business. Combine this with Snabe’s technology savvy skills that are crucial to leading SAP’s charge into both hosted line of business offerings for large and midsized organizations – and you may very well have a company ready (once again) to engage its competition with teeth barred.
In my opinion, the real question is the role Hasso Plattner will play in grooming, developing and allowing these two leaders to co-exist and grow the organization.
It’s my opinion to get SAP re-engaged in the eyes of the market that these two leaders must show a unified front, play to one another’s strengths, and manage the corporate culture change that will ensue. Ensuring that top talent continues to grow at SAP all the while being more aggressive in seeking innovation from outside rather than defaulting to home grown whenever possible will be key. SAP must boost its education efforts which have lagged and work to attract more engineers to its platform and promote further integration with industry and role-based technologies.
If I were a customer of SAP, I would not worry about the investments you’ve made. Rather I would look forward to a re-invigorated competitor with two very capable helmsmen. (After all this has worked for Oracle for quite some time.) SAP will be out to prove its business value its software brings, bring new hosted solutions to mid and large organizations so that deployment becomes more timely and effective in helping get the job done, and work more collectively with other market leads in adjacent sectors (collaboration, CRM, unified communications, etc) to give business assurance that interoperability and standards will make it easier for them to deploy and grow.
